As filed with the Securities and Exchange Commission on September 15, 1998.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SEACOAST FINANCIAL SERVICES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Massachusetts 6712 04-1659040
(State or Other Jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer Identification No.)
Incorporation or Organization) Code Number)
</TABLE>
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
Seacoast Financial Services Corporation
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
(617) 832-1000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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. [ ] _____________________________________________________
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
Proposed
Proposed Maximum
Title Of Each Class Maximum Aggregate
Of Securities To Amount to be Offering Price Offering Amount Of
Be Registered Registered Per Unit(2) Price(2) Registration Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value............... 12,791,539(1) $57.8125 $115,548,571.88 $34,086.83(2)
===============================================================================================================================
</TABLE>
- ---------------
(1) Represents the maximum number of shares of Common Stock to be issued by
the Registrant in the proposed acquisition of Sandwich Bancorp, Inc.
(2) Estimated solely for the purpose of computing the registration fee. The
registration fee is calculated pursuant to Rule 457(f)(1) under the
Securities Act of 1933 based on the maximum number of shares of the
common stock, par value $1.00 per share, of Sandwich Bancorp, Inc. for
which the shares to be registered may be exchanged in connection with
Registrant's proposed acquisition of Sandwich Bancorp, Inc. and the
average of the bid and asked price of a share of the common stock, par
value $1.00 per share, of Sandwich Bancorp, Inc., reported in the Nasdaq
National Market System on September 10, 1998.
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>
[SANDWICH BANCORP LETTERHEAD]
September , 1998
Dear Stockholder:
It is my pleasure to invite you to attend a special meeting of the
stockholders of Sandwich Bancorp, Inc. ("Sandwich Bancorp") to be held on
_________, October , 1998, at : _.m. Eastern Time at the Ridge Club in
Sandwich, Massachusetts.
At the special meeting, we will ask our stockholders to consider and vote
on a proposal to approve an Amended and Restated Affiliation and Merger
Agreement (the "Merger Agreement") and the transactions contemplated thereby,
including the merger (the "Merger") of Sandwich Bancorp with a corporate
subsidiary of Seacoast Financial Services Corporation (formerly known as The
1855 Bancorp), the parent holding company of Compass Bank for Savings, New
Bedford, Massachusetts. In connection with and prior to the Merger, Seacoast
Financial will convert from a bank holding company in mutual form to a bank
holding company in stock form (the "Conversion"), and will offer shares of its
common stock at $10.00 per share in a subscription and community offering. The
consummation of the Merger is subject to various conditions, including
consummation of the Conversion, the receipt of all required regulatory
approvals and the receipt of the approval of the stockholders of Sandwich
Bancorp. The Merger is expected to be consummated in the fourth quarter of
1998, on the tenth trading day following consummation of the Conversion.
Subject to certain limitations, in accordance with the Merger Agreement,
you will receive a number of shares of common stock of Seacoast Financial for
each share of common stock of Sandwich Bancorp held by you in a tax-free
exchange, and cash in lieu of any fractional share of Seacoast Financial common
stock which you otherwise would be entitled to receive. The number of shares of
Seacoast Financial common stock you receive will be determined by application
of an exchange ratio (the "Exchange Ratio") which will be based upon the
average trading price of Seacoast Financial common stock during a period
following the consummation of the Conversion. 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").
Depending on the Seacoast Financial Trading Price and the Exchange Ratio,
the indicated value of the shares of Seacoast Financial Common Stock to be
received in exchange for each share of Sandwich Bancorp Common Stock could be
less than $64 per share or as high as $71.11 per share. If the Seacoast
Financial Trading Price is between $10.01 and $13.50, the Exchange Ratio will
be between 6.3936 and 4.7407 (determined by dividing $64.00 by the Seacoast
Financial Trading Price), such that the indicated value of the shares of
Seacoast Financial Common Stock to be issued would be $64 per share of Sandwich
Bancorp Common Stock. If the Seacoast Financial Trading Price is between $13.51
and $15.00, the Exchange Ratio will be fixed at 4.7407, such that the indicated
value of the shares of Seacoast Financial Common Stock to be issued would be
between $64.05 and $71.11 per share of Sandwich Bancorp Common Stock. 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), such that the indicated value of the shares of Seacoast
Financial Common Stock to be issued would be $71.11 per share of Sandwich
Bancorp Common Stock. If the Seacoast Financial Trading Price is equal to or
less than $10.00 per share, the Exchange Ratio will be fixed at 6.4000, such
that the indicated value of the shares of Seacoast Financial Common Stock to be
issued would be $64 or less per share of Sandwich Bancorp Common Stock.
The Exchange Ratio was negotiated by our Board of Directors in light of
various factors. Sandler O'Neill & Partners, L.P., our financial advisor
("Sandler O'Neill"), has advised the Board of Directors that in Sandler
O'Neill's opinion the consideration to be received by Sandwich Bancorp's
stockholders in the Merger is fair to Sandwich Bancorp's stockholders from a
financial point of view.
The Board of Directors believes that the Merger is in the best interests
of our stockholders. ACCORDINGLY, THE BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AND RECOMMENDS THAT SANDWICH BANCORP'S STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE MERGER.
The accompanying Proxy Statement/Prospectus contains additional
information about the Merger. We urge you to read and consider it carefully. It
is very important that your shares be represented at the special meeting,
<PAGE>
whether or not you plan to attend in person. Because the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Sandwich
Bancorp common stock is required for approval of the Merger, A FAILURE TO VOTE
WOULD HAVE THE EFFECT OF A VOTE AGAINST THE MERGER.
Please take the time to consider this important matter and vote now. In
order to make sure that your vote is represented, indicate your vote on the
enclosed proxy card, date and sign it and return it to us in the enclosed
postage-paid envelope. If you attend the special meeting in person, you may
revoke your proxy at the meeting and vote in person.
ON BEHALF OF THE BOARD OF DIRECTORS, I THANK YOU FOR YOUR SUPPORT AND URGE
YOU TO VOTE "FOR" APPROVAL OF THE MERGER.
Sincerely,
FREDERIC D. LEGATE
President and Chief Executive Officer
* PLEASE DO NOT SUBMIT STOCK CERTIFICATES AT THIS TIME *
<PAGE>
SANDWICH BANCORP, INC.
100 Old Kings Highway
Sandwich, Massachusetts 02563
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER , 1998
Notice is hereby given that a special meeting (the "Special Meeting") of
the stockholders of Sandwich Bancorp, Inc. ("Sandwich Bancorp"), the holding
company for The Sandwich Co-operative Bank ("Sandwich Bank"), will be held on
________, October , 1998 at : _.m. Eastern Time at the Ridge Club in
Sandwich, Massachusetts, for the purpose of considering and acting upon the
following matters:
1. Approval of the Merger. The approval of an Amended and Restated
Affiliation and Merger Agreement (the "Merger Agreement") among Sandwich
Bancorp, Sandwich Bank, The 1855 Bancorp (now known as "Seacoast Financial
Services Corporation" and referred to herein as "Seacoast Financial") and
Compass Bank for Savings, a wholly owned subsidiary of Seacoast Financial, and
the transactions contemplated thereby, including the merger of Sandwich Bancorp
with a corporate subsidiary of Seacoast Financial (the "Merger"), pursuant to
which each outstanding share of Sandwich Bancorp common stock, other than
shares held by any dissenting stockholders or by Seacoast Financial and any
subsidiary, will convert into and become exchangeable for shares of common
stock of Seacoast Financial.
2. Other Business. The transaction of such other business as may properly
come before the Special Meeting or any adjournments or postponements thereof,
including any proposals to adjourn the Special Meeting to permit further
solicitation of proxies by the Board of Directors in the event that there are
not sufficient votes to approve the Merger at the time of the Special Meeting.
The Board of Directors is not aware of any other business to come before the
Special Meeting.
Pursuant to Sandwich Bancorp's By-Laws, the Board of Directors has set
September 3, 1998 as the record date for the determination of the holders of
Sandwich Bancorp common stock entitled to notice of and to vote at the Special
Meeting and any adjournments or postponements thereof.
If the Merger Agreement is approved by the stockholders of Sandwich
Bancorp at the Special Meeting and the Merger is consummated, any Sandwich
Bancorp stockholder (i) who files with Sandwich Bancorp before the taking of
the vote on the approval of the Merger Agreement written objection to the
proposed Merger stating that he or she intends to demand payment for his or her
shares if the Merger is consummated and (ii) whose shares are not voted in
favor of such action has or may have the right to demand in writing from
Seacoast Financial (as it exists after the Merger), within twenty days after
the date of mailing to him or her of notice in writing that the Merger has been
consummated, payment for his or her shares and an appraisal of the value
thereof. Sandwich Bancorp and any such stockholder shall in such cases have the
rights and duties and shall follow the procedure set forth in Sections 85 to
98, inclusive, of Chapter 156B of the General Laws of Massachusetts, copies of
which are attached hereto at Appendix C to the accompanying Proxy
Statement/Prospectus. See "The Proposed Merger--Dissenters' Rights" in the
Proxy Statement/Prospectus for more information.
If you have any questions or require assistance, please call either us at
1-800-292-9222 or Morrow & Co., which is assisting us in the solicitation of
proxies, at 1-800-566-9061.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Dana S. Briggs
Dana S. Briggs
Secretary
IMPORTANT:
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE. NO POSTAGE IS REQUIRED FOR MAILING IN
THE UNITED STATES.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information ............................................................. 4
Incorporation by Reference ........................................................ 4
Forward-Looking Statements......................................................... 5
Summary ........................................................................... 6
Sandwich Bancorp Common Stock Price and Dividend Information ...................... 16
Selected Consolidated Financial and Other Data of Seacoast Financial .............. 17
Selected Consolidated Financial and Other Data of Sandwich Bancorp ................ 20
Selected Unaudited Pro Forma Consolidated Financial Data of Seacoast Financial .... 22
Recent Developments ............................................................... 24
Risk Factors ...................................................................... 28
Special Meeting Information ....................................................... 33
The Proposed Merger ............................................................... 35
Pro Forma Data .................................................................... 49
Regulatory Capital Compliance ..................................................... 62
Capitalization .................................................................... 63
Use of Proceeds of Conversion ..................................................... 65
Seacoast Financial's Dividend Policy .............................................. 66
Market for Seacoast Financial Common Stock ........................................ 66
Seacoast Financial and Subsidiary Consolidated Statements of Income ............... 67
Management's Discussion and Analysis of Financial Condition and
Results of Operations of Seacoast Financial ...................................... 68
Business of Seacoast Financial .................................................... 82
Business of Compass ............................................................... 83
Certain Effects of the Merger on Seacoast Financial ............................... 110
The Conversion and the Merger ..................................................... 113
Federal and State Taxation of Seacoast Financial and Compass ...................... 132
Regulation of Seacoast Financial and Compass ...................................... 134
Management of Seacoast Financial and Compass ...................................... 141
Purchases by Management of Seacoast Financial and Compass ......................... 149
Description of Capital Stock of Seacoast Financial ................................ 150
Certain Differences in the Rights of Stockholders ................................. 151
Transfer Agent and Registrar for Seacoast Financial Common Stock .................. 159
Legal Opinions .................................................................... 159
Experts ........................................................................... 159
Stockholder Proposals ............................................................. 159
Inquiries ......................................................................... 159
Consolidated Financial Statements of Seacoast Financial Services Corporation
and Subsidiary F-1
Appendix A--Affiliation and Merger Agreement and Exhibits ......................... A-1
Appendix B--Opinion of Sandler O'Neill & Partners, L.P. ........................... B-1
Appendix C--Dissenters' Rights Statute ............................................ C-1
</TABLE>
<PAGE>
SANDWICH BANCORP, INC.
100 Old Kings Highway
Sandwich, Massachusetts 02563
PROXY STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER , 1998
----------------
PROSPECTUS FOR SEACOAST FINANCIAL SERVICES CORPORATION
Common Stock, $.01 par value
----------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to you in connection
with the solicitation of proxies by the Board of Directors of Sandwich Bancorp,
Inc. ("Sandwich Bancorp"), the holding company for The Sandwich Co-operative
Bank ("Sandwich Bank"), for use at a Special Meeting (including any adjournment
or postponement thereof) (the "Special Meeting") of stockholders of Sandwich
Bancorp to be held on October , 1998 at : .m. Eastern Time at the Ridge
Club in Sandwich, Massachusetts.
At the Special Meeting, the stockholders of Sandwich Bancorp will consider
and vote on a proposal to approve an Amended and Restated Affiliation and
Merger Agreement (the "Merger Agreement") and the transactions contemplated
thereby, including the merger (the "Merger") of Sandwich Bancorp with a
corporate subsidiary of Seacoast Financial Services Corporation (formerly known
as The 1855 Bancorp) ("Seacoast Financial"), the parent holding company of
Compass Bank for Savings, New Bedford, Massachusetts ("Compass"). In connection
with and prior to the Merger, Seacoast Financial will effect a full conversion
from a bank holding company in mutual form to a bank holding company in stock
form (the "Conversion"), and will offer shares (the "Conversion Shares") of its
common stock, par value $.01 per share ("Seacoast Financial Common Stock"), at
$10.00 per share in a subscription and community offering. The completion of
the Merger is subject to various conditions, including completion of the
Conversion, the receipt of all required regulatory approvals and the receipt of
the approval of the stockholders of Sandwich Bancorp. The Merger is expected to
be completed in the fourth quarter of 1998, on the tenth trading day following
completion of the Conversion.
In the Merger, the stockholders of Sandwich Bancorp will receive a number
of shares of Seacoast Financial Common Stock for each of their shares of the
common stock, par value $1.00 per share, of Sandwich Bancorp ("Sandwich Bancorp
Common Stock") in a tax-free exchange, and cash in lieu of any fractional share
of Seacoast Financial Common Stock which such stockholders otherwise would be
entitled to receive. The number of shares of Seacoast Financial Common Stock a
stockholder will receive will be determined by application of an exchange ratio
(the "Exchange Ratio") which will be based upon the average trading price of
Seacoast Financial Common Stock on certain specified days between the
consummation of the Conversion and the consummation of the Merger (the
"Seacoast Financial Trading Price").
The following table shows the Exchange Ratio at various Seacoast Financial
Trading Prices, together with the "Per Sandwich Bancorp Share Value" (as such
term is defined below) in each case. The "Per Sandwich Bancorp Share Value" is
determined by multiplying the Seacoast Financial Trading Price by the
applicable Exchange Ratio, and represents the indicated value of the shares of
Seacoast Financial Common Stock that would be received in the Merger for each
share of Sandwich Bancorp Common Stock. The Seacoast Financial Trading Price
will be determined by averaging the closing bid and asked prices 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. (Seacoast Financial has received conditional approval to have its
common stock quoted on the Nasdaq National Market, subject to the completion of
the Conversion and certain other conditions.) The actual market price of
Seacoast Financial Common Stock at the time that the Merger is consummated (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 following table:
<PAGE>
<TABLE>
<CAPTION>
Seacoast Financial
Trading Price Exchange Ratio Per Sandwich Bancorp Share Value
- ----------------------- -------------------------------------------- ---------------------------------
<S> <C> <C>
More than $15.00 Less than 4.7407 $71.11
($71.11 [divided by] 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 [divided by] Seacoast Financial
Trading Price)
$10.00 or less 6.4000 $64.00 or less
(6.4000 x Seacoast Financial
Trading Price)
</TABLE>
In addition, Sandwich Bancorp has adopted The Sandwich Bank 1986 Stock
Option Plan and The Sandwich Bank 1994 Stock Option and Incentive Plan (the
"Sandwich Stock Option Plans"). At the Merger Effective Time, each stock option
("Sandwich Option") under the Sandwich Option Plans will be automatically
converted into and exchangeable for a number of shares of Seacoast Financial
Common Stock calculated by subtracting the per share exercise price of such
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 aggregate shares of Seacoast Financial Common Stock issuable in
exchange for the Sandwich Bancorp Common Stock and the Sandwich Option are
referred to herein as the "Exchange Shares."
For further information about the Merger Agreement and the terms of the
Merger, see "Summary--The Proposed Merger," which includes a graph depicting
the pricing mechanism, "The Proposed Merger" and "The Conversion and the
Merger--Description of the Merger Agreement."
The Sandwich Bancorp Common Stock is quoted on the Nasdaq National Market.
The last reported sale price of the Sandwich Bancorp Common Stock on January
30, 1998, the last trading date before the announcement of the Merger Agreement
in its original form, was $43.50 per share, the last reported sale price of the
Sandwich Bancorp Common Stock on March 20, 1998, the last trading date before
the announcement of the Merger Agreement as amended and restated, was $57.00
per share, and the last reported sale price of the Sandwich Bancorp Common
Stock on September 11, 1998, a recent trading date before the date hereof, was
$58.00 per share. For additional information, see "Sandwich Bancorp Common
Stock Price and Dividend Information."
The Exchange Ratio was negotiated by the Board of Directors of Sandwich
Bancorp in light of various factors, including Sandwich Bancorp's and Seacoast
Financial's recent operating results, current financial conditions and perceived
future prospects. Sandler O'Neill & Partners, L.P., Sandwich Bancorp's financial
advisor ("Sandler O'Neill"), has advised the Board of Directors that in Sandler
O'Neill's opinion, as of the date of this Proxy Statement/Prospectus, the
consideration to be received by Sandwich Bancorp's stockholders in the Merger is
fair to such stockholders from a financial point of view.
THE SHARES OF SEACOAST FINANCIAL COMMON STOCK OFFERED HEREBY INVOLVE A
DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 28.
THE ABOVE MATTERS ARE DISCUSSED IN THIS PROXY STATEMENT/ PROSPECTUS. THE
PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY.
THE SHARES OF SEACOAST FINANCIAL COMMON STOCK OFFERED HEREBY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND ARE NOT DEPOSITS OR
OTHER OBLIGATIONS OF, OR GUARANTEED BY, COMPASS.
THE SEACOAST FINANCIAL COMMON STOCK THAT WOULD BE ISSUED IN THE MERGER HAS
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
2
<PAGE>
COMMISSION OR ANY STATE SECURITIES AUTHORITY, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES AUTHORITY PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
All information contained in this Proxy Statement/Prospectus with respect
to Seacoast Financial and its subsidiaries has been supplied by Seacoast
Financial, and all information with respect to Sandwich Bancorp and its
subsidiaries has been supplied by Sandwich Bancorp.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus and, if given
or made, such information or representation should not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer
to sell, or a solicitation of an offer to purchase, the securities offered by
this Proxy Statement/Prospectus, in any jurisdiction, to any person to whom it
is unlawful to make such offer or solicitation of an offer in such
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of Seacoast
Financial or Sandwich Bancorp or any of their respective subsidiaries, or in
the information set forth herein, since the date of this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus does not cover any
resales of Seacoast Financial Common Stock received by stockholders who are
affiliates of Seacoast Financial or Sandwich Bancorp, within the meaning of
applicable securities laws, upon the consummation of the Merger, and no person
is authorized to use this Proxy Statement/ Prospectus in connection with any
such resale.
This Proxy Statement/Prospectus also constitutes a prospectus of Seacoast
Financial for up to 12,791,539 shares of Seacoast Financial Common Stock
issuable in connection with the Merger.
* PLEASE DO NOT SUBMIT STOCK CERTIFICATES AT THIS TIME *
The date of this Proxy Statement/Prospectus is ________________, 1998.
3
<PAGE>
AVAILABLE INFORMATION
Seacoast Financial has filed with the Securities and Exchange Commission
(the "SEC") a Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Exchange Shares offered hereby and has also filed a Registration
Statement on Form S-1 with respect to shares offered in the Conversion. As
permitted by the rules and regulations of the SEC, this Prospectus/Proxy
Statement 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 of 1934, as
amended (the "Exchange Act"), pursuant to Rule 15(d) of such Act. Sandwich
Bancorp also 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.
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 Plan of Conversion pursuant to which Seacoast Financial will effect the
Conversion (the "Conversion Plan"), Seacoast Financial has undertaken that it
will not terminate such registration for a period of at least three years
following the Conversion.
Copies of the Articles of Organization and By-Laws of Seacoast Financial
are available without charge from Seacoast Financial by contacting Francis S.
Mascianica, Treasurer, at 791 Purchase Street, New Bedford, Massachusetts 02740
or at (508) 984-6000.
INCORPORATION BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference the documents
set forth below, which are not presented herein or delivered herewith. These
documents (other than exhibits not incorporated by reference in such documents)
are available to stockholders without charge upon written or oral request to
Dana S. Briggs, Secretary, Sandwich Bancorp, Inc., 100 Old Kings Highway,
Sandwich, Massachusetts 02563, or by telephone request to (508) 888-0026.
Persons requesting copies of exhibits which are not specifically incorporated
by reference in such documents may be charged the cost of reproduction and
mailing. In order to ensure timely delivery of the documents, any request
should be made by , 1998.
The following documents previously filed with the SEC by Sandwich Bancorp
(File No. 0-23149) pursuant to the Exchange Act are incorporated herein by
reference:
(i) Annual Report of Sandwich Bancorp on Form 10-K for the year ended
December 31, 1997;
(ii) Quarterly Report of Sandwich Bancorp on Form 10-Q for the quarter
ended March 31,1998;
(iii) Amendment to Quarterly Report of Sandwich Bancorp on Form 10-Q/A for
the quarter ended March 31, 1998;
4
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(iv) Quarterly Report of Sandwich Bancorp on Form 10-Q for the quarter
ended June 30,1998; and
(v) Current Reports of Sandwich Bancorp on Form 8-K dated February 5,
1998, February 18, 1998 and February 24, 1998.
All documents filed by Sandwich Bancorp with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement/Prospectus and in the documents
incorporated by reference herein constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Further, any statements contained in or incorporated into this
Proxy Statement/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 Proxy
Statement/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.
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SUMMARY
The following is a brief summary of certain information set forth, or
incorporated by reference, in this Proxy Statement/Prospectus. This summary is
necessarily general and abbreviated and has been prepared to assist
stockholders in their review of this Proxy Statement/Prospectus. This summary
is not intended to be a complete explanation of the matters covered in this
Proxy Statement/Prospectus and is qualified in all respects by reference to the
more detailed information contained elsewhere in this Proxy
Statement/Prospectus, the accompanying Appendices and the documents
incorporated herein by reference, which stockholders are urged to read
carefully.
Special Meeting Information
The Special Meeting will be held on October , 1998 at : _.m. Eastern
Time at the Ridge Club in Sandwich, Massachusetts. At the Special Meeting,
holders of record of shares of Sandwich Bancorp Common Stock as of September 3,
1998 (the "Record Date"), will consider and act upon (i) the approval of the
Merger Agreement and the transactions contemplated thereby, including the
Merger, pursuant to which each outstanding share of Sandwich Bancorp Common
Stock (other than shares held by any dissenting stockholders or by Seacoast
Financial and any subsidiary) will be converted into and exchangeable for a
number of shares of Seacoast Financial Common Stock determined by application
of an Exchange Ratio and (ii) the transaction of such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof, including any proposals to adjourn the Special Meeting to permit
further solicitation of proxies by the Board of Directors in the event that
there are not sufficient votes to approve any proposal at the time of the
Special Meeting.
Stockholders of record at the close of business on the Record Date will be
entitled to one vote for each share then so held. At that date, Sandwich
Bancorp had 2,083,678 shares of Sandwich Bancorp Common Stock issued and
outstanding. The presence, in person or by proxy, of a majority of the total
number of outstanding shares of Sandwich Bancorp Common Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting. Shares of Sandwich Bancorp Common Stock represented by a proxy
properly signed and returned will be voted at the Special Meeting in accordance
with the instructions thereon. Where no instructions are indicated, signed
proxies will be voted "for" approval of the Merger Agreement and the
transactions contemplated thereby at the Special Meeting.
The presence of a stockholder at the Special Meeting will not
automatically revoke such stockholder's proxy. However, stockholders may revoke
a proxy at any time prior to its exercise by filing with the Secretary of
Sandwich Bancorp a written notice of revocation, by delivering to Sandwich
Bancorp a duly executed proxy bearing a later date or by attending the Special
Meeting and voting in person. Written notices of revoked proxies may be
directed to: Dana S. Briggs, Secretary, Sandwich Bancorp, Inc., 100 Old Kings
Highway, P.O. Box 959, Sandwich, Massachusetts 02563. See "Special Meeting
Information--Voting and Revocability of Proxies" and "--Voting Securities and
Security Ownership."
The Companies
Sandwich Bancorp and Sandwich Bank. Sandwich Bancorp is a bank holding
company registered with the Board of Governors of the Federal Reserve System
(the "FRB") and was organized as a Massachusetts business corporation in
connection with a reorganization of Sandwich Bank into a holding company form
of ownership, which reorganization was completed on September 30, 1997.
Sandwich Bancorp's business consists primarily of the business of Sandwich
Bank, and Sandwich Bancorp has no significant assets other than the capital
stock of Sandwich Bank.
At June 30, 1998, Sandwich Bancorp, on a consolidated basis, had total
assets of $531.0 million, total deposits of $444.8 million and stockholders'
equity of $44.6 million. At that date, Sandwich Bancorp and Sandwich Bank
employed approximately 128 full-time and 31 part-time 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. Sandwich Bank is a member of
the Federal Home Loan Bank of Boston (the "FHLB"), and its deposits are insured
by the Bank Insurance Fund ("BIF"), as administered by the Federal Deposit
Insurance Corporation ("FDIC"), up to the maximum amount permitted by law,
except that certain deposits that Sandwich Bank acquired from a savings
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association are insured by the Savings Association Insurance Fund ("SAIF"),
also administered by the FDIC. Funds in Sandwich Bank's deposits in excess of
FDIC insurance limits are insured by the Share Insurance Fund of The
Co-operative Central Bank, a deposit insuring entity for co-operative banks
chartered by The Commonwealth of Massachusetts. Sandwich Bank is subject to
comprehensive regulation and examination by the Massachusetts Commissioner of
Banks (the "Commissioner") and the FDIC.
The business of Sandwich Bank consists primarily of attracting deposits
from the general public and originating construction and permanent loans on
one- to four-family homes, consumer loans, home equity loans and commercial
loans 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 communities of Sandwich, South Sandwich, Buzzards Bay,
Pocasset, Falmouth, Hyannis, Chatham, Orleans and South Yarmouth and in the
southeastern Massachusetts communities 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, such as collateralized mortgage
obligations and mortgage-backed securities.
The principal sources of funds for Sandwich Bank's lending and investment
activities are deposits, loan payments and payoffs, investment income and
maturities, principal payments on investments, mortgage-backed securities and
collateralized mortgage obligations. As additional sources of funds, Sandwich
Bank has access to advances from the FHLB and other borrowings. Sandwich Bank's
principal sources of income are interest on loans, 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.
For additional information about the business, financial statements,
financial condition and results of operations of Sandwich Bancorp and Sandwich
Bank, see "Selected Consolidated Financial and Other Data of Sandwich Bancorp"
herein and Sandwich Bancorp's Annual Report on Form 10-K for the year ended
December 31, 1997 and Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998, which are incorporated herein by reference.
See "Incorporation by Reference."
Sandwich Bancorp's and Sandwich Bank's headquarters are located at 100 Old
Kings Highway, Sandwich, Massachusetts 02563. Their telephone number is (508)
888-0026.
Seacoast Financial and Compass. 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. 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 $5.3 million of
such securities as of May 31, 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, make a loan to the Compass Employee Stock Ownership Plan (the "ESOP")
to enable the ESOP to purchase Conversion Shares, and invest any funds it
holds. See "Business of Seacoast Financial" and "Use of Proceeds of
Conversion." 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.
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At May 31, 1998, Seacoast Financial, on a consolidated basis, had total
assets of $1,176.6 million, total loans (net) of $873.9 million, total deposits
of $982.4 million and total surplus of $106.5 million. Seacoast Financial also
had, as of the same date, a Tier 1 leverage capital ratio of 8.89% and a Tier 1
risk-based capital ratio of 12.44%.
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 four remote service ATMs. In addition, Compass's indirect
auto lending business extends into the State of Rhode Island through its
subsidiary, Compass Credit Corporation.
Compass's deposits are insured by the BIF up to the maximum amount
permitted by law, except that certain deposits that Compass acquired from a
savings association are insured by the SAIF. Deposit amounts in excess of FDIC
insurance limits are insured by the Depositors Insurance Fund (the "DIF"), a
deposit insuring entity for Massachusetts savings banks. 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 asset quality and control operating expenses.
Compass's business strategy has produced the following results:
o 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, 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.
o 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, at
May 31, 1998, one- to four-family residential loans represented 41.6% of
Compass's loan portfolio, indirect auto loans (net of unearned discount)
represented 28.0% of the portfolio and commercial real estate loans
represented 14.1% of the loan portfolio. The remainder of the portfolio
consists of commercial loans, construction loans and other consumer loans.
For a discussion of the added risks of Compass's diversification strategy,
see "Risk Factors--Construction, Commercial Real Estate, Commercial and
Indirect Auto Lending Risks." 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.
o 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, Plymouth is the largest town in
Massachusetts). Compass's business activities on Cape Cod are currently
limited. The addition of Sandwich Bank's nine
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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.
o Emphasizing Core Deposits. Compass attracts a substantial amount of money
market, NOW (checking), passbook and savings accounts, and
non-interest-bearing demand checking accounts. These accounts, which carry
a lower cost and generally represent a more stable source of funds than
certificate of deposit accounts, represented 48.4% of Compass's deposits
at May 31, 1998. Additionally, unlike certificate accounts, they provide
service fee income. Sandwich Bank's transaction accounts at June 30, 1998
represented 52.0% of Sandwich Bank's total deposits. Through its own and
Sandwich Bank's branch network, Compass will continue to emphasize
transaction accounts after the Merger. The weighted average rate paid on
Compass's deposits was 4.02% for the seven months ended May 31, 1998. For
Sandwich Bank, this rate was 3.78% for the six months ended June 30, 1998.
o Managing Overhead Expense. One of management's goals is to maintain a
reasonable efficiency ratio, which is the ratio of its non-interest
expense to the sum of net interest income and non-interest income. The
efficiency ratio has consistently improved since 1995, when it was 67.95%,
compared with 54.21% for the seven months ended May 31, 1998. Sandwich
Bancorp's efficiency ratio was 60.13% for the six months ended June 30,
1998.
o Maintenance of Asset Quality. Compass maintains a loan portfolio that is
diversified between residential mortgage, commercial, commercial real
estate and indirect auto loans and other consumer 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. For a discussion of the added risks
involved with non-residential lending, see "Risk Factors--Construction,
Commercial Real Estate, Commercial and Indirect Auto Lending Risks."
Compass pursues a diversified portfolio, while seeking to maintain asset
quality and moderate credit risk. At May 31, 1998, its ratio of
non-performing assets to total assets was 0.93%. The comparable ratio for
Sandwich Bank at June 30, 1998 was 0.56%.
For additional information about the business, financial statements,
financial condition and results of operations of Seacoast Financial and
Compass, see "Selected Consolidated Financial and Other Data of Seacoast
Financial," "Business of Seacoast Financial," "Business of Compass,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Seacoast Financial" and Seacoast Financial's Consolidated
Financial Statements attached to this Proxy Statement/Prospectus.
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 Conversion
Seacoast Financial is currently a bank holding company in mutual form, and
does not currently have the authority to issue capital stock. Consequently,
Seacoast Financial's obligation to effect the Merger (in which Seacoast
Financial Common Stock will be issued to the stockholders of Sandwich Bancorp)
is subject to a condition that Seacoast Financial shall have consummated the
Conversion, including an offering and sale of shares of the Conversion Shares
to Compass's depositors and others pursuant to applicable regulations governing
mutual-to-stock conversions. Seacoast Financial has agreed to take all
reasonable steps necessary to effect the Conversion and to use its best efforts
to satisfy the condition that the Conversion shall have been consummated prior
to the Merger.
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If the Conversion is not consummated by February 20, 1999 (subject to possible
extension), then Sandwich Bancorp may be entitled to receive a payment in the
amount of $6.0 million from Seacoast Financial under the Merger Agreement.
For additional information about the Conversion, see "The Conversion and
the Merger."
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."
Market for Seacoast Financial Common Stock
As a mutual holding company, 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 "SCFS," subject to the completion of the Conversion and compliance with
certain initial listing conditions. See "Market for Seacoast Financial Common
Stock."
The Proposed Merger
Pursuant to the Merger Agreement, Sandwich Bancorp will merge with a
corporate subsidiary of Seacoast Financial on the tenth trading day following
Seacoast Financial's Conversion from mutual to stock form, and it is expected
that thereafter Sandwich Bank will be merged with and into Compass. Upon the
consummation of the Merger, each outstanding share of Sandwich Bancorp Common
Stock (other than shares held by any dissenting stockholders or by Seacoast
Financial or any subsidiary) will be converted into and exchangeable for a
number of shares of Seacoast Financial Common Stock determined by application
of an Exchange Ratio, and cash in lieu of any fractional share of Seacoast
Financial Common Stock which Sandwich Bancorp's stockholders otherwise would be
entitled to receive.
Subject to certain limitations, 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 the 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.
Depending on the Seacoast Financial Trading Price and the resulting
Exchange Ratio, the indicated value of the shares of Seacoast Financial Common
Stock to be received in exchange for each share of Sandwich Bancorp Common
Stock could be less than $64.00 per share or as high as $71.11 per share. If
the Seacoast Financial Trading Price is between $10.01 and $13.50, the Exchange
Ratio will be between 6.3936 and 4.7407 (determined by dividing $64.00 by the
Seacoast Financial Trading Price), such that the indicated value of the shares
of Seacoast Financial Common Stock to be issued would be $64.00 per share of
Sandwich Bancorp Common Stock. If the Seacoast Financial Trading Price is
between $13.51 and $15.00, the Exchange Ratio will be fixed at 4.7407, such
that the indicated value of the shares of Seacoast Financial Common Stock to be
issued would be between $64.05 and $71.11 per share of Sandwich Bancorp Common
Stock. 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), such that the indicated value of the shares of
Seacoast Financial Common Stock to be issued would be $71.11 per
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share of Sandwich Bancorp Common Stock. If the Seacoast Financial Trading Price
is equal to or less than $10.00 per share, the Exchange Ratio will be fixed at
6.4000, such that the indicated value of the shares of Seacoast Financial
Common Stock to be issued would be $64.00 or less per share of Sandwich Bancorp
Common Stock. This pricing mechanism is depicted in tabular form in
"Introduction" and in the following graph:
SEACOAST FINANCIAL
Per Sandwich Bancorp Share Value
[Graph]
[Plot line ranges from 62.00 to $72.00 vertically and $8.50 to 16.00
horizontally]
- --------------------------------------------------------------------------------
If the Seacoast Financial Trading Price is $10.00 or less, Sandwich Bancorp
stockholders will receive 6.4 Exchange Shares for every one of their shares of
Sandwich Bancorp Common Stock, and the Per Sandwich Bancorp Share Value will
decrease proportionately.
(6.4000 x Seacoast Financial Trading Price)
- --------------------------------------------------------------------------------
If the Seacoast Financial Trading Price is between $10.01 and $13.50, inclusive,
the Per Sandwich Bancorp Share Value will remain constant at $64, and Sandwich
Bancorp stockholders will receive between 6.3936 and 4.7407 Exchange Shares for
every one of their shares of Sandwich Bancorp Common Stock, the Exchange Ratio
changing with changes in the Seacoast Financial Trading Price.
($64.00 [divided by] Seacoast Financial Trading Price)
- --------------------------------------------------------------------------------
If the Seacoast Financial Trading Price is between $13.51 and $15.00, inclusive,
Sandwich Bancorp stockholders will receive 4.7407 Exchange Shares for every one
of their shares of Sandwich Bancorp Common Stock, and the Per Sandwich Bancorp
Share Value will increase proportionately.
(4.7407 x Seacoast Financial Trading Price)
- --------------------------------------------------------------------------------
If the Seacoast Financial Trading Price is more than $15.00, the Per Sandwich
Bancorp Share Value will remain constant at $71.11, and Sandwich Bancorp
stockholders will receive less than 4.7407 Exchange Shares for every one of
their shares of Sandwich Bancorp Common Stock, the Exchange Ratio changing with
changes in the Seacoast Financial Trading Price.
($71.11 [divided by] Seacoast Financial Trading Price)
- --------------------------------------------------------------------------------
Seacoast Financial Trading Price
[End of Graph]
In addition, each Sandwich Bancorp Option will, as of the Merger Effective
Time, be automatically converted into and exchangeable for a number of shares
of Seacoast Financial Common Stock calculated by subtracting the per share
exercise price of such option from the product of the Seacoast Financial
Trading Price and the Exchange Ratio and dividing the result by the Seacoast
Financial Trading Price.
Consummation of the Merger is subject to the approval of the holders of at
least two-thirds of the outstanding shares of Sandwich Bancorp Common Stock,
the receipt of all required regulatory approvals, non-objections and other
clearances, including from appropriate Massachusetts and federal banking
authorities, and the satisfaction or waiver of various other conditions,
including the consummation of the Conversion resulting in net proceeds
sufficient to enable Compass to remain "well-capitalized" under applicable
federal banking law after consummation of the Merger. The Merger is expected to
be completed in the fourth quarter of 1998, on the tenth trading day following
completion of the Conversion.
THE BOARD OF DIRECTORS OF SANDWICH BANCORP HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR AND IN THE BEST INTERESTS OF SANDWICH BANCORP AND ITS STOCKHOLDERS. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
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For additional information about the Merger Agreement and its terms, see
"The Proposed Merger" and "The Conversion and the Merger."
Background of the Merger
In the fall of 1997, Frederic D. Legate, President of Sandwich Bank, began
having informal discussions with Kevin Champagne, President of Seacoast
Financial and Compass, regarding the benefits of a possible combination between
the two companies. In December 1997, Sandwich Bancorp received an unsolicited
letter from Cape Cod Bank & Trust Company, Hyannis, Massachusetts ("CCB&T"),
which conveyed CCB&T's interest in an acquisition of Sandwich Bancorp for a
price of "approximately $50 per share" in a stock for stock exchange. Sandwich
Bancorp's Board of Directors subsequently determined it would be advisable to
proceed with a process by which Sandler O'Neill would contact two additional
institutions (in addition to Compass and CCB&T): Independent Bank Corp., parent
holding company of Rockland Trust Company, Rockland, Massachusetts
("Independent"), and FirstFed America Bancorp, parent holding company of First
Federal Savings Bank of America, Fall River, Massachusetts ("FirstFed"), and
request that all four institutions provide Sandler O'Neill with an indication
of interest in a business combination with Sandwich Bancorp, as well as other
appropriate information.
After considering proposals from each of the four companies on February 2,
1998, Sandwich Bancorp executed an agreement with Compass, whereby it would
merge with Sandwich Bancorp, and each share of Sandwich Bancorp Common Stock
would be exchanged for $53 in cash, and press releases were issued by Sandwich
Bancorp and Compass. On February 17, 1998, President Legate received a letter
from CCB&T detailing a non-binding expression of interest of CCB&T to acquire
Sandwich Bancorp for a per share price of approximately $60 in a
stock-for-stock exchange. Subsequently, Sandwich Bancorp received letters from
FirstFed and Independent confirming their continued interest in a combination
with Sandwich Bancorp. On March 6, 1998, Sandwich Bancorp's Board of Directors
considered the revised proposals it had received. CCB&T proposed a price of $64
per share of Sandwich Bancorp Common Stock in the form of CCB&T common stock,
FirstFed proposed a stock-for-stock exchange at $62 per share within certain
price collars and Independent confirmed its previous offer and later dropped
out of the process. Subsequently, FirstFed chose not to continue in the
process. Meanwhile, Compass was considering the possibility of a full
mutual-to-stock conversion which would allow Compass to offer a higher price.
At meetings held on March 20 and 22, 1998, Compass received its Board's
corporate approvals to proceed with a full mutual-to-stock conversion and to
amend the February 2, 1998 agreement with Sandwich Bancorp to reflect, among
other things, a stock-for-stock exchange with the Sandwich Bancorp shareholders
having a transaction value of $64 per share, subject to adjustment. On March
23, 1998, the Merger Agreement with Compass was executed, and Sandwich Bancorp
and Compass issued a joint press release. At that time, Sandwich Bancorp and
the parent holding company for Compass, Seacoast Financial, also entered into a
stock option agreement granting to Seacoast Financial an option to acquire up
to 19.9% of Sandwich Bancorp's common stock under certain circumstances.
For additional information about the background of the Merger, see "The
Proposed Merger--Background of the Merger."
Reasons for the Merger and Recommendation of Sandwich Bancorp's Board of
Directors.
The Board of Directors of Sandwich Bancorp considered the Merger and the
terms of the Merger Agreement in light of economic, financial, legal and market
factors and concluded that the Merger is in the best interests of Sandwich
Bancorp and its stockholders and other constituencies. THE BOARD OF DIRECTORS
OF SANDWICH BANCORP UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
For additional information about the reasons for the Merger and the
recommendation of Sandwich Bancorp's Board of Directors with respect to the
Merger, see "The Proposed Merger--Reasons for the Merger and Recommendation of
the Sandwich Bancorp Board of Directors."
12
<PAGE>
Fairness Opinion of Sandler O'Neill
Sandler O'Neill provided to Sandwich Bancorp's Board of Directors a
written opinion dated March 23, 1998 to the effect that, as of such date, the
consideration to be received by Sandwich Bancorp's stockholders in the Merger
was fair to them from a financial point of view. A copy of Sandler O'Neill's
updated opinion as of the date hereof is attached hereto at Appendix B.
For additional information about Sandler O'Neill's opinion, see "The
Proposed Merger--Fairness Opinion of Sandler O'Neill."
Vote Required
Approval of the Merger Agreement and the transactions contemplated thereby
requires the affirmative vote of the holders of at least two-thirds of the
shares of Sandwich Bancorp Common Stock outstanding as of the Record Date.
Directors and executive officers of Sandwich Bancorp and their respective
affiliates had sole or shared voting power with respect to an aggregate of
310,524 shares of outstanding Sandwich Bancorp Common Stock (14.9% of such
stock) as of September 3, 1998. Seacoast Financial and Compass hold an
aggregate of 90,000 shares of outstanding Sandwich Bancorp Common Stock (4.3%
of such stock) as of September 3, 1998.
Seacoast Financial has entered into agreements (the "Voting Agreements")
with each member of the Board of Directors of Sandwich Bancorp, whereby each
such person has agreed to vote all shares of Sandwich Bancorp Common Stock that
he or she is entitled to vote in favor of the Merger Agreement.
For additional information about the vote required to approve the Merger
Agreement and the transactions contemplated thereby, see "Special Meeting
Information--Voting and Revocability of Proxies."
Dissenters' Rights
Under Massachusetts law, holders of Sandwich Bancorp Common Stock have the
right to dissent from the Merger and receive payment equal to the "fair value"
of their shares of such stock upon compliance with applicable provisions of
Massachusetts law, the full text of which is attached at Appendix C.
Stockholders intending to exercise dissenters' appraisal rights should
carefully review Appendix C. Failure to follow precisely any of the statutory
procedures set forth therein may result in a termination or waiver of these
rights.
For additional information about dissenters' rights, see "The Proposed
Merger--Dissenters' Rights."
Conditions to the Merger
Consummation of the Merger is subject to satisfaction of a number of
conditions, including approval by the stockholders of Sandwich Bancorp, the
receipt of all required regulatory approvals and the successful consummation of
the Conversion.
For additional information about conditions to completion of the Merger,
see "The Conversion and the Merger--Required Approvals" and "--Description of
the Merger Agreement--Conditions to the Merger."
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 agreements or conditions of the Merger Agreement, except that after
the Special Meeting there may not be, without further approval by Sandwich
Bancorp's stockholders, any amendment which reduces the amount or changes the
form of consideration to be delivered to such stockholders.
For additional information about amendments to and waivers in connection
with the Merger Agreement, see "The Conversion and the Merger--Description of
the Merger Agreement--Amendment and Waiver."
13
<PAGE>
Termination and Fees
The Merger Agreement may be terminated, either before or after stockholder
approval, by Sandwich Bancorp and/or Seacoast Financial under various
circumstances. In the event of termination upon a material failure to comply
with representations, warranties, covenants or other agreements contained in
the Merger Agreement as a result of willful conduct or gross negligence of a
party, that party may be obligated to reimburse the other party for up to $1.0
million of out-of-pocket costs and expenses. In certain circumstances,
principally related to a failure of the Conversion in the case of Seacoast
Financial or a third party acquiror disrupting the consummation of the Merger
in the case of Sandwich Bancorp, either party may be obligated to pay the other
party a fee in the amount of $6.0 million, inclusive of any reimbursable
amount.
For additional information about termination of the Merger Agreement and
fees in connection therewith, see "The Conversion and the Merger--Description
of the Merger Agreement--Termination and Termination Fees."
Board of Directors after the Merger
Subsequent to the Merger, the Board of Directors of Seacoast Financial
will consist of the individuals currently serving on the Board of Directors of
Compass (all of whom also currently serve as trustees of Seacoast Financial).
In addition, three current directors of Sandwich Bancorp will be added to the
Seacoast Financial Board, one of whom will be Frederic D. Legate and the other
two of whom will be designated by Seacoast Financial prior to the Merger, after
consultation with Sandwich Bancorp.
For additional information about the Board of Directors of Seacoast
Financial after the Merger, see "Management of Seacoast Financial and
Compass--Directors of Seacoast Financial."
Effect of the Merger on Employees and Benefit Plans
The employees of Sandwich Bancorp and its subsidiaries as of the Merger
Effective Time shall become employees of Seacoast Financial or a subsidiary
thereof as of that time. Any employee of Sandwich Bancorp or a subsidiary
thereof whose employment with Seacoast Financial or a subsidiary thereof is
terminated by Seacoast Financial within one year after the Merger Effective
Time will be entitled under the Merger Agreement to receive (i) a lump-sum
severance benefit in an amount equal to two-weeks' pay for each year of such
employee's employment, up to a maximum of 26 weeks' pay, and (ii) continuation
of certain health benefits for the same number of weeks. In addition, officers
of Sandwich Bancorp or a subsidiary who are participants in or parties to its
various employment contracts and other compensation plans and arrangements will
receive certain benefits thereunder.
For additional information about the effect of the Merger on employees and
their benefit plans, see "The Conversion and the Merger--Interests of Certain
Persons in the Merger."
Federal Income Tax Consequences
The following is a brief summary of anticipated material federal income
tax consequences of the Merger to the stockholders of Sandwich Bancorp. An
extended summary is set forth under the heading "The Conversion and the
Merger--Tax Aspects of Conversion and Merger." Each stockholder should read in
full the description of anticipated material federal income tax consequences
under that heading. Moreover, because of the complexities of the federal income
tax laws and because the tax consequences may vary depending upon a
stockholder's individual circumstances or tax status, stockholders are strongly
encouraged to consult with their personal tax advisors with respect to the
specific tax consequences of the Merger to them, including the tax consequences
of applicable federal, state, local, foreign or other laws.
Seacoast Financial and Sandwich Bancorp have received an opinion from
Foley, Hoag & Eliot LLP, counsel to Seacoast Financial ("FHE"), concerning
certain federal income tax consequences of the Merger. Seacoast Financial and
Sandwich Bancorp have provided FHE with facts, representations and assumptions
on which FHE relied in rendering its opinion. Based on such facts,
representations and assumptions, FHE has opined that, among other things, the
Merger, when consummated in accordance with the Merger Agreement and certain
related agreements, either will constitute or will be part of a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, it is expected that the Merger and the exchange
14
<PAGE>
of Sandwich Bancorp Common Stock for Seacoast Financial Common Stock will
generally be tax-free for Sandwich Bancorp stockholders.
Accounting Treatment
Seacoast Financial and Sandwich Bancorp expect to account for the Merger
according to 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. Seacoast Financial will be deemed to have
waived this condition if it purchases shares of Sandwich Bancorp Common Stock
between the date of the Merger Agreement and the date of consummation of the
Conversion, which will be the pre-closing date ("Pre-Closing Date") for the
Merger.
For additional information about the accounting treatment of the Merger,
see "The Conversion and the Merger--Conditions to the Merger" and "--Accounting
Treatment of the Conversion and Merger."
Surrender of Certificates
Promptly after the consummation of the Merger, holders of shares of
Sandwich Bancorp Common Stock will be notified in writing regarding the manner
in which their stock certificates may be submitted in exchange for their cash
payment. Sandwich Bancorp stockholders should not send their certificates to
Sandwich Bancorp or any other party to the Merger Agreement until so notified.
For additional information about the surrender of certificates, see "The
Conversion and the Merger--Delivery of Certificates--Exchange Shares."
Certain Differences in the Rights of Stockholders
Upon completion of the Merger, the stockholders of Sandwich Bancorp will
become stockholders of Seacoast Financial and their rights as such will be
governed by Seacoast Financial's Articles of Organization and By-Laws. The
rights of Sandwich Bancorp's stockholders currently are governed by Sandwich
Bancorp's Articles of Organization and By-Laws. The rights of stockholders of
Seacoast Financial will be different in certain respects from the existing
rights of Sandwich Bancorp's stockholders. 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.
For additional information about the differences in the rights of
stockholders of Seacoast Financial and Sandwich Bancorp, see "Certain
Differences in the Rights of Stockholders."
The Stock Option Agreement
In connection with execution of the Merger Agreement, Sandwich Bancorp and
Seacoast Financial executed a Stock Option Agreement (the "Stock Option
Agreement") pursuant to which Sandwich Bancorp granted Seacoast Financial an
option (the "Option") to purchase up to 387,107 authorized but unissued shares
of Sandwich Bancorp Common Stock (constituting approximately 16.7% of the
shares of Sandwich Bancorp Common Stock that would be outstanding following the
exercise of the Option) at a price of $57.00 per share, such number of shares
and exercise price being subject to adjustment under certain circumstances. The
Option is exercisable only upon the occurrence and continuation of certain
events that could jeopardize consummation of the Merger pursuant to the terms
of the Merger Agreement.
For additional information about the Stock Option Agreement, see "The
Conversion and the Merger--The Stock Option Agreement" and the text of the
Stock Option Agreement, which is attached to the Merger Agreement as Exhibit A,
which agreement is attached hereto at Appendix A.
Effects of the Merger on Management of Sandwich Bancorp
Upon the consummation of the Merger, Frederic D. Legate will retire as the
President and Chief Executive Officer and a director of Sandwich Bancorp, and
Seacoast Financial will take all necessary action to appoint Mr. Legate 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 of Directors and its executive committee. Mr. Legate and the two
directors to be
15
<PAGE>
designated will receive standard fees for such future service. Under the terms
of their employment and change of control agreements with Sandwich Bancorp, Mr.
Legate and Dana S. Briggs, George L. Larson and David A. Parsons, each a Senior
Vice President of Sandwich Bancorp, could receive severance payments of up to
approximately $1,021,942, $394,496, $420,870 and $320,202, respectively. Under
the terms of their employee stock options outstanding as of March 23, 1998 (the
date of execution of the Merger Agreement), the difference between the value of
stock options for Messrs. Legate, Briggs, Larson and Parsons (based upon an
assumed exchange value of $64.00 per share) and the exercise price of the stock
options held by each such person as of that date was approximately $2,241,299,
$970,605, $1,199,040 and $904,756 respectively. 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 directors and officers of Sandwich Bancorp, and Seacoast
Financial has agreed to provide certain indemnification and liability insurance
for Sandwich Bancorp's directors and officers.
For additional information about effects of the Merger on management of
Sandwich Bancorp, see "The Conversion and the Merger--Interests of Certain
Persons in the Merger."
SANDWICH BANCORP COMMON STOCK PRICE AND DIVIDEND INFORMATION
The Sandwich Bancorp Common Stock is traded on the Nasdaq National Market
under the symbol "SWCB." At the Record Date, September 3, 1998, there were
approximately 750 record holders of Sandwich Bancorp Common Stock, and
2,083,678 shares of Sandwich Bancorp Common Stock were issued and outstanding.
The following table sets forth the cash dividends declared by the Board of
Directors of Sandwich Bancorp on outstanding shares of Sandwich Bancorp Common
Stock and the range of high and low prices of such shares as quoted by the
Nasdaq National Market during the two most recent fiscal years and through
September 11, 1998 (prices before September 30, 1997 reflect prices of the
common stock of Sandwich Bank before its holding company reorganization
effective as of September 30, 1997). Stock price data on the Nasdaq National
Market reflect interdealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Price
Cash Dividends -----------------
Declared Per Share High Low
------------------ ------- -------
<S> <C> <C> <C>
1996:
First Quarter ..................... $ 0.25 $21-1/2 $17
Second Quarter .................... 0.25 21-1/8 18-3/4
Third Quarter ..................... 0.25 23-1/4 19-1/2
Fourth Quarter .................... 0.30 31-1/4 21-3/4
1997:
First Quarter ..................... 0.30 34-3/4 28
Second Quarter .................... 0.30 32 26-1/2
Third Quarter ..................... 0.30 39-3/4 30-1/4
Fourth Quarter .................... 0.35 45-1/4 33-3/4
1998:
First Quarter ..................... 0.35 64-3/4 41-1/4
Second Quarter .................... 0.35 64-1/2 62-3/4
Third Quarter
(through September 11, 1998) .... 0.35 63-3/4 55-3/4
</TABLE>
Seacoast Financial will not have any outstanding capital stock until after
the consummation of the Conversion and, as a result, has never paid any
dividends. See "Seacoast Financial's Dividend Policy."
16
<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 May 31, ---------------------------------------------------------------
1998 (1) 1997 1996 1995 1994 1993
------------ ------------- ------------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets .................................. $1,176,559 $1,106,590 $1,027,764 $983,975 $791,989 $705,734
Loans (2) ..................................... 884,422 820,197 748,113 676,007 509,868 451,114
Allowance for loan losses ..................... 10,508 10,642 10,334 9,850 7,002 6,000
Debt securities (3):
Available/held for sale ...................... 173,820 205,620 198,783 77,562 68,472 50,328
Held to maturity/held for investment ......... 13,649 12,633 11,752 153,805 160,856 143,923
Marketable equity securities (3) .............. 9,520 3,696 1,523 1,064 2,631 2,030
Deposits ...................................... 982,351 937,948 882,608 859,723 687,291 622,729
Borrowed funds ................................ 77,074 60,703 49,948 41,178 33,469 16,098
Surplus ....................................... 106,510 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 ................................... 2,317 1,614 174 16 (1,910) --
Non-performing loans .......................... 9,493 10,925 10,326 8,506 15,171 9,906
Non-performing assets ......................... 10,888 12,632 12,924 12,424 20,969 16,867
</TABLE>
<TABLE>
<CAPTION>
Seven months
ended May 31, 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 ................................ $49,990 $45,643 $80,032 $74,126 $66,472 $50,682 $51,215
Interest expense ............................... 25,032 22,652 39,831 37,245 34,539 23,280 23,314
------- ------- ------- ------- ------- ------- -------
Net interest income ........................... 24,958 22,991 40,201 36,881 31,933 27,402 27,901
Provision (credit) for loan losses ............. 536 890 1,865 1,166 (351) 2,524 3,838
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
(credit) for loan losses .................... 24,422 22,101 38,336 35,715 32,284 24,878 24,063
Gains (losses) on sales of securities, net ..... (3) 23 37 60 (84) 663 1,847
Other non-interest income ...................... 3,776 3,085 5,906 5,086 4,487 3,475 2,669
Other real estate owned expense, net ........... 138 293 519 644 1,072 1,026 1,560
Other non-interest expense ..................... 15,437 14,378 24,291 23,514 23,618 19,342 16,757
-------- ------- ------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of change in
accounting principle .......................... 12,620 10,538 19,469 16,703 11,997 8,648 10,262
Provision for income taxes ..................... 4,954 4,254 7,685 6,548 4,511 3,292 4,451
Cumulative effect of change in
accounting principle (4) ...................... -- -- -- -- -- -- 2,000
-------- ------- ------- ------- ------- ------- -------
Net income ..................................... $ 7,666 $ 6,284 $11,784 $10,155 $ 7,486 $ 5,356 $ 7,811
======== ======= ======= ======= ======= ======= =======
</TABLE>
(footnotes begin on following page)
17
<PAGE>
<TABLE>
<CAPTION>
Seven months
ended May 31, 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 ........................ 1.15% 1.03% 1.11% 1.02% 0.82% .71% 1.12%
Return on average surplus ....................... 12.63 12.03 12.73 12.63 10.57 8.42 13.74
Surplus to total assets at end of period ........ 9.05 8.52 8.87 8.26 7.58 8.23 8.75
Net interest rate spread (6) .................... 3.42 3.52 3.48 3.47 3.33 3.50 3.97
Net interest margin (7) ......................... 3.91 3.96 3.95 3.90 3.69 3.81 4.23
Average interest-earning assets to average
interest-bearing liabilities .................. 112.62 111.43 112.01 110.71 108.94 109.25 107.35
Total non-interest expense to average assets..... 2.34 2.41 2.33 2.42 2.70 2.66 2.69
Efficiency ratio (8) ............................ 54.21 56.21 53.77 57.48 67.95 64.58 56.50
Regulatory Capital Ratios (9):
Tier 1 leverage capital ......................... 8.89 8.44 8.60 8.13 7.35 8.14 8.72
Tier 1 risk-based capital ....................... 12.44 12.64 12.67 12.47 11.07 12.35 12.84
Total risk-based capital ........................ 13.69 13.89 13.92 13.73 12.31 13.69 14.09
Asset Quality Ratios:
Non-performing loans as a percent of
loans (10) .................................... 1.07 1.74 1.33 1.38 1.26 2.98 2.20
Non-performing assets as a percent of
total assets .................................. .93 1.47 1.14 1.26 1.26 2.65 2.39
Allowance for loan losses as a percent
of loans ...................................... 1.19 1.36 1.30 1.38 1.46 1.37 1.33
Allowance for loan losses as a percent of
total non-performing loans .................... 110.69 78.49 97.41 100.08 115.80 46.15 60.57
Number of Full Service Customer Facilities ....... 23 22 22 22 22 17 15
</TABLE>
- ------------
(1) The data presented at and for the seven months ended May 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 seven months ended
May 31, 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.
18
<PAGE>
(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 "Regulatory
Capital Compliance" and "Regulation of Seacoast Financial and
Compass--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, except
indirect auto loans and other consumer loans.
19
<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 incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
At December 31,
At June 30, -----------------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
----------- --------- -------- -------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets .............................. $ 531,013 $518,697 $464,555 $426,515 $408,282 $328,746
Loans ..................................... 360,617 370,742 320,844 274,095 253,985 210,618
Allowance for loan losses ................. 4,167 4,100 3,741 3,674 3,255 2,983
Investment securities:
Available for sale ....................... 58,180 10,995 13,312 25,770 31,318 --
Held to maturity/held for investment ..... 64,792 99,577 99,648 89,468 90,107 89,793
Deposits .................................. 444,750 423,014 388,249 377,973 358,009 279,965
Borrowed funds ............................ 33,601 45,601 32,073 8,148 12,865 14,300
Stockholders' equity ...................... 44,556 42,014 38,633 35,744 32,819 31,197
Net unrealized gain (loss) on securities,
available for sale, net of taxes, included
in stockholders' equity .................. 162 85 27 39 (537) --
Book value per share ...................... $ 21.80 $ 21.63 $ 20.31 $ 19.43 $ 17.95 $ 17.11
Non-performing loans ...................... 2,691 3,581 4,086 4,671 2,063 2,331
Non-performing assets ..................... 2,962 4,177 4,551 5,038 3,032 5,198
</TABLE>
<TABLE>
<CAPTION>
Six months
ended June 30, Year ended December 31,
---------------------- ------------------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
--------- --------- -------- ------- ------- ------- -------
(In thousands except per (In thousands except per share data)
share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest and dividend income .......... $18,293 $17,283 $35,917 $32,309 $30,673 $24,077 $20,128
Interest expense ...................... 9,572 8,707 18,322 15,792 14,833 10,572 9,245
------- ------- ------- ------- ------- ------- -------
Net interest income .................. 8,721 8,576 17,595 16,517 15,840 13,505 10,883
Provision for loan losses ............. 57 241 750 265 597 340 478
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses .......... 8,664 8,335 16,845 16,252 15,243 13,165 10,405
Gains on sales of securities, net ..... -- -- 55 -- -- 6 107
Other non-interest income ............. 1,374 1,237 2,666 2,839 2,718 2,225 2,364
Non-interest expense .................. 6,292 6,051 12,225 12,333 12,356 11,416 10,984
------- ------- ------- ------- ------- ------- -------
Income before income taxes ............ 3,746 3,521 7,340 6,758 5,605 3,980 1,892
Provision for income taxes ............ 1,404 1,327 2,480 2,621 2,169 1,396 241
------- ------- ------- ------- ------- ------- -------
Net income ............................ $ 2,342 $ 2,194 $ 4,860 $ 4,137 $ 3,436 $ 2,584 $ 1,651
======= ======= ======= ======= ======= ======= =======
Basic earnings per share .............. $ 1.19 $ 1.15 $ 2.54 $ 2.20 $ 1.87 $ 1.41 $ 0.91
------- ------- ------- ------- ------- ------- -------
Diluted earnings per share ............ $ 1.14 $ 1.10 $ 2.45 $ 2.13 $ 1.82 $ 1.38 $ 0.90
------- ------- ------- ------- ------- ------- -------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Six months
ended June 30, 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 ........................ 0.90% 0.91% 0.98% 0.94% 0.81% 0.69% 0.52%
Return on average equity ........................ 11.23 11.48 12.49 11.47 10.21 7.92 5.40
Average equity to average assets ................ 7.98 7.97 7.84 8.17 7.98 8.72 9.56
Equity to total assets at end of period ......... 8.39 7.95 8.10 8.32 8.38 8.04 9.49
Net interest rate spread (3) .................... 2.96 3.20 3.12 3.38 3.51 3.42 3.54
Net interest margin (4) ......................... 3.51 3.74 3.71 3.94 3.98 3.83 3.66
Average interest-earning assets to average
interest-bearing liabilities .................. 114.23 114.17 115.27 114.71 112.68 113.56 112.77
Total non-interest expense to average assets..... 2.41 2.52 2.46 2.80 2.93 3.05 3.60
Efficiency ratio (5) ............................ 60.13 59.00 57.68 60.53 61.61 69.19 78.88
Regulatory Capital Ratios (6):
Tier 1 leverage capital ......................... 8.29 7.77 7.86 8.35 7.92 7.30 8.73
Tier 1 risk-based capital ....................... 15.21 13.23 13.61 13.43 13.13 12.34 14.14
Total risk-based capital ........................ 16.46 14.48 14.86 14.14 14.40 13.59 15.39
Asset Quality Ratios
Non-performing loans as a percent of
loans (7) ..................................... 0.75 1.05 0.97 1.27 1.70 0.81 1.09
Non-performing assets as a percent of
total assets .................................. 0.56 0.79 0.81 0.98 1.18 0.74 1.58
Allowance for loan losses as a percent
of loans ...................................... 1.16 1.09 1.11 1.17 1.34 1.28 1.42
Allowance for loan losses as a percent of
total non-performing loans .................... 154.85 104.06 114.49 91.56 78.66 157.78 127.97
Number of Full Service Customer Facilities ....... 11 11 11 11 11 11 10
</TABLE>
- ------------
(1) The data presented at and for the six months ended June 30, 1998 and 1997
were derived from unaudited consolidated financial statements and reflect,
in the opinion of Sandwich Bancorp's 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 six months ended June 30, 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
(excluding amortization of core deposit intangible asset) 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 Compass--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.
21
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
OF SEACOAST FINANCIAL
The following tables present certain unaudited pro forma consolidated
financial data with respect to Seacoast Financial and its subsidiary. For each
period presented below, the "Pro Forma for Merger" information gives effect to
the Merger but not the Conversion. The "Pro Forma for Merger and Conversion"
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 interest income on the
investment of the net proceeds on the sale of Conversion Shares and the
anticipated expenses associated with the ESOP and one-time Merger costs
(reflected as a reduction to stockholders' equity but not to net income). This
financial data assumes that these transactions occurred on each of the dates
and at the beginning of each of the periods presented, that 12,686,225 Exchange
Shares are issued and that 18,400,000 Conversion Shares are sold in the
Offerings at the $10.00 Purchase Price per share, resulting in gross proceeds
of $184.0 million (the maximum of the Estimated Valuation Range). For
information on net income, net income per share, stockholders' equity and
stockholders' equity per share at the minimum, midpoint and 15% above the
maximum of the Estimated Valuation Range, see "Pro Forma Data--Pro Forma
Conversion Data." For additional assumptions used in calculating the pro forma
data, see "Pro Forma Data--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 financial data should be read
in conjunction with the consolidated financial statements and related notes
presented elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
At May 31, 1998(1) At October 31, 1997(1)
---------------------------------- ---------------------------------
Pro Forma Pro Forma
Pro Forma for Merger Pro Forma for Merger
for Merger and Conversion for Merger and Conversion
--------------- ---------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial Condition:
Total assets ....................................... $ 1,698,414 $ 1,864,296 $ 1,621,295 $ 1,787,177
Loans, net ......................................... 1,230,364 1,230,364 1,176,197 1,176,197
Investment securities held to maturity ............. 13,649 13,649 12,633 12,633
Investment securities available for sale ........... 300,597 300,597 319,896 319,896
Deposits ........................................... 1,427,101 1,427,101 1,360,962 1,360,962
Borrowed funds ..................................... 112,396 112,396 108,042 108,042
Total stockholders' equity ......................... 141,908 307,790 136,132 302,014
Non-performing loans ............................... 12,184 12,184 14,506 14,506
Non-performing assets .............................. 13,850 13,850 16,809 16,809
Asset quality ratios (period end):
Allowance for loan losses to total loans ......... 1.18% 1.18% 1.24% 1.24%
Non-performing assets as a percent of
total assets .................................... 0.82% 0.74% 1.04% 0.94%
Allowance for loan losses to non-
performing loans ................................ 120.44% 120.44% 101.63% 101.63%
</TABLE>
(footnotes begin on following page)
22
<PAGE>
<TABLE>
<CAPTION>
Seven months ended May 31, (1) For the year ended October 31, (1)
-------------------------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995
------------------ ------------------ ------------------- ------------------- ------------------
Pro Pro Pro Pro Pro
Forma Forma Forma Forma Forma
Pro for Pro for Pro for Pro for Pro for
Forma Merger Forma Merger Forma Merger Forma Merger Forma Merger
for and for and for and for and for and
Merger Conversion Merger Conversion Merger Conversion Merger Conversion Merger Conversion
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations (2):
Net interest income .......... $35,214 $39,627 $33,194 $37,623 $57,796 $65,390 $53,398 $61,203 $47,773 $56,437
Provision for loan losses .... 830 830 1,241 1,241 2,615 2,615 1,431 1,431 246 246
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses ... 34,384 38,797 31,953 36,382 55,181 62,775 51,967 59,772 47,527 56,191
Noninterest income ........... 5,449 5,449 4,566 4,566 8,664 8,664 7,985 7,985 7,121 7,121
Noninterest expense .......... 22,969 23,398 21,706 22,135 37,036 37,772 36,491 37,227 37,046 37,782
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes ... 16,864 20,848 14,813 18,813 26,809 33,667 23,461 30,530 17,602 25,530
Income taxes ................. 6,265 7,859 5,884 7,484 10,165 12,909 9,169 11,997 6,680 9,851
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income ................... $10,599 $12,989 $8,929 $11,329 $16,644 $20,758 $14,292 $18,533 $10,922 $15,679
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted earnings per
share (5) .................. $ 0.34 $ 0.44 $ 0.29 $ 0.39 $ 0.54 $ 0.71 $ 0.47 $ 0.63 $ 0.36 $ 0.54
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Selected Ratios:
Performance ratios:
Return on average assets
(3)(4) ..................... 1.09% 1.22% 1.00% 1.15% 1.07% 1.20% 0.99% 1.15% 0.82% 1.04%
Return on average equity
(3) (4) .................... 12.46% 7.36% 11.98% 6.70% 12.66% 7.08% 12.27% 6.66% 10.45% 5.89%
</TABLE>
- ------------
(1) Sandwich Bancorp financial data is included at June 30, 1998 and December
31, 1997 and for the seven-month periods ended June 30, 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 Merger.
(3) These ratios are based on average daily balances.
(4) Annualized.
(5) Diluted earnings per share have been computed as follows: for "Pro Forma
for Merger" purposes, no ESOP shares are assumed to have been issued; for
"Pro Forma for Merger and Conversion" purposes, ESOP shares are assumed to
have been issued but are not treated as outstanding until committed to be
released.
23
<PAGE>
RECENT DEVELOPMENTS
The following table sets forth certain consolidated financial and other
data of Seacoast Financial at and for the periods indicated. Consolidated
financial and operating data and financial ratios and other data at and for the
year ended October 31, 1997 have been derived from and should be read in
conjunction with the audited Consolidated Financial Statements of Seacoast
Financial and Notes thereto presented elsewhere in this Prospectus.
Consolidated financial and operating data and financial ratios and other data
at and for the nine months ended July 31, 1998 and 1997 were derived from
unaudited Consolidated Financial Statements. The results of operations and
ratios and other data presented for the nine months ended July 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1998.
<TABLE>
<CAPTION>
At July 31, At October 31,
1998 (1) 1997
----------------- ---------------
(In thousands)
<S> <C> <C>
Selected Financial Condition Data:
Total assets ...................................................... $1,201,704 $1,106,590
Loans (2) ......................................................... 907,404 820,197
Allowance for loan losses ......................................... 10,534 10,642
Debt securities:
Available for sale ............................................... 178,668 205,620
Held to maturity ................................................. 13,695 12,633
Marketable equity securities ...................................... 10,828 3,696
Deposits .......................................................... 1,008,417 937,948
Borrowed funds .................................................... 74,368 60,703
Surplus ........................................................... 108,721 98,141
Net unrealized gain on securities available for
sale, net of taxes, included in surplus .......................... 2,174 1,614
Non-performing loans .............................................. 4,592 10,925
Non-performing assets ............................................. 5,866 12,632
Nine months ended July 31,
1998 (1) 1997 (1)
-------------- ----------
(In thousands)
Selected Operating Data:
Interest income ................................................... $ 64,776 $ 59,191
Interest expense .................................................. 32,395 29,431
-------------- ----------
Net interest income .............................................. 32,381 29,760
Provision for loan losses ......................................... 837 1,337
-------------- ----------
Net interest income after provision for loan losses .............. 31,544 28,423
Gains (losses) on sales of securities, net ........................ (3) 20
Other non-interest income ......................................... 5,050 4,154
Other real estate owned expense, net .............................. 121 382
Other non-interest expense ........................................ 20,027 17,908
-------------- ----------
Income before income taxes ........................................ 16,443 14,307
Provision for income taxes ........................................ 6,423 5,588
-------------- ----------
Net income ........................................................ $ 10,020 $ 8,719
============== ==========
</TABLE>
(footnotes begin on following page)
24
<PAGE>
<TABLE>
<CAPTION>
Nine months ended July
31,
1998(1) 1997(1)
<S> <C> <C>
Selected Financial Ratios and Other Data (3):
Performance Ratios:
Return on average assets .................................................... 1.16% 1.10%
Return on average surplus ................................................... 12.69 12.82
Surplus to total assets at end of period .................................... 9.05 8.63
Net interest rate spread (4) ................................................ 3.43 3.50
Net interest margin (5) ..................................................... 3.92 3.95
Average interest-earning assets to average interest-bearing liabilities ..... 112.54 111.62
Total non-interest expense to average assets ................................ 2.33 2.32
Efficiency ratio (6) ........................................................ 53.83 53.90
Regulatory Capital Ratios (7):
Tier 1 leverage capital ..................................................... 8.91 8.53
Tier 1 risk-based capital ................................................... 12.32 12.55
Total risk-based capital .................................................... 13.55 13.80
Asset Quality Ratios:
Non-performing loans as a percent of loans (8) .............................. 0.51 1.44
Non-performing assets as a percent of total assets .......................... 0.49 1.24
Allowance for loan losses as a percent of loans ............................. 1.16 1.34
Allowance for loan losses as a percent of total nonperforming loans ......... 229.40 93.09
Number of Full Service Customer Facilities ................................... 23 22
</TABLE>
- ------------
(1) The data presented at and for the nine months ended July 31, 1998 and 1997
was 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 nine months ended
July 31, 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,
unadvanced funds on loans, deferred loan origination fees and unearned
discounts.
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of period ratios, all ratios are based on
average daily balances during the indicated periods and are annualized
where appropriate.
(4) The net interest spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(5) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(6) The efficiency ratio represents the ratio of non-interest expenses divided
by the sum of net interest income and non-interest income.
(7) 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 "Regulatory
Capital Compliance" and "Regulation of Seacoast Financial and
Compass--Regulatory Capital Requirements" and "--Prompt Corrective Action."
(8) 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, except
indirect auto loans and other consumer loans.
25
<PAGE>
Comparison of Financial Condition at July 31, 1998 and October 31, 1997
Total assets increased by $95.1 million, or 8.6%, from $1,106.6 million at
October 31, 1997 to $1,201.7 million at July 31, 1998. This growth was due
primarily to a $14.8 million, or 45.0%, increase in cash and cash equivalents
and a $87.2 million, or 10.6% increase in loans. Asset growth was funded
primarily by a $70.5 million, or 7.5%, increase in deposits and a $10.3
million, or 20.1%, increase in FHLB advances.
The increase in cash and cash equivalents at July 31, 1998 was temporary
in nature and attributable to a reduction in the difference in rates paid on
short- to medium-term investments and funds invested overnight as well as to
normal fluctuations in activity.
The increase in loans occurred primarily in Seacoast Financial's
construction and indirect auto loan portfolios. From October 31, 1997 to July
31, 1998, construction loans increased by $9.7 million, or 28.6% and indirect
auto loans (net of unearned discounts) increased by $63.6 million, or 30.6%.
The growth during the nine months ended July 31, 1998 is primarily attributable
to the favorable interest rate environment and economic conditions which
prevailed during this period. In addition, Seacoast Financial has continued to
emphasize the origination of indirect auto loans through its network of
automobile dealers.
Total deposits at July 31, 1998, were $1,008.4 million, an increase of
$70.5 million, or 7.5% compared to $937.9 million at October 31, 1997. The
increase in deposits continues to be impacted by favorable economic conditions
partially offset by a continuing low interest rate environment wherein Seacoast
Financial competes against other instruments available to the public such as
mutual funds and annuities. In addition, deposit growth reflects increased
seasonal activity on Martha's Vineyard and the continuing effect of industry
consolidation. Total borrowed funds were $74.4 million at July 31, 1998
compared to $60.7 million at October 31, 1997, an increase of $13.7 million, or
22.6%. During the nine months ended July 31, 1998, Seacoast Financial's net
borrowing from the FHLB increased by $10.3 million.
The increase in surplus of $10.6 million to $108.7 million at July 31,
1998 resulted from net earnings of $10.0 million for the nine months ended July
31, 1998 and a $560,000 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 Operating Results for the Nine Months Ended July 31, 1998 and
July 31, 1997
General. Net income increased by $1.3 million or 14.9%, from $8.7 million
for the nine months ended July 31, 1997 to $10.0 million for the nine months
ended July 31, 1998. The improvement was attributable to higher net interest
income of $2.6 million, a $500,000 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 net gains on sales of loans of $556,000. The improvement was
partially offset by an increase of $1.9 million in non-interest expense due to
higher salaries, occupancy and equipment expenses, data processing expenses and
marketing costs. Of the $1.9 million increase in non-interest expense, $412,000
was due to a recovery, in 1997, of life insurance premiums recognized when an
insurance company emerged from receivership. The increase in net interest
income was due to growth in average interest-earning assets.
Interest Income. Interest income for the nine months ended July 31, 1998
was $64.8 million, compared to $59.2 million for the nine months ended July 31,
1997, an increase of $5.6 million, or 9.5%. All of the increase in interest
income resulted from growth in average interest-earning assets of $98.7
million, or 9.8%, as the overall yield on interest-earning assets declined by 2
basis points in the 1998 period. The principal areas of growth related to real
estate loans (up $36.9 million, or 7.1%) and indirect auto loans (up $56.7
million, or 32.5%). Most of the real estate loan growth resulted from increased
originations of one-to-four family real estate loans and construction loans.
The increase in indirect auto loans resulted from an improved economic
environment within Compass's local markets, the expansion of such lending into
Rhode Island and the continued emphasis of this area of lending.
Interest Expense. Interest expense for the nine months ended July 31, 1998
was $32.4 million, compared to $29.4 million for the nine months ended July 31,
1997, an increase of $3.0 million, or 10.1%. This increase resulted from a
higher average balance of interest-bearing liabilities (up $80.3 million, or
8.9%). Average interest-bearing deposit balances increased $62.9 million, or
7.5%, primarily as a result of the factors noted in the prior discussion on
deposit growth.
Compass increased its borrowings from the FHLB during the nine months
ended July 31, 1998. Interest expense on borrowed funds increased $752,000, or
27.5%, in the nine months ended July 31, 1998 due to a $17.5 million,
26
<PAGE>
or 31.0%, increase in the average balance of such funds to $73.9 million, which
was partially offset by an 18 basis point reduction in the average rate paid on
borrowed funds to 6.29% in the 1998 period compared to the 1997 period.
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 $837,000 for loan losses in the nine month period ended
July 31, 1998 compared to $1.3 million in the nine month period ended July 31,
1997, a decrease of $500,000, or 37.4%. This decrease was primarily influenced
by a reduction in the balance of adversely classified loans and fewer
delinquencies.
Non-Interest Income. Total non-interest income was $5.0 million for the
nine months ended July 31, 1998 compared to $4.2 million for the nine months
ended July 31, 1997, an increase of $873,000, or 20.9%. The increase resulted
primarily from an increase of $556,000 in the gain on sale of mortgage loans
from $297,000 in the nine months ended July 31, 1997 to $853,000 in the nine
months ended July 31, 1998. Compass generally sells in the secondary mortgage
market fixed rate residential mortgage loans with terms of 15 years or longer.
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 caused this increase. Also, Compass earned
$188,000 of fees in 1998 under a new relationship with an outside vendor which
processes its official checks. This fee is determined based on the average
length of time such checks, which are drawn on the account of the outside
vendor, remain outstanding.
Non-Interest Expense. Non-interest expense increased by $1.9 million, or
10.4%, from $18.3 million for the nine months ended July 31, 1997 to $20.2
million for the nine months ended July 31, 1998. Of this increase, $868,000
related to compensation and employee benefits, which rose 8.5% to $11.0 million
for the nine months ended July 31, 1998. The higher level of compensation and
employee benefits was caused by overall salary increases averaging 4%,
increased commissions of $155,000 related to higher mortgage loan originations,
staffing increases in the lending area and higher health insurance costs of
$65,000.
Occupancy and equipment expenses increased $127,000, or 5.1%, to $2.6
million for the nine months ended July 31, 1998. This increase was due to an
increase in ATM maintenance costs, and 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 $280,000, or 32.6%, to $1.1 million for the
nine months ended July 31, 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.
Data processing expenses increased $285,000, or 17.9%, to $1.9 million for
the nine months ended July 31, 1998. This increase was due to new services,
including laser printing and Internet services, and volume-related increases in
loans and deposits.
Other real estate owned (OREO) expenses decreased $261,000, or 68.3%, to
$121,000 for the nine months ended July 31, 1998 due to the continuation of the
decline in the number of properties held as OREO and stable real estate market
values.
Other non-interest expenses for the nine months ended July 31, 1998 were
$2.5 million compared to $1.9 million for the comparable period in 1997, an
increase of $527,000 or 27.1%. Included in the results for 1997 was a recovery
of life insurance premiums of $412,000 from an insurance company which emerged
from receivership. Exclusive of this item, other non-interest expenses
increased in 1998 by $115,000 or 4.9%.
Income Taxes. Income tax expense was $6.4 million of the nine months ended
July 31, 1998, an increase of $835,000, or 14.9%, compared to the 1997 period.
The effective tax rate was 39.1% in 1998 and 1997.
27
<PAGE>
RISK FACTORS
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
$167.0 million in construction and commercial real estate loans in its loan
portfolio as of May 31, 1998 and on a pro forma basis at that date, assuming
consummation of the Merger, it would have had $258.3 million of such loans in
its portfolio.
Compass makes both secured and some short-term unsecured commercial loans,
holding $58.2 million of such loans in its loan portfolio as of May 31, 1998.
On a pro forma basis at that date, assuming consummation of the Merger, it
would have had $66.4 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 $247.6 million as of May 31,
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 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.
28
<PAGE>
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 Market and 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 May 31, 1998, Seacoast Financial's
securities portfolio totaled $202.3 million, including $183.3 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 Compass--Investment Activities."
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 Bank 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 Bank'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 Bank, has achieved in the past.
Further, no assurance can be given that Compass will effectively manage any
growth resulting from the Merger.
29
<PAGE>
Low Return on Equity following the Conversion
Seacoast Financial's ratio of surplus to assets was 9.05% as of May 31,
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 15.5% and 16.5%, respectively, on a pro forma basis as
of May 31, 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."
Recent Stock Market Volatility
Publicly traded stocks, including stocks of financial institutions, have
recently experienced substantial market price volatility. These market
fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded. In several cases, common stock issued by
recently converted financial institutions has traded at a price that is below
the price at which such shares were sold in the stock offering. The Purchase
Price of the Seacoast Financial Common Stock in the Offering is based on the
Independent Valuation. In the after-market, the trading price of the Seacoast
Financial Common Stock will be determined by the marketplace, and may be
influenced by many factors, including prevailing interest rates, investor
perceptions of Seacoast Financial and general industry and economic conditions.
Due to possible continued market volatility and to other factors, including
certain Risk Factors discussed herein, there can be no assurance that,
following the Merger, the trading price of the Seacoast Financial Common
Stock will be at or above the Seacoast Financial Trading Price. See "--Absence
of Market for Shares of Seacoast Financial Common Stock."
Dilution Resulting From Issuances of Additional Shares
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 prepared by RP Financial, LC., an
independent appraisal firm ("RP Financial"). 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 per share and as a multiple of net income per share.
See "Pro Forma Data--Pro Forma Conversion Data."
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
30
<PAGE>
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
Compass." 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 its deposit insurers. Compass also
belongs to the Federal Home Loan Bank System and, as a member of such system,
is subject 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 Compass's depositors and borrowers and, in the case of
FDIC regulation, the FDIC's deposit insurance funds. 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 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
"SCFS," 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, common stock is subject to investment risk, including loss of
principal invested. 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."
31
<PAGE>
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 a comparison of certain provisions of Seacoast Financial's and
Sandwich's Articles and By-Laws, including certain anti-takeover effects, see
"Certain Differences in the Rights of Stockholders."
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, including 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.
A bank such as Compass relies heavily upon computer systems for its daily
operations, including particularly the accurate processing of its customers'
financial records. Compass 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 the third-party vendors to whom Compass outsources its
information systems functions 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 Y2K issues 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 Y2K issue and the steps Compass
is taking in response, see "Business of Compass--Year 2000 Issue."
32
<PAGE>
Possible Delays in Completion of the Merger
The completion of the Merger 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, Seacoast
Financial may extend the offering period for the Conversion one or more times,
in its sole discretion. No assurance can be given that Seacoast Financial will
complete the Conversion on or before any particular date. Any delay in Seacoast
Financial's completion of the Conversion would also result in a delay of the
completion of the Merger.
SPECIAL MEETING INFORMATION
General
The Special Meeting will be held on October , 1998 at : _.m. Eastern
Time at the Ridge Club in Sandwich, Massachusetts. At the Special Meeting,
holders of record of shares of Sandwich Bancorp Common Stock as of the Record
Date, ____________, 1998, will consider and act upon (i) the approval of the
Merger Agreement and the transactions contemplated thereby, including the
Merger, pursuant to which each outstanding share of Sandwich Bancorp Common
Stock (other than shares held by any dissenting stockholders) will
automatically convert into and become exchangeable for a number of shares of
Seacoast Financial Common Stock determined by application of the Exchange Ratio
and (ii) the transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof, including any
proposals to adjourn the Special Meeting to permit further solicitation of
proxies by the Board of Directors in the event that there are not sufficient
votes to approve the Merger at the time of the Special Meeting.
Voting and Revocability of Proxies
Shares of Sandwich Bancorp Common Stock represented by a proxy properly
signed and returned will be voted at the Special Meeting in accordance with the
instructions thereon. Where no instructions are indicated, signed proxies will
be voted "for" approval of the Merger Agreement and the transactions
contemplated thereby at the Special Meeting.
The presence of a stockholder at the Special Meeting will not
automatically revoke such stockholder's proxy. However, stockholders may revoke
a proxy at any time prior to its exercise by filing with the Secretary of
Sandwich Bancorp a written notice of revocation, by delivering to Sandwich
Bancorp a duly executed proxy bearing a later date or by attending the Special
Meeting and voting in person. Written notices of revoked proxies may be
directed to: Dana S. Briggs, Secretary, Sandwich Bancorp, Inc., 100 Old Kings
Highway, P.O. Box 959, Sandwich, Massachusetts 02563.
Sandwich Bancorp intends to count the shares of Sandwich Bancorp Common
Stock present in person at the Special Meeting but not voting, and shares of
Sandwich Bancorp Common Stock for which it has received proxies but with
respect to which holders of shares have abstained on any matter, as present at
the Special Meeting for purposes of determining the presence or absence of a
quorum for the transaction of business. However, such nonvoting shares and
abstentions will not be counted as votes cast for purposes of determining
whether the Merger Agreement has been approved and therefore will have the same
effect as votes against the Merger Agreement. In addition, under the rules of
the New York Stock Exchange, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers in favor of the approval
of the Merger Agreement without specific instructions from the customers.
Accordingly, the failure of such customers to provide instructions with respect
to their shares of Sandwich Bancorp Common Stock to their broker will have the
effect of such shares not being voted and therefore will have the same effect
as votes against the Merger Agreement. Such instances, if any, are referred to
as "broker non-votes."
The Board of Directors of Sandwich Bancorp is not aware of any other
business to be acted upon at the Special Meeting other than as described
herein. It is not anticipated that other matters will be brought before the
Special Meeting. If, however, other matters are duly brought before the Special
Meeting, or any adjournment thereof, the persons appointed as proxies will vote
in accordance with the determination of a majority of the Sandwich Bancorp
Board of Directors. The persons named as proxies by a stockholder may propose
and vote for one or more adjournments or postponements of the Special Meeting
to permit another solicitation of proxies in favor of the Merger Agreement. No
proxy which is voted against the proposal to approve the Merger will be voted
in favor of any such adjournment or postponement.
33
<PAGE>
In connection with the Merger, each member of the Board of Directors of
Sandwich Bancorp has entered into the Voting Agreement with Seacoast Financial.
Under such agreement, each Board member has agreed to vote all of the shares of
Sandwich Bancorp Common Stock he is entitled to vote with respect thereto at the
Special Meeting in favor of the Merger Agreement, not including shares which
such director holds in a fiduciary capacity. The number of shares of Sandwich
Bancorp Common Stock which such directors are entitled to vote as of September
3, 1998 was 185,112 shares (8.9% of Sandwich Bancorp Common Stock outstanding as
of such date). Assuming that (i) directors and executive officers of Sandwich
Bancorp and their respective affiliates, holding an aggregate of 310,524 shares
of outstanding Sandwich Bancorp Common Stock (14.9%) as of September 3, 1998 and
(ii) Seacoast Financial and Compass, holding an aggregate of 90,000 shares of
outstanding Sandwich Bancorp Common Stock (4.3%) as of September 3, 1998, vote
their shares in favor of the Merger Agreement, the affirmative vote of holders
of approximately 988,664 additional shares of Sandwich Bancorp Common Stock
(47.5%) will be required in order for the Merger Agreement to obtain approval by
two-thirds of the outstanding shares of Sandwich Bancorp Common Stock.
Voting Securities and Security Ownership
On September 3, 1998, 2,083,678 shares of Sandwich Bancorp Common Stock
were issued and outstanding. Sandwich Bancorp did not have any other class of
equity security outstanding on that date.
Persons and groups who beneficially own in excess of 5% of the issued and
outstanding Sandwich Bancorp Common Stock are required to file certain reports
regarding such ownership pursuant to the Exchange Act. Based on such reports
and other information which management believes to be correct, management knows
of no persons owning more than 5% of the issued and outstanding Sandwich
Bancorp Common Stock. The following table sets forth, as of the Record Date,
certain information as to the Sandwich Bancorp Common Stock beneficially owned
by each director of Sandwich Bancorp and by all directors and executive
officers of Sandwich Bancorp as a group.
<TABLE>
<CAPTION>
Percent of Shares
of Sandwich Bancorp
Amount and Nature of Common Stock
Name of Beneficial Owner Beneficial Ownership (1) Outstanding
- ------------------------ ------------------------ -------------------
<S> <C> <C>
Bradford N. Eames .............................................. 3,900 0.19%
Barry H. Johnson ............................................... 243 0.01
Reale J. Lemieux ............................................... 1,144 0.05
Gary A. Nickerson .............................................. 5,000 0.24
Frederic D. Legate ............................................. 87,066 4.18
Howard P. Crowell .............................................. 700 0.03
David O. MacKinnon ............................................. 1,384 0.07
George B. Rockwell ............................................. 2,500 0.12
Leon Davidson .................................................. 779 0.04
John J. Doran .................................................. 60,000 2.88
Mary F. Hebditch ............................................... 5,059 0.24
George L. Jackson .............................................. 837 0.04
Richard S. Holway .............................................. 16,500 0.79
All directors and executive officers as a group (16 persons) ... 310,524 14.9%
</TABLE>
- ------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of the
Sandwich Bancorp Common Stock if he or she has sole or shared voting or
investment power with respect to such security or has a right to acquire
beneficial ownership of the security at any time within 60 days from the
Record Date. As used herein, "voting power" is the power to vote or direct
the voting of shares and "investment power" is the power to dispose or
direct the disposition of shares. Includes 1,658, 1,041, 1,031, 955 and
4,685 shares allocated to the accounts of Messrs. Legate, Briggs, Larson
and Parsons (all of whom are officers of Sandwich Bancorp) and all
directors and executive officers of Sandwich Bancorp as a group,
respectively, under the Sandwich Bancorp, Inc. Employee Stock Ownership
Plan, over which the respective individuals have sole voting power.
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<PAGE>
Solicitation of Proxies
The cost of solicitation of proxies in the form enclosed herewith will be
borne by Sandwich Bancorp. In addition to solicitations by mail, directors,
officers and regular employees of the Sandwich Bank may solicit proxies
personally, by telegraph or by telephone without additional compensation
therefor. Sandwich Bancorp has retained Morrow & Co. ("Morrow") to assist in
the solicitation of proxies for the Special Meeting and has agreed to pay
Morrow a base fee of $7,500 for Morrow's services, plus certain additional
charges based on the extent of services performed and reimbursement for
Morrow's out-of-pocket costs. Brokerage houses, nominees, fiduciaries and other
custodians have been requested to forward proxy materials to beneficial owners
of the Sandwich Bancorp Common Stock and, upon request, will be reimbursed by
Sandwich Bancorp for expenses incurred by them.
THE PROPOSED MERGER
The following description of the Merger is not intended to be a complete
description of all facts regarding the Merger and is qualified in all respects
by reference to the Merger Agreement, the fairness opinion of Sandler O'Neill
and the Massachusetts statutes, all of which are attached at Appendices A, B
and C to this Proxy Statement/ Prospectus. Additional information about the
Merger and the Merger Agreement is set forth under the heading "The Conversion
and the Merger."
Background of the Merger
Sandwich Bank was organized in 1885 and operated as a mutual bank until
1986 when it converted to a publicly-held company. Sandwich Bank's Mission
Statement, adopted in 1986, specifies what the organization has strived for: "
. . . to remain a viable and profitable independent community bank providing
the highest possible level of service and value to our customers and
stockholders." This statement has guided Sandwich Bank (and, since its
formation in October 1997, Sandwich Bancorp) and provided the philosophy by
which management and the Board of Directors have made decisions regarding the
future of Sandwich Bank and Sandwich Bancorp.
From time to time, since it became a publicly-held company in 1986,
Sandwich Bank's Board of Directors and management have reviewed Sandwich Bank's
strategic alternatives for enhancing profitability and maximizing stockholder
value, particularly in view of the changes and consolidation that have occurred
in the financial services industry. In recent years Sandwich Bank has
concentrated on fulfilling its Mission Statement, and while Sandwich Bank has
had informal conversations with various parties regarding a possible
combination, no definitive offers or serious discussions were held prior to
1995.
In September 1995, Sandwich Bank received an unsolicited letter from Cape
Cod Bank & Trust Company, Hyannis, Massachusetts ("CCB&T") expressing general
interest in a possible combination, but providing no specific information.
Sandwich Bank's Chairman and its Chief Executive Officer acknowledged CCB&T's
letter and advised CCB&T that the Board of Directors was taking its inquiry
under advisement. Sandwich Bank's Strategic Options Committee and the full
Board of Directors met over the following few months to evaluate its options.
The Committee and the Board, with assistance of its advisors, including its
financial advisor, Sandler O'Neill, reviewed the Board's obligations, and
Sandwich Bank's Strategic Business Plan (the "Strategic Plan"), which had been
previously formulated and was being updated. The Strategic Plan called for
management and the Board to continue to increase the value of Sandwich Bank
(and subsequently, Sandwich Bancorp) stock as well as the Sandwich Bank
franchise by strengthening Sandwich Bank's position as an independent community
bank serving Cape Cod and its adjacent communities. The Board, with the
assistance of its financial advisor, reviewed Sandwich Bank's projected
earnings and growth and the market for financial institution stocks and
determined that, in view of the Strategic Plan, the Board of Directors had
significant flexibility in determining whether to continue as an independent
entity or to join with a merger partner. In responding to the CCB&T letter, the
Board decided to meet with CCB&T to determine CCB&T's level of interest in a
combination with Sandwich Bank. The Board recognized that Sandwich Bank still
had significant opportunities to enhance stockholder value through remaining
independent and through implementation of the Strategic Plan. In December 1995,
Sandwich Bank responded in writing to CCB&T that its Board of Directors had
authorized a meeting with CCB&T to further explore a combination between the
parties. At a January 1996 meeting of the two banks' chief executive officers,
Sandwich Bank was informed that CCB&T no longer (at that time) had an interest
in actively pursuing a combination with Sandwich Bank.
Through 1996 and 1997, Sandwich Bank was successful in implementing its
Strategic Plans, as reflected by its earnings, dividends paid and stock price.
In September 1997, Frederic D. Legate, President of Sandwich Bank,
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<PAGE>
began having informal discussions with Kevin G. Champagne, President of Seacoast
Financial and Compass, regarding the benefits of a possible combination between
the two companies. While these informal discussions continued, significant
issues existed relating to the consideration that Compass could offer, due to
Compass's corporate form: that of a wholly-owned subsidiary of a mutual holding
company, with no publicly held shares. As these discussions continued, Compass,
with the assistance of its financial advisor, McConnell, Budd & Downes
("McConnell Budd"), considered the possibility of a minority stock issuance by
Compass (or by a newly-formed "mid-tier" holding company subsidiary of Seacoast
Financial), with the proceeds of that offering providing the capital needed for
an acquisition of Sandwich Bancorp. In addition, in late October, 1997, certain
board members of CCB&T were speaking informally with board members of Sandwich
Bank expressing a renewed interest in a possible combination with Sandwich
Bancorp.
In anticipation of an upcoming Strategic Options Committee meeting
scheduled for December 22, 1997, Mr. Legate described in a memo dated December
13, 1997, to the members of the Board's Strategic Options Committee the content
of his discussions with Mr. Champagne, including the progress Compass had made
in formulating a plan for a minority stock issuance through its existing mutual
holding company structure and in structuring a potential transaction between
the parties. Coincidentally, on December 15, 1997, Sandwich Bancorp received an
unsolicited letter from CCB&T which conveyed CCB&T's interest in an acquisition
of Sandwich Bancorp for a price of "approximately $50 per share" in a
stock-for-stock exchange (although some amount of cash consideration would be
possible, if desired). This indication of interest was non-binding and was
subject to CCB&T performing due diligence on Sandwich Bancorp and the
negotiation of a definitive agreement.
On December 22, 1997, in meetings of both the Strategic Options Committee,
and then the full Board of Directors, at which meetings the Sandwich Bancorp
legal and financial advisors were present, the CCB&T and Compass situations
were reviewed and discussed. Extensive discussions were held regarding
strategic alliances, stock-for-stock mergers and sales of control, as well as
the alternative of remaining independent. Sandwich Bancorp's financial advisor
reviewed Sandwich Bancorp's stock price and financial performance and Sandwich
Bancorp's Strategic Plan and compared it to the performance of various peer
groups. An analysis of other recent financial institution merger transactions
was made with a specific focus on New England bank and thrift transactions and
how the financial multiples in these transactions would apply to a hypothetical
transaction involving Sandwich Bancorp. Sandler O'Neill continued with an
analysis of the financial characteristics of the various institutions which
would have a strategic interest in acquiring or combining with Sandwich
Bancorp, including CCB&T and Compass. The Board determined it would be
advisable to proceed with a process by which Sandler O'Neill would contact two
additional institutions, Independent Bank Corp., parent holding company of
Rockland Trust Company, Rockland, Massachusetts ("Independent"), and FirstFed
America Bancorp, parent holding company of First Federal Savings Bank of
America, Fall River, Massachusetts ("FirstFed"), and request that all four
institutions provide Sandler O'Neill with an indication of interest in a
business combination with Sandwich Bancorp, as well as other appropriate
information.
On January 26, 1998, first the Strategic Options Committee and then the
full Board of Directors met to review and discuss the indications of interest
that Sandler O'Neill had received. The financial terms of these indications of
interest were as follows:
o CCB&T proposed a price of $50-$52 per share in stock, or a stock/cash
mixture, although its was not clear how much of the price could be in the
form of cash.
o FirstFed proposed $50-$53 per share in stock, or a stock/cash mixture,
but no further information was provided as to the amount of cash. FirstFed
advised that stock was the preferred form of consideration but it would
consider a cash component if this was desired.
o Independent proposed an exchange of 3.15 shares of Independent stock for
each Sandwich Bancorp share, which was equal to $52.25 per share in stock,
based on the then market price of Independent's stock, and indicated it
could consider some form of collars to protect the price to some degree.
o Compass proposed a price of $53 per share, in cash.
Sandler O'Neill, in presenting this information to the Board, stated that
the four proposals were virtually indistinguishable on a value basis, the only
distinctions being the small differences in the prices offered and the
36
<PAGE>
mix of cash versus stock. Sandler O'Neill further advised that the trading
prices of FirstFed, CCB&T and Independent stock were each currently fairly
valued, none of them being appreciably overvalued or undervalued.
Sandler O'Neill reviewed certain historical and projected financial and
trading information of Sandwich Bancorp and Sandwich Bank and stated that there
was support for the Board to make a determination to maintain the independence
of Sandwich Bancorp and Sandwich Bank. Sandler O'Neill continued their
presentation by reviewing financial and other information as to each of CCB&T,
FirstFed, Independent and Compass and concluded that all of the companies were
well capitalized, none had any significant non-performing loan issues and that
the earnings of each institution were growing, although at different rates.
Sandler O'Neill finally stated that Compass should be able to complete the
necessary minority stock offering. Sandler O'Neill also reviewed with the
Directors the cost cutting efficiencies which it projected would likely result
from a business combination with each institution.
The Board noted that the pricing proposed by each of the four entities was
comparable and further discussed the advantages and disadvantages of cash and
stock consideration. The Board further noted the benefits which would result
from a merger with Compass due to insignificant market overlap between the two
companies and the resultant positive impact to Sandwich Bancorp's and Sandwich
Bank's employees and customers, as well as to the local communities served by
them. A consensus emerged that the Compass proposal provided a basis upon which
to continue further negotiations with Compass. Management, together with
Sandwich Bancorp's financial advisor and legal counsel, was instructed to
pursue an agreement with Compass while clarifying the other parties interest
and proposals.
During the week of January 26, 1998, Sandwich Bancorp, with the assistance
of its legal and financial advisors, entered into negotiations with Compass
with respect to a business combination transaction. Compass' counsel presented
a draft of a definitive agreement to Sandwich Bancorp and its counsel, which
draft was the subject of extensive negotiations between the parties and their
advisors during the next several days. A number of other items were extensively
negotiated including the type and amount of transaction protection Sandwich
Bancorp would provide Compass. Sandler O'Neill also during that week contacted
each of the other three parties to elicit any further relevant information for
the Board's consideration. During these ongoing discussions, Independent and
FirstFed reaffirmed their stock-for-stock proposals at the same value range
noted in their original indications of interest while CCB&T ultimately advised
that it would revise its offer to a range of $52-$56, with the final price to
be determined only after due diligence. The respective financial advisors for
Sandwich Bancorp and CCB&T also generally discussed means to provide price
protection, and CCB&T indicated it would be willing to pay a portion of the
merger consideration in the form of cash, providing a "hedge" against potential
stock price volatility.
In an informational meeting for the Board of Directors, held on January
30, 1998, the Board considered this updated information. After discussion,
including, among other things, comparison of CCB&T's proposal within a range of
values with Compass' firm proposal of $53 the Board determined to continue to
negotiate a definitive agreement with Compass based on its proposal of $53 per
share in cash.
On February 2, 1998, at a Special Meeting of the Board of Directors,
President Legate, together with Sandwich Bancorp's financial and legal
advisors, reviewed the status of events since the January 26, 1998 Board
Meeting. Mr. Legate advised that negotiations with and due diligence by Compass
had continued over the weekend and resulted in a definitive agreement which was
similar to the draft previously delivered to the Board members and which would
be extensively reviewed at the Board meeting. Mr. Legate also advised that
there had not been any further discussions with any of the other three parties
since January 30, 1998. Sandler O'Neill provided the Board with an updated
analysis of the proposed transaction as well as an analysis of the other three
proposals and projected pro forma results. It was emphasized that the proposal
being considered, Compass's offer of $53 per share in cash, was at the high end
of multiples paid in other comparable mergers. An extensive discussion ensued
regarding Compass's financing capability in the minority stock issuance, the
amount of capital to be raised and related issues. The impact of the Compass
proposal on non-stockholder constituencies compared to the impact from the
other proposed transactions was also reviewed. The Directors also extensively
discussed cash versus stock considerations again and price volatility issues
with respect to bank stocks generally. Sandler O'Neill concluded its
presentation stating its opinion that the consideration to be received by
Sandwich Bancorp's stockholders was fair to them from a financial point of
view.
Sandwich Bancorp's legal advisors then reviewed with the Board the
proposed definitive agreement with Compass, including termination rights,
break-up fees, the protection afforded employees and the Board of Directors'
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<PAGE>
ability to satisfy its fiduciary duties. Following further discussion, the
Board unanimously approved and adopted the Affiliation and Merger Agreement
(the "February 2 Agreement") with Seacoast Financial and Compass, and the
transactions contemplated thereby. On February 2, 1998, the February 2
Agreement was executed and press releases were issued by Sandwich Bancorp and
Seacoast Financial.
On Tuesday February 17, 1998, President Legate received a letter dated
February 13, 1998, from the President of CCB&T detailing a non-binding
expression of interest of CCB&T to acquire Sandwich Bancorp for a per share
price of approximately $60 in a stock-for-stock exchange, with a possible
alternative of up to 20% of the purchase price paid in cash. The expression of
interest also contemplated that CCB&T would accept the applicable non-financial
terms of Sandwich Bancorp's February 2 Agreement with Compass. Sandwich Bancorp
issued a press release on February 17, 1998, which advised as to receipt of the
letter and its material financial terms. On February 19, 1998, Sandwich Bancorp
received letters from FirstFed and Independent confirming their continued
interest in a combination with Sandwich Bancorp. Independent's letter reaffirmed
its previous offer of 3.15 shares of Independent stock for each share of
Sandwich Bancorp stock which, due to the increase in the market price of
Independent's stock at such time, made its proposal equal in value to
approximately $57.09 per share. FirstFed's letter indicated a price per share
having a value equal to or greater than the most recently revised CCB&T
proposal. Sandwich Bancorp was required by the terms of the February 2 Agreement
to keep Compass informed as to these communications from other parties, which it
did.
At a Special Meeting on February 23, 1998, Sandwich Bancorp's Board met
with its legal and financial advisors to review the letters received from each
of the three other parties and to determine the Board's response in light of
the Board's legal and fiduciary obligations under applicable law and the terms
of the February 2 Agreement with Compass. Sandler O'Neill reviewed in detail
the pro forma and other financial effects of each of the latest CCB&T, FirstFed
and Independent proposals on the resulting company of each business combination
and its stockholders. The Directors also discussed the impact of these
proposals on the Compass transaction and the alternatives available to Compass.
Sandler O'Neill provided a financial analysis of the effect on Compass should
they increase their offer pricing. After discussion, the Board agreed that each
of the prospective acquirors should be furnished with a written request asking
each of them to provide detailed written information to the Board regarding
their proposals. It was also agreed by the Board that a committee be appointed,
consisting of four directors (including President Legate) to meet, together
with representatives from Sandler O'Neill, with each of the other three parties
to both supply information and to fully understand the terms of their
proposals. The Board also discussed the steps it should take to ensure that the
process followed would be consistent with promoting the best interests of
Sandwich Bancorp and its stockholders, while at the same time complying with
the terms of the February 2 Agreement. On February 24, 1998, Sandwich Bancorp
issued a press release advising as to receipt of the FirstFed and Independent
proposals and the Board's request to seek additional information and
clarification of these and the CCB&T proposals.
By letters dated March 2, 1998, each of CCB&T, FirstFed and Independent
submitted responses to Sandwich Bancorp's request for additional information as
to their proposals. Each of the parties responded to the questions and
clarifications posed by Sandwich Bancorp and two of the parties, CCB&T and
FirstFed, proposed to further increase their offer price. CCB&T proposed a
price of $64 per share of Sandwich Bancorp common stock in the form of CCB&T
common stock at a to-be-determined fixed exchange ratio although CCB&T
indicated that up to 20% of the purchase price could be in the form of cash.
FirstFed also confirmed its proposed stock-for-stock exchange but revised the
value of its offer to $62 per share within certain price collars. Independent
confirmed its offer to exchange each outstanding share of Sandwich Bancorp
common stock for 3.15 shares of Independent common stock which based on the
then current trading values for Independent represented an offer price of
approximately $55.68. Mr. Legate discussed these letters with Sandwich
Bancorp's financial and legal advisors on March 3, 1998. It was determined that
further clarification of each proposal was still required and Sandler O'Neill
was instructed to contact CCB&T, FirstFed and Independent to seek such
information prior to a scheduled March 6, 1998, Board meeting. In compliance
with its obligations pursuant to the February 2 Agreement with Compass, copies
of the March 2, 1998 letters were provided to Compass. Mr. Legate also
contacted Compass officials at this time to advise of the March 6, 1998 Board
meeting and to request that any revisions to the Compass proposal should be
delivered prior to the March 6 meeting.
On March 4, 1998, the special committee previously appointed by the Board
(together with an additional director) met with Sandwich Bancorp's legal and
financial advisors to further review and assess the status of these proposals.
The committee reviewed the revised proposals and discussed various issues
attendant to them including
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the pricing mechanisms of each proposal, collar arrangements, antitrust
consequences of each transaction, break up fees and the impact of the February 2
Agreement on these proposals.
Compass officials requested a meeting with Sandwich Bancorp officials and
its legal and financial advisors prior to the March 6, 1998, Board meeting.
Representatives of Sandwich Bancorp and Compass met on March 5, 1998, together
with their legal and financial advisors, to discuss the status of events, the
process to follow and the extent to which Compass would be willing to revise
its proposal from that set forth in the February 2 Agreement or, if it did not
choose to do so, the ramifications of such a decision on the February 2
Agreement. While the Compass officials did not at such time revise the proposal
they advised Sandwich Bancorp that the Compass Board was meeting that evening
at which time this matter would be discussed. Late in the evening of March 5,
1998, the President of Compass telephoned the President of Sandwich Bancorp to
advise that Compass was revising its proposal to a $58 per share all cash
offer.
At the March 6, 1998, Board meeting, at which special legal counsel and
representatives of Sandler O'Neill were present, the Sandwich Bancorp Directors
were provided with detailed information as to the revised proposals received
from each of Compass, CCB&T, FirstFed and Independent. With the assistance of
Sandler O'Neill, the Sandwich Bancorp Board then reviewed in detail each of the
latest proposals received from Compass, CCB&T, Independent and FirstFed,
including, among other things, the proposed pricing for each, certain
contingencies attendant to each proposal (such as whether the business
combination proposed by a party must be accounted for as a pooling of
interests), price protection feature alternatives, the competitive implications
of each proposal, cash dividend policies of each entity, stock price
performance, termination rights in the event stock price levels of these
entities were to decline before closing and the pro forma operating aspects of
each of the revised proposals on the entity submitting such proposal.
The Board determined that both the CCB&T and FirstFed proposals warranted
further consideration while at the present level the Independent proposal was
not competitive. While the Directors noted that the revised Compass proposal
was at a price significantly less than the price proposed by CCB&T and
FirstFed, the Board did focus on the fact that Compass, in its current
corporate structure, was limited in the amount of cash it could offer the
Sandwich Bancorp shareholders due to regulatory and capital constraints.
President Legate introduced the possibility of a full mutual-to-stock
conversion by the parent holding company of Compass, Seacoast Financial, and
the possible effect of such a conversion on Compass's ability to offer a higher
price.
The Board determined that, because its fiduciary duties required it to do
so, it would direct and authorize management and Sandwich Bancorp's advisors to
negotiate a definitive agreement with both CCB&T and FirstFed on the terms
discussed, for consideration by the Board at its next meeting. The Board
further directed that both companies be given the opportunity to engage in
further due diligence of Sandwich Bancorp and that Sandwich Bancorp conduct due
diligence of each of them. Compass officials and representatives were advised,
following the meeting, of the Board's decisions and discussion. Compass did
advise that it would consider a mutual-to-stock conversion as a means to
increase its offer price, but it would do so in a deliberative manner.
Subsequent to the March 6, 1998 Board meeting, Independent was advised
that its indication of interest was not competitive with the other proposals
received. On March 13, 1998, Independent advised that it was no longer
interested in pursuing a combination with Sandwich Bancorp. FirstFed, although
continuing to indicate interest in a combination with Sandwich Bancorp, chose
not to perform substantive due diligence or to negotiate the specific terms of
a definitive agreement; no further substantive discussions with FirstFed
occurred. Sandwich Bancorp and CCB&T performed mutual due diligence of each
other during the period subsequent to March 6, 1998.
As Sandwich Bancorp's March 23, 1998 Board meeting neared, Seacoast
Financial's internal discussions regarding a full mutual-to-stock conversion
intensified as did its discussions with Sandwich Bancorp regarding this
possible transaction. Assuming the possibility of entering into substantive
negotiations with Seacoast Financial to amend the February 2 Agreement,
Sandwich Bancorp performed a due diligence review of Compass. On March 19,
1998, officials of Sandwich Bancorp and Compass met, together with their
respective financial and legal advisors, to discuss whether there was a basis
for the parties to negotiate an amendment to the February 2 Agreement to
reflect revised terms for a business combination between the parties. While the
Compass officials advised that the Seacoast Financial Board had not finalized
any decision to proceed with a full mutual-to-stock conversion, meetings were
scheduled with the Board over the next several days. Compass also advised as to
discussions it had over the prior few days with federal and state regulatory
authorities as to the structure for a business combination
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with Sandwich Bancorp which also involved the mutual to stock conversion. The
parties then entered into substantive negotiations over the terms of a revised
definitive agreement including discussions on pricing and the pricing mechanism,
the form of consideration to be offered to the Sandwich Bancorp stockholders,
break up fees and stock option protection, structure and various conditions to a
revised agreement. Subsequent to the March 19, 1998, meeting with Compass
officials, Compass presented Sandwich Bancorp with a revised definitive
agreement.
At meetings held on March 20 and 22, 1998, Compass and Seacoast Financial
received their Boards' corporate approvals to proceed with a full
mutual-to-stock conversion and to amend the February 2 Agreement to reflect,
among other things, a stock-for-stock exchange with the Sandwich Bancorp
shareholders having a transaction value of $64 per share, subject to possible
adjustment. President Legate apprised each of the Directors as to the results of
discussions with Compass. In order to give the Sandwich Bancorp Board the
opportunity to properly assess both the Compass and CCB&T proposals at the
scheduled March 23, 1998 Board meeting, negotiations continued with each of
these parties over the terms of their respective definitive agreements, drafts
of each of which were distributed to the Board prior to the March 23, 1998,
meeting.
At the March 23, 1998, Board meeting, which was also attended by Sandwich
Bancorp's legal and financial advisors as well as representatives from KPMG
Peat Marwick LLP ("KPMG"), Sandwich Bancorp's independent public accountants
(which provided assistance for Sandwich Bancorp's due diligence reviews of
Compass and CCB&T), the Directors considered and compared the terms of the
revised Compass proposal and the CCB&T proposal. Sandwich Bancorp officials and
KPMG representatives discussed with the Board the results of their due
diligence investigations. Sandler O'Neill provided the Board with an updated
analysis of the business combinations proposed by Compass and CCB&T and
discussed each proposal in detail including the pricing and the pricing
mechanism proposed by each company, projected pro forma operating results for
each company and the ability of Compass to complete a mutual to stock
conversion and raise sufficient capital to meet regulatory requirements on a
pro forma basis. Sandler O'Neill advised the Board of its opinion as to the
fairness to Sandwich Bancorp's stockholders from a financial point of view of
both the revised Compass and the proposed CCB&T transactions.
Sandwich Bancorp's legal advisors then reviewed with the Board the terms
of each of the Compass and CCB&T definitive agreements including the structure,
pricing mechanism and protection, break up fees and lock up stock option
agreements, conditions to closing, termination rights, regulatory
considerations and competitive implications.
Following discussion, which included Board consideration of the similar
prices proposed by Compass and CCB&T, the impact on non-stockholder
constituencies of a business combination with an in-market competitor (CCB&T)
and an out of market entity (Compass) and the terms of the definitive
agreements proposed by Compass and CCB&T, the Board unanimously approved and
adopted the Merger Agreement with Compass. On March 23, 1998, the Merger
Agreement was executed and Sandwich Bancorp and Seacoast Financial issued a
joint press release. Sandwich Bancorp and Seacoast Financial also entered into
the Stock Option Agreement granting to Seacoast Financial an option to acquire
up to 19.9% of Sandwich Bancorp's common stock under certain circumstances.
Reasons for the Merger and Recommendation of the Sandwich Bancorp Board of
Directors
The Board of Directors of Sandwich Bancorp considered the Merger and the
terms of the Merger Agreement in light of economic, financial, legal and market
factors and concluded that the Merger is in the best interests of Sandwich
Bancorp and its stockholders and other constituencies. Among the factors
considered by the Board of Directors were Sandwich Bancorp's historical
operating results, current financial condition, business and management and
future financial and other prospects, the value of the consideration to be
received by the stockholders of Sandwich Bancorp in relation to the historical
trading prices of the Sandwich Bancorp Common Stock, the advice of Sandwich
Bancorp's financial advisor, including its opinion as to the fairness to
Sandwich Bancorp's stockholders, from a financial point of view, of such
consideration, and the business and financial condition and management strength
and integrity of Seacoast Financial and Compass and their ability to consummate
the Conversion, which is necessary to effectuate the Merger. Also considered
were, among other factors, the operating philosophies, relative size,
competitive position and geographic market areas of the respective banking
organizations, and possible benefits of combining them, as well as interests of
employees and customers of Sandwich Bancorp and Sandwich Bank and community
considerations. For additional information regarding the background of the
Merger, including Sandwich Bancorp's consideration of possible business
combinations with
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other banking organizations, see "--Background of the Merger" above. THE BOARD
OF DIRECTORS OF SANDWICH BANCORP UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
Terms of the Merger
Pursuant to the Merger Agreement, Sandwich Bancorp will merge with a
corporate subsidiary of Seacoast Financial, and 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) 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, and cash in lieu of any fractional share of Seacoast Financial Common
Stock which such stockholders otherwise would be entitled to receive. The
Exchange Ratio depends upon a calculation of the Seacoast Financial Trading
Price.
The following table shows the Exchange Ratio at various Seacoast Financial
Trading Prices, together with the Per Sandwich Bancorp Share Value in each
case. The Per Sandwich Bancorp Share Value is determined by multiplying the
Seacoast Financial Trading Price by the applicable Exchange Ratio, and
represents the indicated value of the shares of Seacoast Financial Common Stock
that would be received in the Merger for each share of Sandwich Bancorp Common
Stock based on the Seacoast Financial Trading Price. The Seacoast Financial
Trading Price will be determined by averaging the closing bid and asked prices
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 following table.
<TABLE>
<CAPTION>
Seacoast Financial Per Sandwich Bancorp
Trading Price Exchange Ratio Share Value
- ----------------------- -------------------------------------------- --------------------------------
<S> <C> <C>
More than $15.00 Less than 4.7407 $71.11
($71.11 [divided by] 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 [divided by] Seacoast Financial
Trading Price)
$10.00 or less 6.4000 $64.00 or less
(6.4000 x Seacoast Financial
Trading Price)
</TABLE>
Any cash payment in lieu of fractional shares will be in an amount equal
to such fraction multiplied by the closing sale price of Seacoast Financial
Common Stock on the Nasdaq National Market as reported by The Wall Street
Journal for the trading day immediately preceding the date of the Merger
Effective Time. For a graphic depiction of the Per Sandwich Bancorp Share Value
at various Seacoast Financial Trading Prices, see "Summary--The Proposed
Merger."
In addition, Sandwich Bancorp has adopted the Sandwich Stock Option Plans.
At the Merger Effective Time, each Sandwich Option under the Sandwich Stock
Option Plans will be automatically converted into and exchangeable for a number
of shares of Seacoast Financial Common Stock calculated by subtracting the per
share exercise price of such option from the product of the Seacoast Financial
Trading Price and the Exchange Ratio and dividing the result by the Seacoast
Financial Trading Price.
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The aggregate shares of Seacoast Financial Common Stock issuable in
exchange for the Sandwich Bancorp Common Stock and the Sandwich Options are
referred to as the Exchange Shares.
Consummation of the Merger is subject to satisfaction or waiver of a
number of conditions, including the approval by the holders of at least
two-thirds of the outstanding shares of Sandwich Bancorp Common Stock, the
receipt of all required regulatory approvals, non-objections and other
clearances, including appropriate Massachusetts and federal banking
authorities, and the consummation of the Conversion and related stock offering
to Compass's depositors and others, resulting in net proceeds sufficient to
enable Compass to remain "well-capitalized" under applicable federal banking
law after giving effect to the Merger. The Merger is expected to be consummated
in the fourth quarter of 1998, on the tenth trading day following consummation
of the Conversion.
For a detailed discussion of the terms of the Merger Agreement, including
representations and warranties, conditions to the Merger, business pending the
Merger, closing or termination of the Merger, effect on employees and benefits
and regulatory approvals, see "The Conversion and the Merger--Description of
Merger Agreement," "--Effect on Employees and Benefits" and "--Regulatory
Approvals."
THE BOARD OF DIRECTORS OF SANDWICH BANCORP HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR AND IN THE BEST INTERESTS OF SANDWICH BANCORP AND ITS STOCKHOLDERS. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Fairness Opinion of Sandler O'Neill
General. Pursuant to a letter agreement dated as of January 8, 1998 (the
"Sandler O'Neill Agreement"), Sandwich Bancorp retained Sandler O'Neill as an
independent financial advisor in connection with Sandwich Bancorp's
consideration of a possible business combination with another institution.
Sandler O'Neill is a nationally recognized investment banking firm whose
principal business specialty is banks and savings institutions. In the ordinary
course of its investment banking business, Sandler O'Neill is regularly engaged
in the valuation of such businesses and their securities in connection with
mergers and acquisitions and other corporate transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to Sandwich Bancorp in connection with the Merger.
In connection therewith, the Board of Directors of Sandwich Bancorp requested
Sandler O'Neill to render its opinion as to the fairness, from a financial
point of view, of the consideration to be received by the holders of Sandwich
Bancorp Common Stock in the Merger. At the March 23, 1998 meeting, at which
Sandwich Bancorp's Board of Directors approved and adopted the Merger
Agreement, Sandler O'Neill delivered its oral opinion to Sandwich Bancorp's
Board, which oral opinion was subsequently confirmed in writing as of that
date, that, as of such date, the consideration to be received by Sandwich
Bancorp's stockholders in the Merger was fair, from a financial point of view,
to them. Sandler O'Neill has also delivered to the Board a written opinion
dated the date of this Proxy Statement/Prospectus (the "Fairness Opinion")
which is substantially identical to the March 23, 1998 opinion. THE FULL TEXT
OF THE FAIRNESS OPINION, WHICH SETS FORTH PROCEDURES FOLLOWED, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH SUCH OPINION, IS ATTACHED AT APPENDIX B TO THIS
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX B. HOLDERS OF SANDWICH BANCORP COMMON STOCK
ARE URGED TO READ THE FAIRNESS OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR
CONSIDERATION OF THE PROPOSED MERGER.
THE FAIRNESS OPINION WAS PROVIDED TO SANDWICH BANCORP'S BOARD OF DIRECTORS
FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS OF SANDWICH
BANCORP COMMON STOCK IN THE MERGER. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS
DECISION OF SANDWICH BANCORP TO ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF
SANDWICH BANCORP COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER MATTER RELATED THERETO.
In connection with rendering its opinion dated March 23, 1998, Sandler
O'Neill performed a variety of financial analyses. The following is a summary
of material analyses performed by Sandler O'Neill but does not purport to be a
complete description of all the analyses underlying Sandler O'Neill's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to analysis or
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description. Accordingly, Sandler O'Neill believes that its analyses must be
considered as a whole and that selecting portions of such analyses and factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the evaluation processes underlying its opinion. In
performing its analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of
Sandwich Bancorp, Seacoast Financial and Sandler O'Neill. Any estimates
contained in Sandler O'Neill's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates on the values of companies do not purport to be appraisals
or necessarily reflect the prices at which companies or their securities may
actually be sold. Because such estimates are inherently subject to uncertainty,
neither Sandwich Bancorp nor Sandler O'Neill assumes responsibility for their
accuracy.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based upon an implied transaction value of $64.00 per
share, and Sandwich Bancorp's December 31, 1997 financial information, Sandler
O'Neill calculated the price to tangible book value, price to last twelve months
("LTM") earnings and core deposit premium. This analysis yielded a price to
tangible book value multiple of 307%, a price to LTM earnings multiple of 26.1x
and a core deposit premium of 24.4%.
Stock Trading History. Sandler O'Neill reviewed historical reported
trading prices and volumes of Sandwich Bancorp Common Stock and relationships
between movements in the prices of Sandwich Bancorp Common Stock, respectively,
to movements in certain stock indices, including the Standard & Poor's 500
Index, the NASDAQ Banking Index and a composite group of publicly traded
savings banks in geographic proximity and of similar asset size to Sandwich
Bancorp.
Analysis of Selected Publicly Traded Companies. Sandler O'Neill used
publicly available information to compare selected financial and market trading
information, including balance sheet composition, asset quality ratios, loan
loss reserve levels, profitability, capital adequacy, dividends and trading
multiples, for Sandwich Bancorp and two different groups of selected
institutions. The first group consisted of Sandwich Bancorp and the following
16 publicly traded New England savings institutions (the "Regional Group")
having total assets ranging from $247 million to $959 million: Abington
Bancorp, Inc., Alliance Bancorp of New England, American Bank of Connecticut,
Bancorp Connecticut, Inc., Central Co-operative Bank, Dime Financial Corp.,
Lawrence Savings Bank, MASSBANK Corp., MECH Financial, Inc., MetroWest Bank,
NSS Bancorp, Inc., New Hampshire Thrift Bancshares, NewMil Bancorp, Inc.,
Northeast Bancorp, People's Bancshares, Inc. and Warren Bancorp, Inc. Sandler
O'Neill also compared Sandwich Bancorp to a group of 18 publicly traded savings
institutions, having total assets ranging from $330 million to $750 million,
which had a return on average equity (based on last twelve months earnings)
greater than 13% and a price to tangible book value of greater than 200% (the
"Highly-Valued Group"). The Highly-Valued Group institutions were: American
Bank of Connecticut, Coastal Financial Corp., FMS Financial Corp., First
Citizens Corp., First Mutual Savings Bank, Great Southern Bancorp, Inc.,
Harleysville Savings Bank, Highland Bancorp, Inc., Home Federal Bancorp,
Lakeview Financial Corp., Lawrence Savings Bank, MetroWest Bank, North American
Savings Bank, PVF Capital Corp., Progress Financial Corp., Security First
Corp., Warren Bancorp, Inc. and Winton Financial Corp. The analyses compared
publicly available financial information for each of the groups and Sandwich
Bancorp as of and for each of the fiscal years ended in 1992 through 1997. The
following comparisons are based upon fiscal 1997 financial information, and
data described below with respect to the Regional Group and the Highly-Valued
Group consist of median data for such groups.
The total assets of Sandwich Bancorp were $519 million, compared to $519
million for the Regional Group and $522 million for the Highly-Valued Group. The
annual growth rate of assets for Sandwich Bancorp was 11.7%, compared to 13.2%
for the Regional Group and 12.1% for the Highly-Valued Group. The tangible
equity to total assets ratio was 7.82% for Sandwich Bancorp, compared to 8.06%
for the Regional Group and 7.74% for the Highly-Valued Group. The intangible
assets to total equity ratio for Sandwich Bancorp was 3.47%, compared to 2.79%
for the Regional Group and 1.13% for the Highly-Valued Group. The net loans to
assets ratio for Sandwich Bancorp was 70.7%, compared to 62.5% for the Regional
Group and 74.6% for the Highly-Valued Group. The cash and securities to total
assets ratio was 24.8% for Sandwich Bancorp, compared to 34.4% for the Regional
Group and 21.1% for the Highly-Valued Group. Total deposits were $423 million
for Sandwich Bancorp, compared to $325 million for the Regional Group and $362
million for the Highly-Valued Group. Sandwich Bancorp had a gross loans to total
deposits ratio of 87.6%, compared to 87.6% for the Regional Group and 97.3% for
the Highly-Valued Group. The total borrowings to total assets ratio for Sandwich
Bancorp was 8.79%, compared to 13.88% for the Regional
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Group and 14.51% for the Highly-Valued Group. The ratio of non-performing loans
to gross loans was 0.63% for Sandwich Bancorp, compared to 0.65% for the
Regional Group and 0.69% for the Highly-Valued Group. The ratio of
non-performing loans to total assets for Sandwich Bancorp was 0.45%, compared to
0.45% for the Regional Group and 0.54% for the Highly-Valued Group. The ratio of
non-performing assets to total assets for Sandwich Bancorp was 0.56%, compared
to 0.58% for the Regional Group and 0.71% for the Highly-Valued Group. The ratio
of loan loss reserves to non-performing loans was 176.5% for Sandwich Bancorp,
compared to 185.7% for the Regional Group and 155.3% for the Highly-Valued
Group. The ratio of loan loss reserves to gross loans for Sandwich Bancorp was
1.11%, compared to 1.54% for the Regional Group and 1.26% for the Highly-Valued
Group. The net interest margin of Sandwich Bancorp was 3.71%, compared to 3.57%
for the Regional Group and 3.87% for the Highly-Valued Group. The ratio of
non-interest income to average assets for Sandwich Bancorp was 0.55%, compared
to 0.72% for the Regional Group and 0.77% for the Highly-Valued Group. The ratio
of non-interest expense to average assets was 2.46% for Sandwich Bancorp,
compared to 2.63% for the Regional Group and 2.24% for the Highly-Valued Group.
The efficiency ratio of Sandwich Bancorp was 58.2%, compared to 62.1% for the
Regional Group and 52.2% for the Highly-Valued Group. The return on average
assets for fiscal 1997 was 0.98% for Sandwich Bancorp, compared to 0.98% for the
Regional Group and 1.35% for the Highly-Valued Group. The return on average
equity for fiscal 1997 was 12.5% for Sandwich Bancorp, compared to 12.6% for the
Regional Group and 16.9% for the Highly-Valued Group. Based on closing prices as
of March 20, 1998, the price to tangible book value for Sandwich Bancorp was
276%, compared to 204% for the Regional Group and 247% for the Highly-Valued
Group. Based on closing prices as of March 20, 1998, the price to earnings per
share multiple based upon earnings for fiscal 1997, was 23.5x for Sandwich
Bancorp, compared to 17.17x for the Regional Group and 15.45x for the
Highly-Valued Group. The dividend payout ratio was 51.0% for Sandwich Bancorp,
compared to 30.5% for the Regional Group and 19.3% for the Highly-Valued Group.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial information for Seacoast Financial and
groups of selected peer institutions and selected market trading information
for the peer groups. The first group consisted of Seacoast Financial and the
following 10 publicly-traded savings institutions (the "Peer Group") having
total assets ranging from $892 million to $1.7 billion: Andover Bancorp, Inc.,
BostonFed Bancorp Inc., Dime Financial Corp., FirstFed America Bancorp, Inc.,
First Essex Bancorp, Inc., First Federal of East Hartford, MASSBANK Corp,. MECH
Financial, Inc., Medford Bancorp, Inc. and SIS Bancorp, Inc. Sandler O'Neill
also compared Sandwich Bancorp to a group of 11 publicly-traded savings
institutions, having total assets ranging from $734 million to $2.0 billion,
which had a return on average equity (based on last twelve months earnings)
greater than 10% and a price to tangible book value of greater than 200% (the
"Large Highly-Valued Group"). The Large Highly-Valued Group institutions were:
Anchor BanCorp Wisconsin, CFSB Bancorp, Inc., D&N Financial Corp., Dime
Financial Corp., First Federal Capital Corp., First Liberty Financial Corp.,
Great Southern Bancorp, Inc., InterWest Bancorp, Inc., Metropolitan Financial
Corp., North American Savings Bank, People's Bancshares, Inc. and WSFS
Financial Corp. The analysis compared publicly available financial information
for Seacoast Financial and for the peer group as of and for the fiscal years
ended in 1992 through 1997. The following comparisons are based upon fiscal
1997 financial information, and data described below with respect to the Peer
Group and Large Highly-Valued Group consist of median data for such groups.
The total assets of Seacoast Financial were $1.1 billion, compared to $1.1
billion for the Peer Group and $1.1 billion for the Large Highly-Valued Group.
The annual growth rate of assets for Seacoast Financial was 7.0%, compared to
9.8% for the Peer Group and 11.9% for the Large Highly-Valued Group. The
tangible equity to total assets ratio was 8.24% for Seacoast Financial, compared
to 8.10% for the Peer Group and 6.66% for the Large Highly-Valued Group. The
intangible assets to total equity ratio for Seacoast Financial was 2.06%,
compared to 1.43% for the Peer Group and 2.14% for the Large Highly-Valued
Group. The net loans to assets ratio for Seacoast Financial was 73.9%, compared
to 59.1% for the Peer Group and 74.1% for the Large Highly-Valued Group. The
cash and securities to total assets ratio was 24.0% for Seacoast Financial,
compared to 36.3% for the Peer Group and 22.0% for the Large Highly-Valued
Group. Total deposits were $938 million for Seacoast Financial, compared to $810
million for the Peer Group and $792 million for the Large Highly-Valued Group.
Seacoast Financial had a gross loans to total deposits ratio of 87.8%, compared
to 87.8% for the Peer Group and 111.9% for the Large Highly-Valued Group. The
total borrowings to total assets ratio for Seacoast Financial was 5.38%,
compared to 18.1% for the Peer Group and 23.8% for the Large Highly-Valued
Group. The ratio of non-performing loans to gross loans was 1.33% for Seacoast
Financial, compared to 0.68% for the Peer Group and 0.61% for the Large
Highly-Valued Group. The ratio of non-performing loans to total assets for
Seacoast Financial was 1.00%, compared
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to .29% for the Peer Group and 0.41% for the Large Highly-Valued Group. The
ratio of non-performing assets to total assets for Seacoast Financial was 1.21%,
compared to 0.35% for the Peer Group and 0.63% for the Large Highly-Valued
Group. The ratio of loan loss reserves to non-performing loans was 98.9% for
Seacoast Financial, compared to 324.4% for the Peer Group and 176.5% for the
Large Highly-Valued Group. The ratio of loan loss reserves to gross loans for
Seacoast Financial was 1.32%, compared to 1.32% for the Peer Group and 1.01% for
the Large Highly-Valued Group. The net interest margin of Seacoast Financial was
4.00%, compared to 3.31% for the Peer Group and 3.18% for the Large
Highly-Valued Group. The ratio of non-interest income to average assets for
Seacoast Financial was 0.59%, compared to 0.46% for the Peer Group and 0.92% for
the Large Highly-Valued Group. The ratio of non-interest expense to average
assets was 2.42% for Seacoast Financial, compared to 2.01% for the Peer Group
and 2.28% for the Large Highly-Valued Group. The efficiency ratio of Seacoast
Financial was 55.1%, compared to 55.1% for the Peer Group and 57.8% for the
Large Highly-Valued Group. The return on average assets for fiscal 1997 was
1.14% for Seacoast Financial, compared to 1.05% for the Peer Group and 1.10% for
the Large Highly-Valued Group. The return on average equity for fiscal 1997 was
14.0% for Seacoast Financial, compared to 11.2% for the Peer Group and 16.9% for
the Large Highly-Valued Group. Based on closing prices as of March 20, 1998, the
price to tangible book value for the Peer Group was 186.8% and 290.8% for the
Large Highly-Valued Group. Based on closing prices as of March 20, 1988, the
price to earnings per share multiple based upon earnings for fiscal 1997 was
18.0x for the Peer Group and 17.8x for the Large Highly-Valued Group. The
dividend payout ratio was 29.7% for the Peer Group and 20.0% for the Large
Highly-Valued Group.
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed 82
transactions announced between January 1, 1997 and March 20, 1998, involving
savings institutions nationwide as targets with transaction values over $15
million ("Nationwide Transactions"), 12 transactions announced between January
1, 1997 and March 20, 1998, involving New England savings institutions as
targets with transaction values over $15 million ("New England Transactions")
and 6 transactions announced between September 1, 1997 and March 20, 1998,
involving New England savings institutions as targets with transaction values
over $15 million ("Recent New England Transactions"). Sandler O'Neill reviewed
publicly reported ratios of price to last twelve months' earnings, price to
book value, price to tangible book value, price to deposits, price to assets
and core deposit premium paid in each such transaction and computed high, low,
mean, and median ratios and premiums for the respective groups of transactions.
Based upon the median multiples for Nationwide Transactions, Sandler O'Neill
derived an imputed range of values per share of Sandwich Bancorp Common Stock
of $42.81 to $56.95. Based upon the median multiples for New England
Transactions, Sandler O'Neill derived an imputed range of values per share of
Sandwich Bancorp Common Stock of $45.01 to $51.38. Based upon the median
multiples for Recent New England Transactions, Sandler O'Neill derived an
imputed range of values per share of Sandwich Bancorp Common Stock of $44.84 to
$55.56.
No company involved in the transactions included in the above analysis is
identical to Sandwich Bancorp, and no transaction included in the above
analysis is identical to the Merger. Accordingly, an analysis of the results of
the foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Sandwich Bancorp and the companies to which they are being
compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Sandwich Bancorp through 2002 under various circumstances,
assuming Sandwich Bancorp performed in accordance with estimates of future
earnings provided by its management. To approximate the terminal value of
Sandwich Bancorp Common Stock at the end of the five-year period, Sandler
O'Neill applied price to earnings multiples ranging from 10x to 28x and applied
multiples of tangible book value ranging from 140% to 320%. The dividend income
streams and terminal values were then discounted to present values using
different discount rates (ranging from 10% to 16%) chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of Sandwich Bancorp Common Stock. This analysis, assuming the current dividend
payout ratio, indicated an imputed range of values per share of Sandwich
Bancorp Common Stock of between $24.05 and $75.54 when applying the price to
earnings multiples, and an imputed range of values per share of Sandwich
Bancorp Common Stock of between $23.83 and $62.15 when applying multiples of
tangible book value. In connection with its analysis, Sandler O'Neill
extensively used sensitivity analyses (including variations with respect to the
growth rate of assets, net interest spread, non-interest income, and
non-interest expense) to illustrate effects changes in the underlying
assumptions could have on the resulting present value and discussed these
changes with Sandwich Bancorp's Board of Directors. Sandler O'Neill noted that
the discounted dividend stream and terminal value analysis is a widely used
valuation methodology, but
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the results of such methodology are highly dependent upon the numerous
assumptions that must be made, and the results thereof are not necessarily
indicative of actual values or actual future results.
Pro Forma Merger Analysis. Sandler O'Neill also analyzed certain potential
pro forma effects of the Merger on Seacoast Financial based on Sandwich
Bancorp's and Seacoast Financial's historical income statements and balance
sheets and certain estimates of future performance provided by members of the
senior managements of Sandwich Bancorp and Seacoast Financial, respectively. In
estimating the amount of gross proceeds to be raised in the Conversion, Sandler
O'Neill reviewed six conversion transactions completed in the first quarter of
1998 ("First Quarter Transactions"), eight transactions completed in the fourth
quarter of 1997 ("Fourth Quarter Transactions"), four transactions completed in
the third quarter of 1997 ("Third Quarter Transactions") and 21 transactions
completed in 1997 ("1997 Transactions"). Sandler O'Neill reviewed the price to
pro forma tangible book value and price to pro forma earnings in each
transaction and computed high, low, mean and median multiples for the respective
groups of transactions. The median price to pro forma tangible book value
multiples were 78.85% for the First Quarter Transactions, 76.56% for the Fourth
Quarter Transactions, 72.86% for the Third Quarter Transactions and 72.02% for
the 1997 Transactions. The median price to pro forma earnings multiples were
15.1x for First Quarter Transactions, 15.0x for Fourth Quarter Transactions,
24.6x for Third Quarter Transactions and 19.2x for 1997 Transactions. Based upon
this analysis, Sandler O'Neill estimated a range of gross proceeds to be raised
in the Conversion of $191 million to $293 million. In addition to Conversion
proceeds, assumptions regarding the economic environment, accounting and tax
treatment of the Merger, acquisition costs, operating efficiencies and other
adjustments were used to arrive at a base case pro forma analysis of pro forma
effects of the Merger on Seacoast Financial. Based upon estimated Conversion
gross proceeds of $298 million, this analysis indicated that the Merger would be
dilutive to Seacoast Financial's GAAP earnings per share in the first full year
following the transaction, accretive to GAAP earnings per share for all other
periods analyzed and dilutive to Seacoast Financial's tangible book value per
share for all periods analyzed. The actual results achieved by the combined
company will vary from the projected results, and the variations may be
material.
Additional Analyses. In connection with rendering its opinion of March 23,
1998, Sandler O'Neill also reviewed, among other things: (i) the Merger
Agreement and exhibits thereto; (ii) the Stock Option Agreement, dated as of
March 23, 1998, by and between Sandwich Bancorp and Seacoast Financial; (iii)
certain publicly available financial statements and other historical financial
information relating to Sandwich Bancorp and Sandwich Bank provided by Sandwich
Bancorp; (iv) certain publicly available financial statements and other
historical financial information relating to Seacoast Financial and Compass Bank
provided by Seacoast Financial; (v) certain financial analyses and estimates of
future performance of Sandwich Bancorp prepared by and reviewed with management
of Sandwich Bancorp and views of members of senior management of Sandwich
Bancorp regarding Sandwich Bancorp's past and current business operations,
results thereof, financial condition and future prospects; (vi) certain
financial analyses and estimates of future performance of Seacoast Financial
prepared and reviewed with management of Seacoast Financial and views of members
of senior management of Seacoast Financial regarding past and current business
operations, results thereof, financial condition and future prospects; (vii)
estimates of pro forma impact of the Merger on Seacoast Financial; (viii) the
publicly reported historical price and trading activity for Sandwich Bancorp
Common Stock, including a comparison of certain financial and stock market
information for Sandwich Bancorp with similar publicly available information for
certain other companies the securities of which are publicly traded; (ix)
financial terms of recent business combinations in the savings institution
industry, to the extent publicly available; (x) the current market environment
generally and the banking environment in particular; and (xi) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as Sandler O'Neill considered relevant.
In connection with rendering the Fairness Opinion, Sandler O'Neill
confirmed the appropriateness of its reliance on the analyses used to render
its March 23, 1998, opinion by performing procedures to update certain of such
analyses and by reviewing assumptions upon which such analyses were based and
factors considered in connection therewith.
Information Used in Connection with Analyses. In performing its reviews,
Sandler O'Neill assumed and relied upon, without independent verification, the
accuracy and completeness of all the financial information, analyses and other
information that was publicly available or otherwise furnished to, reviewed by
or discussed with it, and Sandler O'Neill does not assume any responsibility or
liability for the accuracy or completeness of any such information. Sandler
O'Neill did not make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities (contingent or
otherwise) of Seacoast Financial or Sandwich Bancorp or any of
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their subsidiaries, or the collectibility of any such assets, nor was it
furnished with any such evaluations or appraisals (relying, where relevant, on
analyses and estimates of Seacoast Financial and Sandwich Bancorp). Sandler
O'Neill is not an expert in the evaluation of allowances for loan losses, and
Sandler O'Neill has not made an independent evaluation of the adequacy of the
allowances for loan losses of Sandwich Bancorp and Seacoast Financial, nor has
it reviewed any individual credit files of Sandwich Bancorp or Seacoast
Financial. With Sandwich Bancorp's consent, Sandler O'Neill has assumed that the
allowances for loan losses for Sandwich Bancorp and Seacoast Financial,
respectively, are adequate to cover such losses and will be adequate on a pro
forma basis for the combined entity. In addition, Sandler O'Neill has not
conducted any physical inspection of the properties or facilities of Sandwich
Bancorp or Seacoast Financial. With respect to the information regarding
estimates of potential future financial performance provided by each company's
management, Sandler O'Neill assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
respective managements with respect to the respective future financial
performances of Seacoast Financial and Sandwich Bancorp and that such
performances will be achieved. Sandler O'Neill expressed no opinion as to such
estimates or the assumptions on which they were based.
Sandler O'Neill's opinions were necessary based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the dates of
such opinions. For purposes of rendering its opinions, Sandler O'Neill assumed,
in all respects material to its analyses, that all of the representations and
warranties contained in the Merger Agreement and all related agreements are
true and correct, that each party to such agreements will perform all of the
covenants required to be performed by such party under such agreements and that
the conditions precedent in the Merger Agreement will not be waived. Sandler
O'Neill also assumed that there has been no material change in Seacoast
Financial's or Sandwich Bancorp's assets, financial condition, results of
operations, business or prospects since December 31, 1997, the date of the last
financial statements noted above, that Seacoast Financial will remain as a
going concern for all periods relevant to its analyses, that the Merger will be
accounted for as a pooling of interests.
Transaction Fee and Relationship to Sandwich Bancorp. Under the Sandler
O'Neill Agreement, Sandwich Bancorp has agreed to pay Sandler O'Neill a
transaction fee in connection with the Merger, a substantial portion of which is
contingent upon the consummation of the Merger. Under the terms of the Sandler
O'Neill Agreement, Sandwich Bancorp has agreed to pay Sandler O'Neill a
transaction fee of $1,000,000. As of the date hereof, Sandler O'Neill had
received $250,000 of the transaction fee. The balance will be payable upon the
closing of the Merger. Sandler O'Neill has also received a fee for rendering its
fairness opinion, which will be credited against that portion of the transaction
fee due upon closing of the Merger. Sandwich Bancorp has also agreed to
reimburse Sandler O'Neill for its reasonable out-of-pocket expenses incurred in
connection with its engagement and to indemnify Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons against certain expenses and liabilities, including
liabilities under securities laws.
Sandler O'Neill has in the past provided other financial advisory services
to Sandwich Bancorp and has received its customary compensation for such
services. In the ordinary course of its business, Sandler O'Neill may actively
trade debt and/or equity securities of Sandwich Bancorp and their respective
affiliates for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Dissenters' Rights
Pursuant to Section 85 of Chapter 156B of the Massachusetts Business
Corporation Laws (the "MBCL"), stockholders of Sandwich Bancorp who object to
the Merger Agreement may demand payment from Sandwich Bancorp, or its corporate
successor, and an appraisal of the value of their shares in accordance with the
provisions of Sections 86 to 98, inclusive, of Chapter 156B of the MBCL in lieu
of accepting the consideration provided for under the Merger Agreement. The
discussion of these provisions set forth below is qualified in its entirety by
reference to the text of these provisions which is attached to this Proxy
Statement/Prospectus at Appendix C. Stockholders intending to exercise
dissenters' appraisal rights should carefully review Appendix C. Failure to
follow precisely any of the statutory procedures set forth therein may result
in a termination or waiver of these rights.
In order to exercise the right to demand appraisal and payment of the
value of his or her shares of the Sandwich Bancorp Common Stock, a stockholder
must: (i) file with Sandwich Bancorp prior to the taking of the vote on the
Merger Agreement a written objection stating that he or she intends to demand
payment for his or her shares if the Merger is consummated and (ii) not vote
his or her shares for approval of the Merger Agreement. Those written
objections may be filed with Sandwich Bancorp, 100 Old King's Highway, P.O. Box
959, Sandwich Massachusetts 02563, Attention:
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Dana S. Briggs, Secretary. A proxy signed but not marked will, unless revoked,
be voted for approval of the Merger Agreement. Accordingly, a stockholder voting
by proxy who desires to preserve his or her appraisal rights must either vote
all of his or her shares against approval of the Merger Agreement or abstain
from voting on the Merger Agreement with respect to his or her shares.
Within 10 days after the consummation of the Merger, Sandwich Bancorp's
corporate successor, Seacoast Financial, shall notify by registered or
certified mail each stockholder who has satisfied the requirements for
demanding the appraisal of his or her shares that the Merger has become
effective. The giving of this notice will not be deemed to create any rights in
the recipient of the notice to demand payment for his or her shares of Sandwich
Bancorp Common Stock.
If, within 20 days after the date such notice is mailed, any stockholder to
whom Seacoast Financial was required to give such notice shall demand in writing
payment from Seacoast Financial for his or her shares of Sandwich Bancorp Common
Stock, Seacoast Financial shall pay to such objecting stockholder the fair value
of his or her Sandwich Bancorp Common Stock within 30 days after the expiration
of the period during which such demand may be made. These written demands may be
filed with Seacoast Financial, 791 Purchase Street, New Bedford, Massachusetts
02740, Attention: Arthur W. Short, Executive Vice President and Chief Operating
Officer. If during this 30-day period Seacoast Financial and the objecting
stockholder are unable to agree as to the value of the Sandwich Bancorp Common
Stock, either party may, within four months after the expiration of such 30-day
period, demand a determination of the value of the shares of Sandwich Bancorp
Common Stock of all such objecting stockholders by filing a bill in equity in
the Superior Court in Bristol County.
Any objecting stockholder who decides to file a bill in equity must do so
on his or her own behalf and on behalf of all other objecting stockholders who
have demanded payment for their shares and with whom Sandwich Bancorp, or its
corporate successor, has not reached an agreement as to the value thereof.
Service of the bill must be made upon Seacoast Financial by subpoena with a
copy of the bill attached. Seacoast Financial will file with its answer a duly
verified list of all such other objecting stockholders and such objecting
stockholders will thereupon be deemed to have been added as parties to the
bill. Seacoast Financial shall then give notice in such form and returnable on
such date as the court shall order to each such stockholder by registered or
certified mail to the last known address as shown in the records of Seacoast
Financial and by publication or otherwise as the court may order.
After a hearing, the court shall enter a decree determining the fair value
of the Sandwich Bancorp Common Stock of those objecting stockholders who have
become entitled to the valuation of and payment for their shares and shall
order Seacoast Financial to make payment of such value, together with interest,
if any, to the objecting stockholders entitled thereto upon the transfer by
them of the certificates representing their shares of Sandwich Bancorp Common
Stock if certificated or uncertificated, upon receipt of an instruction to
transfer such stock to Seacoast Financial. The value of such shares shall be
determined as of the day preceding the date of the stockholder vote approving
the Merger Agreement and shall be exclusive of any element of value arising
from the expectation or accomplishment of the Merger.
The costs associated with the bill in equity, exclusive of fees of counsel
and experts retained by any party, shall be taxed upon the parties to the bill
as the court deems equitable. All costs associated with giving notice to
stockholders, however, shall be borne by Seacoast Financial. Interest shall be
paid on any award from the date of the vote approving the Merger Agreement and
the court may, upon application of any party, determine the amount of interest
to be paid.
Any objecting stockholder who has demanded payment for his or her Sandwich
Bancorp Common Stock shall not thereafter be entitled to notice of any
stockholders' meeting, to vote such stock for any purpose or to receive any
dividends or distributions on the stock (except dividends or distributions
payable to stockholders of record as of a date prior to the date of the vote
approving the Merger Agreement) unless: (i) a bill in equity to determine the
fair value of the Sandwich Bancorp Common Stock is not filed within the
statutory time period; (ii) a bill in equity, if filed, has been dismissed as
to such stockholder; or (iii) such stockholder has, with the written approval
of Seacoast Financial, delivered a written withdrawal of his or her objections
and an acceptance of such corporate action.
The enforcement by an objecting stockholder of his or her right to receive
payment for his or her shares in this manner shall be an exclusive remedy
except that the stockholder may still bring or maintain an appropriate
proceeding to obtain relief on the ground that the corporate action giving rise
to such right will be or is illegal or fraudulent as to him or her.
48
<PAGE>
PRO FORMA DATA
Unaudited Pro Forma Condensed Consolidated Financial Information
The following Unaudited Pro Forma Condensed Consolidated Balance Sheets at
May 31, 1998 and October 31, 1997 and Unaudited Pro Forma Condensed
Consolidated Statements of Income for the seven months ended May 31, 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
seven-month periods ended May 31, 1998 and 1997 and of Sandwich Bancorp for the
seven-month periods ended June 30, 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 18,400,000
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 by the ESOP or the 625,000 shares assumed
purchased 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 and Community Offerings (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 $1.6
million paid to Ryan Beck and McConnell Budd, will be $3.4 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. No
cost savings or other benefits of the Merger are reflected in the tables. The
Unaudited Pro Forma Condensed Consolidated Statements of Income do not reflect
investment income from investment of Conversion proceeds or anticipated ESOP
expense. For the effects of such items, see "--Pro Forma Conversion Data."
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 or incorporated by reference
in this Prospectus.
The pro forma stockholders' equity is based upon 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."
49
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
At May 31, 1998 (1) At May 31, 1998 (1)
---------------------------------------- -----------------------------------------
Pro Forma Seacoast Pro Forma
Seacoast Conversion Financial Sandwich Merger Pro Forma
Financial Adjustments as Converted Bancorp Adjustments Consolidated
----------- ------------- ------------ ---------- ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ........... $ 45,001 $145,882 (2) $ 190,883 $ 25,921 $ (5,000)(5) $ 211,804
Securities available for sale ....... 183,340 183,340 58,180 59,077 (4) 300,597
Securities held to maturity ......... 13,649 13,649 64,792 (64,792)(3) 13,649
Loans held for sale ................. 19,810 19,810 -- 19,810
Loans, net .......................... 873,914 873,914 356,450 1,230,364
Bank premises and equipment ......... 13,932 20,000 (2) 33,932 6,231 40,163
OREO ................................ 1,395 1,395 271 1,666
Net deferred tax asset .............. 5,877 5,877 2,929 557 (3) 9,363
Other assets ........................ 19,641 19,641 16,239 1,000 (5) 36,880
---------- ---------- -------- -------- ----------
Total assets ..................... $1,176,559 $165,882 $1,342,441 $531,013 $ (9,158) $1,864,296
========== ========== ========== ======== ======== ==========
Liabilities and
Stockholders' Equity:
Deposits ............................ $ 982,351 $ 982,351 $444,750 $1,427,101
Borrowed funds ...................... 77,074 77,074 35,322 112,396
Other liabilities ................... 10,624 10,624 6,385 17,009
---------- ---------- -------- ----------
Total liabilities ................ 1,070,049 1,070,049 486,457 1,556,506
---------- ---------- -------- ----------
Stockholders' equity:
Common stock ....................... -- $ 1,840 (2) 1,840 2,043 $ (774)(6) 3,109
Additional paid-in capital ......... -- 178,762 (2) 178,762 21,540 (3,549)(6) 196,753
Retained earnings .................. 104,193 104,193 20,811 (4,000)(5) 121,004
Unearned compensation--
ESOP ............................. -- (14,720)(2) (14,720) -- (14,720)
Unrealized gain on securities
available for sale, net
of taxes ......................... 2,317 2,317 162 (835)(4) 1,644
---------- ---------- ---------- -------- -------- ----------
Total stockholders' equity ......... 106,510 165,882 272,392 44,556 (9,158) 307,790
---------- ---------- ---------- -------- -------- ----------
Total liabilities and
stockholders' equity ............. $1,176,559 $165,882 $1,342,441 $531,013 $ (9,158) $1,864,296
========== ========== ========== ======== ======== ==========
Book value per share ................ $ 21.80 $ 9.90(7)
Book value per equivalent share-- ======== ===========
Sandwich Bancorp ...................
$ 63.36(8)
===========
</TABLE>
(footnotes begin on following page)
50
<PAGE>
Unaudited Pro Forma Condensed Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
At October 31, 1997 (1) At October 31, 1997 (1)
---------------------------------------- ------------------------------------------
Pro Forma Seacoast Pro Forma
Seacoast Conversion Financial as Sandwich Merger Pro forma
Financial Adjustments Converted Bancorp Adjustments Consolidated
----------- ----------- ------------- ----------- ------------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ............ $ 32,761 $145,882 (2) $ 178,643 $ 16,068 $ (5,000)(5) $ 189,711
Securities available for sale ........ 209,316 209,316 10,995 99,585 (4) 319,896
Securities held to maturity .......... 12,633 12,633 99,577 (99,577)(3) 12,633
Loans held for sale .................. 4,277 4,277 -- 4,277
Loans, net ........................... 809,555 809,555 366,642 1,176,197
Bank premises and equipment .......... 12,254 20,000 (2) 32,254 6,379 38,633
OREO ................................. 1,707 1,707 596 2,303
Net deferred tax asset ............... 6,988 6,988 2,948 9,936
Other assets ......................... 17,099 17,099 15,492 1,000 (5) 33,591
---------- ---------- --------- -------- ----------
Total assets ...................... $1,106,590 $165,882 $1,272,472 $ 518,697 $ (3,992) $1,787,177
========== ======== ========== ========= ======== ==========
Liabilities and
Stockholders' Equity:
Deposits ............................. $ 937,948 $ 937,948 $ 423,014 $1,360,962
Borrowed funds ....................... 60,703 60,703 47,339 108,042
Other liabilities .................... 9,798 9,798 6,330 $ 31 (3) 16,159
---------- ---------- --------- ---------- ----------
Total liabilities ................. 1,008,449 1,008,449 476,683 31 (3) 1,485,163
---------- ---------- --------- ---------- ----------
Stockholders' equity:
Common stock ........................ -- $ 1,840 (2) 1,840 1,942 (688)(6) 3,094
Additional paid-in capital .......... -- 178,762 (2) 178,762 20,139 619 (6) 199,520
Retained earnings ................... 96,527 96,527 19,848 (4,000)(5) 112,375
Unearned compensation--
ESOP .............................. -- (14,720)(2) (14,720) -- (14,720)
Unrealized gain on securities
available for sale, net of
taxes ............................. 1,614 1,614 85 46 (4) 1,745
---------- ---------- --------- ---------- ----------
Total stockholders' equity ........ 98,141 165,882 264,023 42,014 (4,023) 302,014
---------- -------- ---------- --------- ---------- ----------
Total liabilities and
stockholders' equity ............. $1,106,590 $165,882 $1,272,472 $ 518,697 $ (3,992) $1,787,177
========== ======== ========== ========= ========== ==========
Book value per share ................. $ 21.63 $ 9.76(7)
Book value per equivalent share-- ========= ===========
Sandwich Bancorp ....................
$ 62.46(8)
===========
</TABLE>
- ------------
(1) Reflects Sandwich Bancorp's balance sheets as of June 30, 1998 and December
31, 1997.
(2) Reflects gross proceeds of $184.0 million from the sale of Conversion
Shares, assuming the maximum of the Estimated Valuation Range less (i)
estimated expenses of the Conversion equal to $3.4 million, (ii) the
purchase of $14.7 million of Conversion Shares by the ESOP funded
internally by a loan from Seacoast Financial and (iii) $20 million for the
estimated construction costs of a new main office building.
(3) Reflects transfer of Sandwich investments from held to maturity to
available for sale consistent with Seacoast Financial's classification and
as permitted by SFAS No. 115.
(4) Reflects the adjustment set forth in Note 3 above and the retirement of
shares of Sandwich Bancorp Common Stock held by Seacoast Financial having a
carrying value of $5,715,000 at May 31, 1998 (90,000 shares) and $190,000
at October 31, 1997 (5,000 shares) and a net SFAS No. 115 adjustment of
$835,000 at May 31, 1998 and $73,000 at October 31, 1997.
51
<PAGE>
(5) Adjustment to record the effects of estimated one-time expenses of
approximately $5.0 million, which, net of a $1.0 million income tax
benefit, 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 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):
<TABLE>
<S> <C>
Merger related professional fees ...................... $ 2,400
Employee severance costs .............................. 2,500
Data processing and other costs ....................... 100
--------
Total estimated merger expenses .................... 5,000
Tax benefit ........................................... (1,000)
--------
Total estimated merger expenses, net of tax benefit $ 4,000
========
</TABLE>
(6) Reflects the reclassification to retire 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 assumed Exchange Ratio of 6.4 shares of Seacoast Financial
Common Stock for each share of Sandwich Bancorp Common Stock, net of effect
of differences in par values.
(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
Pro Forma Book Value Per Equivalent
Per Share Share--Sandwich Bancorp
Seacoast ----------------------- --------------------------
Financial Exchange May 31, October 31, May 31, October 31,
Trading Price Ratio 1998 1997 1998 1997
- ------------------ -------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
$11............. 5.8182 $10.28 $10.14 $59.81 $59.00
12 ............. 5.3333 10.62 10.47 56.64 55.84
13 ............. 4.9231 10.93 10.77 53.81 53.02
14 ............. 4.7407 11.07 10.91 52.48 51.72
15 ............. 4.7407 11.07 10.90 52.48 51.67
16 ............. 4.4444 11.31 11.13 50.27 49.47
</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 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.
52
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
Seven months ended May 31, 1998 (1) Seven months ended May 31, 1997 (1)
------------------------------------ -------------------------------------
Seacoast Sandwich Pro forma Seacoast Sandwich Pro forma
Financial Bancorp Consolidated Financial Bancorp Consolidated
---------- -------- ------------ --------- -------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest income ...................... $49,990 $21,466 $ 71,456 $45,643 $20,294 $65,937
Interest expense ..................... 25,032 11,210 36,242 22,652 10,091 32,743
------- ------- -------- ------- ------- -------
Net interest income ................. 24,958 10,256 35,214 22,991 10,203 33,194
Provision for loan losses ............ 536 294 830 890 351 1,241
------- ------- -------- ------- ------- -------
Net interest income after
provision for loan losses .......... 24,422 9,962 34,384 22,101 9,852 31,953
Non-interest income .................. 3,773 1,676 5,449 3,108 1,458 4,566
Non-interest expense ................. 15,575 7,394 22,969 14,671 7,035 21,706
------- ------- -------- ------- ------- -------
Income before income taxes .......... 12,620 4,244 16,864 10,538 4,275 14,813
Provision for income taxes ........... 4,954 1,311 6,265 4,254 1,630 5,884
------- ------- -------- ------- ------- -------
Net income .......................... $ 7,666 $ 2,933 $ 10,599 $ 6,284 $ 2,645 $ 8,929
======= ======= ======== ======= ======= =======
Basic earnings per share ............. $ 1.49 $ 0.34(2) $ 1.39 $ 0.29(2)
======= ======== ======= =======
Diluted earnings per share ........... $ 1.43 $ 0.34(2) $ 1.33 $ 0.29(2)
======= ======== ======= =======
Basic earnings per equivalent
share--Sandwich Bancorp ............. $ 2.18(3) $ 1.86(3)
======== =======
</TABLE>
<TABLE>
<CAPTION>
Year ended October 31, 1997(1) Year ended October 31, 1996(1)
----------------------------------- -----------------------------------
Seacoast Sandwich Pro forma Seacoast Sandwich Pro forma
Financial Bancorp Consolidated Financial Bancorp Consolidated
--------- -------- ------------ --------- -------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest income ...................... $80,032 $35,917 $115,949 $74,126 $32,309 $106,435
Interest expense ..................... 39,831 18,322 58,153 37,245 15,792 53,037
-------- ------- -------- ------- ------- --------
Net interest income ................. 40,201 17,595 57,796 36,881 16,517 53,398
Provision for loan losses ............ 1,865 750 2,615 1,166 265 1,431
-------- ------- -------- ------- ------- --------
Net interest income after
provision for loan losses ......... 38,336 16,845 55,181 35,715 16,252 51,967
Non-interest income .................. 5,943 2,721 8,664 5,146 2,839 7,985
Non-interest expense ................. 24,810 12,226 37,036 24,158 12,333 36,491
-------- ------- -------- ------- ------- --------
Income before income taxes .......... 19,469 7,340 26,809 16,703 6,758 23,461
Provision for income taxes ........... 7,685 2,480 10,165 6,548 2,621 9,169
-------- ------- -------- ------- ------- --------
Net income .......................... $11,784 $ 4,860 $ 16,644 $10,155 $ 4,137 $ 14,292
======== ======= ======== ======= ======= ========
Basic earnings per share ............. $ 2.54 $ 0.54(2) $ 2.20 $ 0.47(2)
======= ======== ======= ========
Diluted earnings per share ........... $ 2.45 $ 0.54(2) $ 2.13 $ 0.47(2)
======= ======== ======= ========
Basic earnings per equivalent
share--Sandwich Bancorp ............. $ 3.46(3) $ 3.01(3)
======== ========
</TABLE>
(footnotes begin on next page)
53
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statements of Income, continued
<TABLE>
<CAPTION>
Year ended October 31, 1995 (1)
------------------------------------------
Seacoast Sandwich Pro forma
Financial Bancorp Consolidated
----------- ------------ -------------
(In thousands, except per share data)
<S> <C> <C> <C>
Interest income ............................................... $66,472 $ 30,673 $97,145
Interest expense .............................................. 34,539 14,833 49,372
------- -------- -------
Net interest income .......................................... 31,933 15,840 47,773
Provision (credit) for loan losses ............................ (351) 597 246
------- -------- -------
Net interest income after
provision (credit) for loan losses ......................... 32,284 15,243 47,527
Non-interest income ........................................... 4,403 2,718 7,121
Non-interest expense .......................................... 24,690 12,356 37,046
------- -------- -------
Income before income taxes ................................... 11,997 5,605 17,602
Provision for income taxes .................................... 4,511 2,169 6,680
------- -------- -------
Net income ................................................... $ 7,486 $ 3,436 $10,922
======= ======== =======
Basic earnings per share ...................................... $ 1.87 $ 0.36(2)
======== ==========
Diluted earnings per share .................................... $ 1.82 $ 0.36(2)
======== ==========
Basic earnings per equivalent share--Sandwich Bancorp ......... $ 2.30(3)
==========
</TABLE>
- ------------
(1) Sandwich Bancorp's statements of income included in the pro forma
statements of income are for the seven months ended June 30, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995.
(2) Earnings per share have been computed assuming the issuance of 18,400,000
Conversion Shares (none of which are assumed to be issued to the ESOP) 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 Bancorp for the seven months ended May 31,
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 Seven Months Seven Months
Financial Exchange Ended Ended Year Ended Year Ended Year Ended
Trading Price Ratio May 31, 1998 May 31, 1997 October 31, 1997 October 31, 1996 October 31, 1995
- ---------------- ---------- -------------- -------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
$11 ........... 5.8182 $ 0.36 $ 0.30 $ 0.56 $ 0.48 $ 0.37
12 ........... 5.3333 0.37 0.31 0.58 0.50 0.38
13 ........... 4.9231 0.38 0.32 0.60 0.51 0.39
14 ........... 4.7407 0.38 0.32 0.60 0.52 0.40
15 ........... 4.7407 0.38 0.32 0.60 0.52 0.40
16 ........... 4.4444 0.39 0.33 0.62 0.53 0.41
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Basic Earnings Per Equivalent Share--Sandwich Bancorp
-------------------------------------------------------------------------------------
Seacoast Seven Months Seven Months
Financial Exchange Ended Ended Year Ended Year Ended Year Ended
Trading Price Ratio May 31, 1998 May 31, 1997 October 31, 1997 October 31, 1996 October 31, 1995
- ---------------- ---------- -------------- -------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
$11 ........... 5.8182 $ 2.09 $ 1.75 $ 3.26 $ 2.79 $ 2.15
12 ........... 5.3333 1.97 1.65 3.09 2.67 2.03
13 ........... 4.9231 1.87 1.58 2.95 2.51 1.92
14 ........... 4.7407 1.80 1.52 2.84 2.47 1.90
15 ........... 4.7407 1.80 1.52 2.84 2.47 1.90
16 ........... 4.4444 1.73 1.47 2.76 2.36 1.82
</TABLE>
54
<PAGE>
(3) 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 2 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 May 31, 1998 and for the seven
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 $133.0 million and $180.6 million ($207.9 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 and Community Offerings; (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 the
625,000 shares assumed purchased by officers, directors, trustees, employees
and their immediate families); (iii) total expenses of the Conversion,
including the marketing fees paid to Ryan Beck and McConnell Budd, will range
from $3.0 million to $3.7 million; and (iv) construction costs for the planned
new main office will be $20.0 million. Actual amounts may vary from those
estimated.
Pro forma net income has been calculated for the seven months ended May
31, 1998 and the year ended October 31, 1997 as if the Conversion Shares had
been sold on the dates indicated 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 presented (rates ranged from 5.37% to 5.39%).
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.
Pro forma unaudited consolidated stockholders' equity 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. Pro forma stockholders' equity per share has been calculated by
dividing pro forma amounts by the number of outstanding shares of Seacoast
Financial Common Stock.
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 seven-month period ended
May 31, 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 May 31, 1998
and October 31, 1997, the table assumes the issuance of 12,686,225 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.
55
<PAGE>
<TABLE>
<CAPTION>
At or for the seven months ended May 31, 1998
-------------------------------------------------------------
21,160,000
13,600,000 16,000,000 18,400,000 shares sold
shares sold shares sold shares sold at $10.00
at $10.00 at $10.00 at $10.00 per share
per share per share per share (15% above
(minimum of (midpoint of (maximum of maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range) Range) Range) Range)
------------- -------------- ------------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Gross proceeds ...................................... $ 136,000 $ 160,000 $ 184,000 $ 211,600
Less: estimated Offering expenses ................... (2,957) (3,178) (3,398) (3,652)
--------- --------- --------- ---------
Estimated net proceeds ............................. 133,043 156,822 180,602 207,948
Less: Non-recurring Merger expenses ................. (5,000) (5,000) (5,000) (5,000)
Less: Shares purchased by the ESOP (1) .............. (10,880) (12,800) (14,720) (16,928)
Less: Construction of new main office ............... (20,000) (20,000) (20,000) (20,000)
--------- --------- --------- ---------
Estimated net investable proceeds .................. $ 97,163 $ 119,022 $ 140,882 $ 166,020
========= ========= ========= =========
Net income:
Historical combined ................................ $ 10,599 $ 10,599 $ 10,599 $ 10,599
Pro forma income on estimated net
investable proceeds .............................. 1,826 2,237 2,648 3,120
Pro forma ESOP adjustment (1) ...................... (190) (224) (258) (296)
--------- --------- --------- ---------
Pro forma net income ............................. $ 12,235 $ 12,612 $ 12,989 $ 13,423
========= ========= ========= =========
Net income per share (4):
Historical combined ................................ $ 0.43 $ 0.39 $ 0.36 $ 0.33
Pro forma income on estimated net
investable proceeds .............................. 0.07 0.08 0.09 0.10
Pro forma ESOP adjustment (1) ...................... (0.01) ( 0.01) ( 0.01) ( 0.01)
--------- --------- --------- ---------
Pro forma net income per share ................... $ 0.49 $ 0.46 $ 0.44 $ 0.42
========= ========= ========= =========
Stockholders' equity (2):
Historical combined ................................ $ 151,066 $ 151,066 $ 151,066 $ 151,066
Estimated net proceeds ............................. 133,043 156,822 180,602 207,948
Less: Seacoast Financial Common Stock
acquired by the ESOP ............................. (10,880) (12,800) (14,720) (16,928)
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 ................ (5,158) (5,158) (5,158) (5,158)
--------- --------- --------- ---------
Pro forma stockholders' equity. .................. $ 264,071 $ 285,930 $ 307,790 $ 332,928
========= ========= ========= =========
Stockholders' equity per share (3 and 4):
Historical combined ................................ $ 5.75 $ 5.27 $ 4.86 $ 4.46
Net proceeds ....................................... 5.06 5.47 5.81 6.15
Less: Seacoast Financial Common Stock
acquired by the ESOP ............................. (0.41) (0.45) (0.47) (0.50)
Less: Non-recurring Merger expenses,
net of taxes ..................................... (0.15) (0.14) (0.13) (0.12)
Less: Shares of Sandwich Bancorp Common
Stock owned by Seacoast Financial ................ (0.20) (0.18) (0.17) (0.15)
--------- --------- --------- ---------
Pro forma stockholders' equity per share ......... $ 10.05 $ 9.97 $ 9.90 $ 9.84
========= ========= ========= =========
Purchase price as a percentage of pro forma
stockholders' equity per share ..................... 99.50% 100.30% 101.01% 101.63%
========= ========= ========= =========
Purchase price as a multiple of pro forma net
income per share--annualized ....................... 11.90x 12.66x 13.33x 13.89x
========= ========= ========= =========
</TABLE>
(footnotes begin on following page)
56
<PAGE>
Pro Forma Conversion Data, Continued
- ------------
(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 Seacoast Financial. The
amount to be borrowed is reflected 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 (7/12 of 1/20 for the seven 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 "Seacoast Financial's Dividend Policy,"
"Description of Capital Stock of Seacoast Financial--Seacoast Financial
Common Stock--Liquidation or Dissolution," "Regulation of Seacoast
Financial and Compass--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 26,286,225,
28,686,225, 31,086,225 and 33,846,225 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
---------------------------------------------------------
15% Above
Seacoast Exchange Minimum of Midpoint of Maximum of Maximum of
Financial Exchange Shares Valuation Valuation Valuation Valuation
Trading Price Ratio Issued Range Range Range Range
- ------------------ ---------- ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$10 ............. 6.4000 12,537,392 $ 0.49 $ 0.46 $ 0.44 $ 0.42
11 ............. 5.8182 11,397,630 0.51 0.48 0.46 0.43
12 ............. 5.3333 10,447,827 0.53 0.50 0.47 0.45
13 ............. 4.9231 9,644,148 0.55 0.52 0.49 0.46
14 ............. 4.7407 9,293,660 0.56 0.52 0.49 0.47
15 ............. 4.7407 9,305,872 0.56 0.52 0.49 0.47
16 ............. 4.4444 8,724,193 0.58 0.54 0.51 0.48
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity Per Share
----------------------------------------------------------
15% Above
Seacoast Exchange Minimum of Midpoint Maximum of Maximum of
Financial Exchange Shares Valuation of Valuation Valuation Valuation
Trading Price Ratio Issued Range Range Range Range
- ------------------ ---------- ------------ ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$10 ............. 6.4000 12,686,225 $ 10.05 $ 9.97 $ 9.90 $ 9.84
11 ............. 5.8182 11,532,932 10.51 10.39 10.28 10.18
12 ............. 5.3333 10,571,854 10.92 10.76 10.62 10.49
13 ............. 4.9231 9,758,635 11.31 11.10 10.93 10.77
14 ............. 4.7407 9,399,909 11.48 11.26 11.07 10.89
15 ............. 4.7407 9,404,923 11.48 11.25 11.07 10.89
16 ............. 4.4444 8,817,053 11.78 11.52 11.31 11.11
</TABLE>
57
<PAGE>
Pro Forma Conversion Data, Continued
<TABLE>
<CAPTION>
Purchase Price as a Percentage of
Pro Forma Stockholders' Equity Per Share
---------------------------------------------------------
15% Above
Seacoast Exchange Minimum of Midpoint of Maximum of Maximum of
Financial Exchange Shares Valuation Valuation Valuation Valuation
Trading Price Ratio Issued Range Range Range Range
- --------------- ---------- ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$10 .......... 6.4000 12,686,225 99.50% 100.30% 101.01% 101.63%
11 .......... 5.8182 11,532,932 95.15 96.25 97.28 98.23
12 .......... 5.3333 10,571,854 91.58 92.94 94.16 95.33
13 .......... 4.9231 9,758,635 88.42 90.09 91.49 92.85
14 .......... 4.7407 9,399,909 87.11 88.81 90.33 91.83
15 .......... 4.7407 9,404,923 87.11 88.89 90.33 91.83
16 .......... 4.4444 8,817,053 84.89 86.81 88.42 90.01
</TABLE>
<TABLE>
<CAPTION>
Purchase Price as a Multiple of
Pro Forma Net Income Per Share--Annualized
---------------------------------------------------------
15% Above
Seacoast Exchange Minimum of Midpoint of Maximum of Maximum of
Financial Exchange Shares Valuation Valuation Valuation Valuation
Trading Price Ratio Issued Range Range Range Range
- --------------- ---------- ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$10 .......... 6.4000 12,537,392 11.90x 12.66x 13.33x 13.89x
11 .......... 5.8182 11,397,630 11.44 12.05 12.82 13.51
12 .......... 5.3333 10,447,827 11.01 11.63 12.35 12.99
13 .......... 4.9231 9,644,148 10.61 11.24 11.90 12.66
14 .......... 4.7407 9,293,660 10.42 11.11 11.76 12.50
15 .......... 4.7407 9,305,872 10.42 11.11 11.76 12.50
16 .......... 4.4444 8,724,193 10.06 10.87 11.49 12.35
</TABLE>
58
<PAGE>
Pro Forma Conversion Data, Continued
<TABLE>
<CAPTION>
At or for the year ended October 31, 1997
-------------------------------------------------------
21,160,000
13,600,000 16,000,000 18,400,000 shares sold
shares sold shares sold shares sold at $10.00
at $10.00 at $10.00 at $10.00 per share
per share per share per share (15% above
(minimum of (midpoint of (maximum of maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range) Range) Range) Range)
------------- -------------- ------------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Gross proceeds ......................................... $ 136,000 $ 160,000 $ 184,000 $ 211,600
Less: estimated Offering expenses ...................... (2,957) (3,178) (3,398) (3,652)
--------- --------- --------- ---------
Estimated net proceeds ................................ 133,043 156,822 180,602 207,948
Less: Non-recurring Merger expenses .................... (5,000) (5,000) (5,000) (5,000)
Less: Shares purchased by the ESOP (1) ................. (10,880) (12,800) (14,720) (16,928)
Less: Construction of new main office .................. (20,000) (20,000) (20,000) (20,000)
--------- --------- --------- ---------
Estimated net investable proceeds ..................... $ 97,163 $ 119,022 $ 140,882 $ 166,020
========= ========= ========= =========
Net income:
Historical combined ................................... $ 16,644 $ 16,644 $ 16,644 $ 16,644
Pro forma income on estimated net investable
proceeds ............................................ 3,142 3,849 4,556 5,369
Pro forma ESOP adjustment (1) ......................... (326) (384) (442) (508)
--------- --------- --------- ---------
Pro forma net income ................................ $ 19,460 $ 20,109 $ 20,758 $ 21,505
========= ========= ========= =========
Net income per share (4):
Historical combined ................................... $ 0.67 $ 0.61 $ 0.57 $ 0.52
Pro forma income on estimated net investable
proceeds ............................................ 0.12 0.14 0.16 0.17
Pro forma ESOP adjustment (1) ......................... (0.01) (0.01) (0.02) (0.02)
--------- --------- --------- ---------
Pro forma net income per share ...................... $ 0.78 $ 0.74 $ 0.71 $ 0.67
========= ========= ========= =========
Stockholders' equity (2):
Historical combined ................................... $ 140,155 $ 140,155 $ 140,155 $ 140,155
Estimated net proceeds ................................ 133,043 156,822 180,602 207,948
Less: Seacoast Financial Common Stock acquired
by the ESOP ......................................... (10,880) (12,800) (14,720) (16,928)
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 ......................... (142) (142) (142) (142)
--------- --------- --------- ---------
Pro forma stockholders' equity ........................ $ 258,295 $ 280,154 $ 302,014 $ 327,152
========= ========= ========= =========
Stockholders' equity per share (3 and 4):
Historical combined ................................... $ 5.36 $ 4.91 $ 4.53 $ 4.16
Net proceeds .......................................... 5.09 5.50 5.84 6.17
Less: Seacoast Financial Common Stock acquired
by the ESOP ......................................... (0.42) (0.45) (0.48) (0.50)
Less: Non-recurring Merger expenses, net of taxes ..... (0.15) (0.14) (0.13) (0.12)
Add: Change in unrealized gain on securities
available for sale net of taxes ..................... -- -- -- --
Less: Shares of Sandwich Bancorp Common Stock
owned by Seacoast Financial ......................... -- -- -- --
--------- --------- --------- ---------
Pro forma stockholders' equity per share .............. $ 9.88 $ 9.82 $ 9.76 $ 9.71
========= ========= ========= =========
Purchase price as a percentage of pro forma
stockholders' equity per share ........................ 101.21% 101.83% 102.46% 102.99%
========= ========= ========= =========
Purchase price as a multiple of pro forma
net income per share .................................. 12.82x 13.51x 14.08x 14.93x
========= ========= ========= =========
</TABLE>
(footnotes begin on following page)
59
<PAGE>
Pro Forma Conversion Data, Continued
- ------------
(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 Seacoast Financial. 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 "Seacoast Financial's Dividend Policy,"
"Description of Capital Stock of Seacoast Financial--Seacoast Financial
Common Stock--Liquidation or Dissolution, "Regulation of Seacoast
Financial and Compass--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 26,137,392,
28,537,392, 30,937,392 and 33,697,392 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 Exchange 15% Above
Financial Exchange Shares Minimum of Midpoint of Maximum of Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
- --------------- ---------- ------------ ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$10 .......... 6.4000 12,393,048 $ 0.78 $ 0.74 $ 0.71 $ 0.67
11 .......... 5.8182 11,266,408 0.82 0.77 0.73 0.70
12 .......... 5.3333 10,327,540 0.85 0.80 0.76 0.72
13 .......... 4.9231 9,533,114 0.88 0.83 0.78 0.74
14 .......... 4.7407 9,185,344 0.89 0.84 0.79 0.75
15 .......... 4.7407 9,195,043 0.89 0.84 0.79 0.75
16 .......... 4.4444 8,620,291 0.92 0.86 0.81 0.76
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity Per Share
----------------------------------------------------------------------
Seacoast Exchange 15% Above
Financial Exchange Shares Minimum of Midpoint of Maximum of 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 $ 9.88 $ 9.82 $ 9.76 $ 9.71
11 .......... 5.8182 11,397,630 10.33 10.23 10.14 10.05
12 .......... 5.3333 10,447,827 10.74 10.59 10.47 10.35
13 .......... 4.9231 9,644,148 11.11 10.92 10.77 10.62
14 .......... 4.7407 9,293,660 11.28 11.08 10.91 10.74
15 .......... 4.7407 9,305,872 11.28 11.07 10.90 10.74
16 .......... 4.4444 8,724,193 11.57 11.33 11.13 10.95
</TABLE>
60
<PAGE>
Pro Forma Conversion Data, Continued
<TABLE>
<CAPTION>
Purchase Price as a Percentage of
Pro Forma Stockholders' Equity Per Share
----------------------------------------------------------------------
Seacoast Exchange 15% Above
Financial Exchange Shares Minimum of Midpoint of Maximum of Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
- --------------- ---------- ------------ ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$10 .......... 6.4000 12,537,392 101.21% 101.83% 102.46% 102.99%
11 .......... 5.8182 11,397,630 96.81 97.75 98.62 99.50
12 .......... 5.3333 10,447,827 93.11 94.43 95.51 96.62
13 .......... 4.9231 9,644,148 90.01 91.58 92.85 94.16
14 .......... 4.7407 9,293,660 88.65 90.25 91.66 93.11
15 .......... 4.7407 9,305,872 88.65 90.33 91.74 93.11
16 .......... 4.4444 8,724,193 86.43 88.26 89.85 91.32
</TABLE>
<TABLE>
<CAPTION>
Purchase Price as a Multiple of
Pro Forma Net Income Per Share
----------------------------------------------------------------------
Seacoast Exchange 15% Above
Financial Exchange Shares Minimum of Midpoint of Maximum of Maximum of
Trading Price Ratio Issued Valuation Range Valuation Range Valuation Range Valuation Range
- --------------- ---------- ------------ ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$10 .......... 6.4000 12,393,048 12.8x 13.5x 14.1x 14.9x
11 .......... 5.8182 11,266,408 12.2 13.0 13.7 14.3
12 .......... 5.3333 10,327,540 11.8 12.5 13.2 13.9
13 .......... 4.9231 9,533,114 11.4 12.1 12.8 13.5
14 .......... 4.7407 9,185,344 11.2 11.9 12.7 13.3
15 .......... 4.7407 9,195,043 11.2 11.9 12.7 13.3
16 .......... 4.4444 8,620,291 10.9 11.6 12.4 13.2
</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 as of June 30, 1998) 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
following Conversion and Merger based on
--------------------------------------------------------------------------
21,160,000
13,600,000 16,000,000 18,400,000 Conversion
Conversion Conversion Conversion Shares Issued
Shares Issued Shares Issued Shares Issued (15% above
Seacoast Exchange (Minimum of (Minimum of (Maximum of Maximum of
Financial Exchange Shares Estimated Estimated Estimated Estimated
Trading Price Ratio Issued Valuation Range) Valuation Range) Valuation Range) Valuation Range)
- --------------- ---------- ------------ ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
$10 .......... 6.4000 12,686,225 26,286,225 28,686,225 31,086,225 33,846,225
11 .......... 5.8182 11,532,932 25,132,932 27,532,932 29,932,932 32,692,932
12 .......... 5.3333 10,571,854 24,171,854 26,571,854 28,971,854 31,731,854
13 .......... 4.9231 9,758,635 23,358,635 25,758,635 28,158,635 30,918,635
14 .......... 4.7407 9,399,909 22,999,909 25,399,909 27,799,909 30,559,909
15 .......... 4.7407 9,404,923 23,004,923 25,404,923 27,804,923 30,564,923
16 .......... 4.4444 8,817,053 22,417,053 24,817,053 27,217,053 29,977,053
</TABLE>
61
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At May 31, 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, exclusive of $20.0 million to be used by Compass in the
construction of a new main office building, 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 May 31, 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 Compass--Holding Company Regulation."
<TABLE>
<CAPTION>
Pro Forma Combined for Seacoast Financial and Compass at May 31, 1998 based on
--------------------------------------------------------------------------------------------------
13,600,000 16,000,000 18,400,000 21,160,000
Conversion Shares Conversion Shares Conversion Shares Conversion Shares
sold at $10.00 sold at $10.00 sold at $10.00 sold at $10.00
per share per share per share per share
------------------------ ------------------------ ------------------------ -----------------------
Percent of Percent of Percent of Percent 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 .................. $259,750 13.82% $281,609 14.65% $303,469 15.44% $328,607 16.31%
Requirement ............. 70,367 4.00 71,241 4.00 72,115 4.00 73,121 4.00
Excess .................. 189,383 9.82 210,368 10.65 231,354 11.44 255,486 12.31
Tier 1 risk-based capital:
Actual .................. 259,750 23.04 281,609 24.97 303,469 26.91 328,607 29.14
Requirement ............. 45,105 4.00 45,105 4.00 45,105 4.00 45,105 4.00
Excess .................. 214,645 19.04 236,504 20.97 258,364 22.91 283,502 25.14
Total risk-based capital:
Actual .................. 273,853 24.29 295,712 26.22 317,572 28.16 342,710 30.39
Requirement ............. 90,209 8.00 90,209 8.00 90,209 8.00 90,209 8.00
Excess .................. 183,644 16.29 205,503 18.22 227,363 20.16 252,501 22.39
Compass
Tier 1 leverage:
Actual .................. 199,597 11.49 211,487 12.10 223,376 12.69 237,049 13.36
Requirement ............. 69,462 4.00 69,938 4.00 70,413 4.00 70,960 4.00
Excess .................. 130,135 7.49 141,549 8.10 152,963 8.69 166,089 9.36
Tier 1 risk-based capital:
Actual .................. 199,597 17.76 211,487 18.82 223,376 19.87 237,049 21.09
Requirement ............. 44,957 4.00 44,957 4.00 44,957 4.00 44,957 4.00
Excess .................. 154,640 13.76 166,530 14.82 178,419 15.87 192,092 17.09
Total risk-based capital:
Actual .................. 213,653 19.01 225,543 20.07 237,433 21.13 251,106 22.34
Requirement ............. 89,914 8.00 89,914 8.00 89,914 8.00 89,914 8.00
Excess .................. 123,739 11.01 135,629 12.07 147,519 13.13 161,192 14.34
</TABLE>
- ------------
(1) Adjusted total or adjusted risk-weighted assets, as appropriate.
62
<PAGE>
CAPITALIZATION
The following table presents the actual capitalization of Seacoast
Financial and Sandwich Bancorp at May 31, 1998 and June 30, 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
----------------------------------------------------------
21,160,000
13,600,000 16,000,000 18,400,000 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) ................... $ 982,351 $444,750 $1,427,101 $1,427,101 $1,427,101 $1,427,101 $1,427,101
Borrowed funds and capital
lease obligations ............. 77,074 35,322 112,396 112,396 112,396 112,396 112,396
---------- -------- ---------- ---------- ---------- ---------- ----------
Total deposits and
borrowed funds .............. $1,059,425 $480,072 $1,539,497 $1,539,497 $1,539,497 $1,539,497 $1,539,497
========== ======== ========== ========== ========== ========== ==========
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) .............. -- 2,043 2,043 2,629 2,869 3,109 3,385
Additional paid-in
capital (3) ................. -- 21,540 21,540 149,674 173,213 196,753 223,823
Retained earnings (4)(5) ...... 104,193 20,811 125,004 121,004 121,004 121,004 121,004
Less:
Unearned compensation--
ESOP (6) .................... -- -- -- (10,880) (12,800) (14,720) (16,928)
Net unrealized gain on
securities available for
sale, net of taxes .......... 2,317 162 2,479 1,644 1,644 1,644 1,644
---------- -------- ---------- ---------- ---------- ---------- ----------
Total stockholders' equity $ 106,510 $44,556 $ 151,066 $ 264,071 $ 285,930 $ 307,790 $ 332,928
========== ======== ========== ========== ========== ========== ==========
Total stockholders' equity
as a % of total assets ........ 9.05% 8.39% 8.85% 14.5% 15.5% 16.5% 17.6%
========== ======== ========== ========== ========== ========== ==========
</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 12,686,225 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."
63
<PAGE>
(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 Seacoast Financial. The
amount to be borrowed is reflected as a reduction of stockholders' equity.
64
<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 $133.0 million and $180.6
million ($207.9 million if the Estimated Valuation Range is increased by 15%).
See "Pro Forma Data" and "The Conversion and the 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 $66.5 million to $90.3 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. Compass also intends to use approximately $20.0 million of
the funds for the construction of a new main office.
Net proceeds retained by Seacoast Financial will be used to fund the loan
to Compass's ESOP to acquire up to 8% of the Conversion Shares issued in the
Offerings. Seacoast Financial intends to invest any remaining net proceeds
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).
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 Seacoast Financial and
Compass--Compensation of Officers and Directors through Benefit Plans--Stock
Option Plan" and "--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
65
<PAGE>
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."
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
"SCFS," 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."
66
<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 seven months ended May 31, 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 seven months ended May 31, 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>
Seven Months Years Ended
Ended May 31, October 31,
--------------------- ------------------------------------
1998 1997 1997 1996 1995
-------- -------- ---------- ---------- ----------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and Dividend Income:
Interest on loans ....................................... $41,580 $37,375 $65,499 $60,423 $52,459
Interest and dividends on investment securities ......... 7,523 7,560 13,298 12,756 12,756
Interest on federal funds sold and short-term
investments ........................................... 887 708 1,235 947 1,257
------- ------- ------- ------- -------
Total interest and dividend income ..................... 49,990 45,643 80,032 74,126 66,472
------- ------- ------- ------- -------
Interest Expense:
Interest on deposits .................................... 22,360 20,546 36,109 34,621 31,852
Interest on borrowed funds .............................. 2,672 2,106 3,722 2,624 2,687
------- ------- ------- ------- -------
Total interest expense ................................. 25,032 22,652 39,831 37,245 34,539
------- ------- ------- ------- -------
Net interest income .................................... 24,958 22,991 40,201 36,881 31,933
Provision (credit) for possible loan losses .............. 536 890 1,865 1,166 (351)
------- ------- ------- ------- -------
Net interest income after provision (credit)
for loan losses ....................................... 24,422 22,101 38,336 35,715 32,284
------- ------- ------- ------- -------
Noninterest Income:
Deposit and other banking fees .......................... 1,841 1,760 3,213 2,733 2,271
Loan servicing fees ..................................... 305 342 571 607 584
Card fee income, net .................................... 195 138 398 354 402
Other loan fees ......................................... 277 250 449 412 386
Gain (loss) on sales of investment
securities, net ....................................... (3) 23 37 60 (84)
Gain on sales of loans, net ............................. 568 190 542 181 94
Other income ............................................ 590 405 733 799 750
------- ------- ------- ------- -------
Total noninterest income ............................... 3,773 3,108 5,943 5,146 4,403
------- ------- ------- ------- -------
Noninterest Expense:
Salaries and employee benefits .......................... 8,534 8,041 13,633 12,890 12,747
Occupancy and equipment expenses ........................ 2,023 1,911 3,344 3,276 2,970
Data processing expenses ................................ 1,417 1,230 2,192 2,049 1,896
Marketing expenses ...................................... 792 542 1,225 743 901
Professional services expenses .......................... 645 647 1,044 975 950
Deposit insurance premiums .............................. 90 58 121 392 1,198
Other real estate owned expenses, net ................... 138 293 519 644 1,072
Other operating expenses ................................ 1,936 1,949 2,732 3,189 2,956
------- ------- ------- ------- -------
Total noninterest expense .............................. 15,575 14,671 24,810 24,158 24,690
------- ------- ------- ------- -------
Income before provision for income taxes ............... 12,620 10,538 19,469 16,703 11,997
Provision for income taxes ............................... 4,954 4,254 7,685 6,548 4,511
------- ------- ------- ------- -------
Net income .............................................. $7,666 $ 6,284 $11,784 $10,155 $ 7,486
======= ======= ======= ======= =======
</TABLE>
67
<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, as well as noninterest income
and expenses. Seacoast Financial's noninterest income consists principally of
gains and losses from sales of loans and securities, deposit and other banking
fees. 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, primarily for indirect
auto lending. 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 expenses.
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 asset quality 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
68
<PAGE>
a quarterly basis its 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 at least partly
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 May 31, 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 $59.1 million, or negative 5.0% 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 May 31,
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 May 31, 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 (the estimated period over which a depositor relationship
will last) based on information provided by Compass's excess deposit insurer,
the Depositors Insurance Fund. 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."
69
<PAGE>
<TABLE>
<CAPTION>
Up to More than More than More than
Three three months six months one year to
Months to six months to one year three years
------------- --------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets (1): $ 10,440 $ -- $ -- $ --
Debt securities (4) ..................... 37,116 11,552 24,291 77,499
Loans held for sale ..................... 19,810 -- -- --
Mortgage loans (2) ...................... 48,778 60,566 105,590 207,880
Commercial loans ........................ 29,887 3,241 11,711 9,735
Indirect auto loans ..................... 25,695 24,079 43,670 113,846
Other consumer loans .................... 5,351 1,883 3,425 9,435
-------- -------- -------- ---------
Total interest-earning assets .......... 177,077 101,321 188,687 418,395
-------- -------- -------- ---------
Interest-bearing liabilities:
NOW and money market
savings accounts ....................... 3,716 2,064 41,956 67,477
Savings accounts ........................ 15,922 8,846 10,615 35,383
Certificate of deposit accounts ......... 171,687 122,943 126,734 77,661
Borrowed funds .......................... 16,233 1,914 3,574 22,287
-------- -------- -------- ---------
Total interest-bearing liabilities 207,558 135,767 182,879 202,808
-------- -------- -------- ---------
Interest sensitivity gap (3) ............ $(30,481) $(34,446) $ 5,808 $ 215,587
======== ======== ======== =========
Cumulative interest sensitivity gap ..... $(30,481) $(64,927) $(59,119) $ 156,468
======== ======== ======== =========
Cumulative interest sensitivity gap
as percentage of total assets .......... (2.59%) (5.52%) (5.02%) 13.30%
Cumulative interest sensitivity gap
as a percentage of total interest-
earning assets ......................... (2.77%) (5.90%) (5.37%) 14.21%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities ........... 85.31% 81.09% 88.77% 121.46%
<CAPTION>
More than More than
three years five years More than
to five years to ten years ten years Total
--------------- -------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets (1): $ -- $ -- $ -- $ 10,440
Debt securities (4) ..................... 28,467 7,027 667 186,619
Loans held for sale ..................... -- -- -- 19,810
Mortgage loans (2) ...................... 74,276 40,961 13,040 551,091
Commercial loans ........................ 2,114 1,428 84 58,200
Indirect auto loans ..................... 39,292 996 -- 247,578
Other consumer loans .................... 4,489 2,773 197 27,553
--------- --------- --------- -----------
Total interest-earning assets .......... 148,638 53,185 13,988 1,101,291
--------- --------- --------- -----------
Interest-bearing liabilities:
NOW and money market
savings accounts ....................... 25,933 47,737 49,801 238,684
Savings accounts ........................ 26,537 35,383 44,229 176,915
Certificate of deposit accounts ......... 8,349 -- -- 507,374
Borrowed funds .......................... 15,630 9,626 7,810 77,074
--------- --------- --------- -----------
Total interest-bearing liabilities 76,449 92,746 101,840 1,000,047
--------- --------- --------- -----------
Interest sensitivity gap (3) ............ $ 72,189 $ (39,561) $ (87,852) $ 101,244
========= ========= ========= ===========
Cumulative interest sensitivity gap ..... $ 228,657 $ 189,096 $ 101,244
========= ========= =========
Cumulative interest sensitivity gap
as percentage of total assets .......... 19.43% 16.07% 8.61%
Cumulative interest sensitivity gap
as a percentage of total interest-
earning assets ......................... 20.76% 17.17% 9.19%
Cumulative interest-earning assets
as a percentage of cumulative
interest-bearing liabilities ........... 128.39% 121.05% 110.12%
</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.
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. 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 May 31, 1998, Seacoast Financial's
estimated exposure as a percentage of estimated net interest income for the
next twelve and twenty-four month periods is 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 ......... (7.98%) (4.57%)
200 basis point decrease in rates ......... (0.27%) (5.07%)
</TABLE>
70
<PAGE>
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 $277,000, 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.
Average Balance Sheet. The following tables set forth certain information
relating to Seacoast Financial for the seven months ended May 31, 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>
Seven months ended May 31, Seven months ended May 31,
------------------------------------ -------------------------------------
1998 1997
------------------------------------ -------------------------------------
Average Average Average Average
balance Interest yield/cost balance Interest yield/cost
------------ ---------- ------------ -------------- ---------- -----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Short-term investments ............................ $ 24,886 $ 887 6.11% $ 20,036 $ 708 6.06%
Debt securities (1) ............................... 201,545 7,242 6.16 207,997 7,357 6.06
Equity securities (1) ............................. 11,674 281 4.13 6,801 203 5.12
Mortgage loans (2) ................................ 552,078 26,761 8.31 516,622 25,364 8.42
Commercial loans (2) .............................. 54,069 3,111 9.86 49,005 2,830 9.90
Indirect auto loans (2) ........................... 223,809 10,385 7.95 171,135 8,019 8.03
Other consumer loans (2) .......................... 25,428 1,323 8.92 22,486 1,162 8.86
---------- ------- ---------- -------
Total interest-earning assets .................... 1,093,489 49,990 7.84 994,082 45,643 7.87
------- ------ ------- ------
Allowance for loan losses ......................... (10,597) (10,422)
Non-interest earning assets ....................... 58,146 60,142
---------- ----------
Total assets ..................................... $1,141,038 $1,043,802
========== ==========
Liabilities and Surplus:
Interest-bearing liabilities:
NOW accounts ...................................... $ 80,170 $ 679 1.45% $ 70,289 $ 595 1.45%
Savings accounts .................................. 170,023 2,567 2.59 170,407 2,563 2,58
Money market savings accounts ..................... 146,465 2,352 2.75 137,744 2,276 2.83
Certificate of deposit accounts ................... 501,324 16,762 5.73 458,149 15,112 5.65
---------- ------- ---------- -------
Total deposits ................................... 897,982 22,360 4.27 836,589 20,546 4.21
Borrowed funds:
Short-term borrowings (3) ........................ 10,993 316 4.93 4,221 129 5.24
FHLB advances .................................... 61,986 2,356 6.52 51,293 1,977 6.61
---------- ------- ---------- -------
Total borrowings ................................ 72,979 2,672 6.28 55,514 2,106 6.50
---------- ------- ---------- -------
Total interest-bearing liabilities ............. 970,961 25,032 4.42 892,103 22,652 4.35
---------- ------- ------ ---------- ------- ------
Non-interest bearing demand checking accounts ..... 56,213 53,562
Other liabilities ................................. 9,778 8,559
---------- ----------
Total liabilities ............................... 1,036,952 954,224
Surplus ........................................... 104,086 89,578
---------- ----------
Total liabilities and surplus ................... $1,141,038 $1,043,802
========== ==========
Net interest income/interest rate spread (4) ...... $24,958 3.42% $22,991 3.52%
======= ====== ======= ======
Net interest margin (5) ........................... 3.91% 3.96%
====== ======
Ratio of interest-earning assets to
interest-bearing liabilities ..................... 112.62% 111.43%
====== ======
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Year ended October 31, Year ended October 31,
-------------------------------------------------------------- -----------------------------
1997 1996 1995
------------------------------ ------------------------------ -----------------------------
Average Average Average Average Average Average
balance Interest yield/cost balance Interest yield/cost balance Interest yield/cost
--------- -------- ---------- --------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets:
Interest-earning assets:
Short-term investments .............. $ 21,516 $ 1,235 5.74% $ 15,969 $ 947 5.93% $ 17,263 1,257 7.28%
Debt securities (1) ................. 211,304 12,910 6.11 208,665 12,370 5.93 210,680 12,280 5.83
Equity securities (1) ............... 7,290 388 5.32 7,296 386 5.29 8,484 476 5.61
Mortgage loans (2) .................. 523,376 43,977 8.40 498,185 42,162 8.46 451,497 37,813 8.37
Commercial loans (2) ................ 50,361 4,972 9.87 45,283 4,456 9.84 35,610 3,522 9.89
Indirect auto loans (2) ............. 180,600 14,497 8.03 150,070 11,927 7.95 124,850 9,502 7.61
Other consumer loans (2) ............ 23,195 2,053 8.85 20,795 1,878 9.03 17,204 1,622 9.43
---------- ------- --------- ------- -------- ------
Total interest-earning assets ...... 1,017,642 80,032 7.86 946,263 74,126 7.83 865,588 66,472 7.68
------- ------ ------- ------ ------ ------
Allowance for loan losses ........... (10,570) (10,109) (9,811)
Non-interest earning assets ......... 59,094 61,480 58,298
---------- --------- --------
Total assets ....................... $1,066,166 $ 997,634 $914,075
========== ========= ========
Liabilities and Surplus:
Interest-bearing liabilities:
Deposits:
NOW accounts ....................... $ 72,837 $ 1,065 1.46% $ 68,156 $ 1,008 1.48% $ 61,366 $ 1,078 1.76%
Savings accounts ................... 171,157 4,434 2.59 176,311 4,660 2.64 173,700 5,107 2.94
Money market savings accounts ...... 140,413 3,959 2.82 136,322 3,888 2.85 129,920 3,916 3.01
Certificate of deposit accounts .... 466,942 26,651 5.71 434,930 25,065 5.76 388,708 21,751 5.60
---------- ------- --------- ------- -------- -------
Total deposits .................... 851,349 36,109 4.24 815,719 34,621 4.24 753,694 31,852 4.23
Borrowed funds:
Short-term borrowings (3) .......... 5,666 283 4.99 1,727 100 5.79 1,326 84 6.33
FHLB advances ...................... 51,490 3,439 6.68 37,288 2,524 6.77 39,552 2,603 6.58
---------- ------- --------- ------- -------- -------
Total borrowings .................. 57,156 3,722 6.51 39,015 2,624 6.73 40,878 2,687 6.57
---------- ------- --------- ------- -------- -------
Total interest-bearing
liabilities ..................... 908,505 39,831 4.38 854,734 37,245 4.36 794,572 34,539 4.35
------ ------ ------
Non-interest bearing demand
checking accounts ................. 56,284 53,684 41,824
Other liabilities ................... 8,807 8,807 6,845
---------- --------- --------
Total liabilities .................. 973,596 917,225 843,241
Surplus ............................. 92,570 80,409 70,834
---------- --------- --------
Total liabilities and surplus ...... $1,066,166 $ 997,634 $914,075
========== ========= ========
Net interest income/interest rate
spread (4) ........................ $40,201 3.48% $36,881 3.47% $31,933 3.33%
======= ====== ======= ====== ======= ======
Net interest margin (5) ............. 3.95% 3.90% 3.69%
====== ====== ======
Ratio of interest-earning assets
to interest-bearing liabilities ... 112.01% 110.71% 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) Interest rate 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.
72
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected Seacoast Financial's interest income
and interest expense during the periods indicated. Information is provided in
each category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the net
change. The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
Seven months ended Year ended Year ended
May 31, 1998 October 31, 1997 October 31, 1996
compared to compared to compared to
seven months ended year ended year ended
May 31, 1997 October 31, 1996 October 31, 1995
-------------------------- -------------------------- --------------------------
Increase (decrease) due to Increase (decrease) due to Increase (decrease) due to
-------------------------- -------------------------- --------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
-------- ------ ------ ------ ------- ------ ------ ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Short-term investments ................. $ 173 $ 6 $ 179 $ 319 $ (31) $ 288 $ (89) $(221) $ (310)
Debt securities ........................ (231) 116 (115) 158 382 540 (118) 208 90
Equity securities ...................... 123 (45) 78 -- 2 2 (64) (25) (89)
Mortgage loans ......................... 1,722 (325) 1,397 2,119 (304) 1,815 3,947 402 4,349
Commercial loans ....................... 291 (10) 281 501 15 516 952 (18) 934
Indirect auto loans .................... 2,445 (79) 2,366 2,450 120 2,570 1,989 436 2,425
Other consumer loans ................... 153 8 161 213 (38) 175 327 (72) 255
------ ----- ------ ------ ------ ------ ------ ----- ------
Total interest-earning assets ......... $4,676 $(329) $4,347 $5,760 $ 146 $5,906 $6,944 $ 710 $7,654
------ ----- ------ ------ ------ ------ ------ ----- ------
Interest-bearing liabilities:
Deposits:
NOW accounts .......................... $ 84 $ -- $ 84 $ 69 $ (12) $ 57 $ 112 $(182) $ (70)
Savings accounts ...................... (6) 10 4 (135) (91) (226) 76 (523) (447)
Money market savings
accounts ............................. 141 (65) 76 116 (45) 71 188 (216) (28)
Certificate of deposit
accounts ............................ 1,441 209 1,650 1,829 (243) 1,586 2,648 666 3,314
------- ----- ------ ------ ------ ------ ------ ----- ------
Total deposits ....................... 1,660 154 1,814 1,879 (391) 1,488 3,024 (255) 2,769
------- ----- ------ ------ ------ ------ ------ ----- ------
Borrowed funds:
Short-term borrowings ................ 195 (8) 187 199 (16) 183 24 (8) 16
FHLB borrowings ...................... 407 (28) 379 950 (35) 915 (152) 73 (79)
------- ------ ------ ------ ------ ------ ------ ------ ------
Total borrowings ..................... 602 (36) 566 1,149 (51) 1,098 (128) 65 (63)
------- ------ ------ ------ ------ ------ ------ ------ ------
Total interest-bearing
liabilities ......................... 2,262 118 2,380 3,028 (442) 2,586 2,896 (190) 2,706
------- ------ ------ ------ ------ ------ ------ ------ ------
Net change in net interest
income ............................... $2,414 $(447) $1,967 $2,732 $ 588 $3,320 $4,048 $ 900 $4,948
======= ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Comparison of Financial Condition at May 31, 1998 and October 31, 1997
Total assets increased by $70.0 million, or 6.3%, from $1,106.6 million at
October 31, 1997 to $1,176.6 million at May 31, 1998. This growth was due
primarily to a $12.2 million, or 37.2%, increase in cash and cash equivalents
and a $64.2 million, or 7.8% increase in loans. Asset growth was funded
primarily by a $44.4 million, or 4.7%, increase in deposits and a $13.6
million, or 26.7%, increase in FHLB advances.
The increase in cash and cash equivalents at May 31, 1998 was temporary in
nature and attributable to a reduction in the difference in rates paid on
short- to medium-term investments and funds invested overnight as well as
normal fluctuations in activity.
73
<PAGE>
The increase in loans occurred primarily in Seacoast Financial's
construction and indirect auto loan portfolios. From October 31, 1997 to May
31, 1998, construction loans increased by $8.0 million, or 23.6%, and indirect
auto loans (net of unearned discounts) increased by $39.5 million, or 19.0%.
The growth during the seven months ended May 31, 1998 is primarily attributable
to the favorable interest rate environment and economic conditions which
prevailed during this period.
Total deposits at May 31, 1998 were $982.4 million, an increase of $44.4
million, or 4.7%, compared to $937.9 million at October 31, 1997. The increase
in deposits was primarily due to favorable economic conditions partially offset
by a continuing low interest rate environment wherein Seacoast Financial
competes against other instruments available to the public such as mutual funds
and annuities. Total borrowed funds were $77.1 million at May 31, 1998 compared
to $60.7 million at October 31, 1997, an increase of $16.4 million, or 27.0%.
During the seven months ended May 31, 1998, Seacoast Financial's net borrowings
from the FHLB increased by $13.6 million at a weighted average rate of 5.98%.
The increase in surplus of $8.4 million to $106.5 million at May 31, 1998
resulted from net earnings of $7.7 million for the seven months ended May 31,
1998 and a $703,000 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 $22.4 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.
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
74
<PAGE>
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 Seven Months Ended May 31, 1998
and May 31, 1997
General. Net income increased by $1.4 million or 22.2%, from $6.3 million
for the seven months ended May 31, 1997 to $7.7 million for the seven months
ended May 31, 1998. The improvement was attributable to higher net interest
income of $2.0 million, a $354,000 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 net gains on sales of loans of $378,000. The improvement was
partially offset by an increase of $904,000 in non-interest expense due to
higher salaries, occupancy and equipment expenses, data processing expenses and
marketing costs. The increase in net interest income was due to growth in
average interest-earning assets.
Interest Income. Interest income for the seven months ended May 31, 1998
was $50.0 million, compared to $45.6 million for the seven months ended May 31,
1997, an increase of $4.4 million, or 9.6%. Substantially all of the increase
in interest income resulted from growth in average interest-earning assets of
$99.4 million, or 10.0%. The principal areas of growth related to real estate
loans (up $35.5 million, or 6.9%) and indirect auto loans (up $52.7 million, or
30.8%). 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 seven months ended May 31, 1998
was $25.0 million, compared to $22.7 million for the seven months ended May 31,
1997, an increase of $2.3 million, or 10.1%. This increase resulted from a
higher average balance of interest-bearing liabilities ($78.9 million, or
8.8%). Average interest-bearing deposit balances increased $61.4 million, or
7.3%, 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 seven months
ended May 31, 1998. Interest expense on borrowed funds increased $566,000, or
26.9%, in the seven months ended May 31, 1998 due to a $17.5 million, or 31.5%,
increase in the average balance of such funds to $73.0 million, which was
partially offset by a 22 basis point reduction in the average rate paid on
borrowed funds to 6.28% in the 1998 period compared to the 1997 period.
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 $536,000 for loan losses in the seven month period ended
May 31, 1998 compared to $890,000 in the seven month period ended May 31, 1997,
a decrease of $354,000, or 39.8%. This decrease was primarily influenced by a
reduction in the balance of adversely classified loans and fewer delinquencies.
75
<PAGE>
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 $3.8 million for the seven months ended May 31, 1998 compared to
$3.1 million for the seven months ended May 31, 1997, an increase of $665,000,
or 21.4%. The increase resulted primarily from an increase of $378,000 in the
gain on sale of mortgage loans, from $190,000 in the seven months ended May 31,
1997 to $568,000 in the seven months ended May 31, 1998. Compass generally
sells in the secondary mortgage market fixed rate residential mortgage loans
with terms of 15 years or longer. 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 $904,000, or 6.1%,
from $14.7 million for the seven months ended May 31, 1997 to $15.6 million for
the seven months ended May 31, 1998. Of this increase, $493,000 related to
compensation and employee benefits, which rose 6.1% to $8.5 million for the
seven months ended May 31, 1998. The higher level of compensation and employee
benefits was caused by overall salary increases averaging 4% and staffing
increases in the lending area.
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 $112,000, or 5.9%, to $2.0
million for the seven months ended May 31, 1998. This increase was due to an
increase in ATM maintenance costs, and 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 $250,000, or 46.1%, to $792,000 for the seven
months ended May 31, 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.
Data processing expenses increased $187,000, or 15.2%, to $1.4 million for
the seven months ended May 31, 1998. This increase was due to new services,
including laser printing and Internet services, and volume-related increases in
loans and deposits.
Other real estate owned (OREO) expenses decreased $155,000, or 52.9%, to
$138,000 for the seven months ended May 31, 1998 due to the continuation of the
decline in the number of properties held as OREO and stable real estate market
values.
Income Taxes. Income tax expense was $5.0 million for the seven months
ended May 31, 1998, an increase of $700,000, or 16.5%, compared to the 1997
period. The effective tax rate was 39.3% in 1998 compared to 40.4% in 1997
which decrease was caused by Compass's greater utilization of non-bank
subsidiaries that were taxed at a lower rate for state tax purposes.
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
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1997. 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 loan portfolios, 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. An increase in the
monthly maintenance fee on basic checking accounts instituted in 1996 caused
higher monthly checking account fees in 1997. Returned check fees increased in
1997 because of price increases on check returns put into effect in July 1996.
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.
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
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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.
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 was recognized in 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 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.
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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 $70.0 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 seven months ended May 31, 1998 and
the years ended October 31, 1997, 1996 and 1995. These increases included $64.2
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 $44.4 million net deposit inflow for the seven
months ended May 31, 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 May 31, 1998, time deposits increased from 43.1% to 51.6% 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 $13.6 million,
$5.6 million, $6.0 million and $7.9 million during the seven months ended May
31, 1998 and the years ended October 31, 1997, 1996 and 1995, respectively. At
May 31, 1998, total borrowings from the FHLB amounted to $64.6 million and
Compass had the capacity to increase that total to $358.6 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 May 31, 1998, cash and due from banks,
short-term investments and debt securities maturing within one year amounted to
$77.8 million, or 6.6% of total assets.
At May 31, 1998, Compass had commitments to originate loans, unused
outstanding lines of credit, standby letters of credit and undisbursed proceeds
of loans totaling $105.9 million. Compass anticipates that it will have
sufficient funds available to meet its current loan commitments. Certificates
of deposit maturing within one year from May 31, 1998 amounted to $421.4
million. Compass expects that substantially all maturing certificate accounts
will be retained by Compass at maturity. At May 31, 1998, Compass exceeded all
of its regulatory requirements with a leverage capital of $102.6 million, or
8.89% of average assets, which is above the required level of $46.2 million or
4.00%, and total risk-based capital of $112.9 million, or 13.69% of adjusted
assets, which is above the required level of $66.0 million, or 8.00%. Seacoast
Financial also exceeded all regulatory capital requirements applicable to bank
holding companies. See "Regulation of Seacoast Financial and
Compass--Regulatory Capital Requirements" and "--Insurance of Accounts and
Regulation by the FDIC."
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,
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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.
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
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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 May 31, 1998, Seacoast Financial's other comprehensive
income consisted of unrealized gains on securities classified as available for
sale, net of taxes. 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.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" which is effective for fiscal years beginning after June
15, 1999. The Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Management does not anticipate that the adoption
of this statement will have a material impact on the financial position or
operating results of Seacoast Financial.
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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 $5.4 million in investment securities and
cash as of May 31, 1998. Seacoast Financial is subject to regulation and
supervision by the FRB and the Commissioner. See "Regulation of Seacoast
Financial and Compass--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 May 31, 1998, total assets and deposits were $1,176.6
million and $982.4 million, respectively. Seacoast Financial's gross loan
portfolio has increased from $748.1 million as of October 31, 1996 to $884.4
million on May 31, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Seacoast Financial--Comparison of
Financial Condition at October 31, 1997 and October 31, 1996" and "--Comparison
of Financial Condition at May 31, 1998 and October 31, 1997."
The management of Seacoast Financial is set forth under "Management of
Seacoast Financial and 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.
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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 River, Greater Plymouth and the island of
Martha's Vineyard. Compass also maintains four 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.
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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, 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 $884.4 million as of May
31, 1998, representing 75.2% 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 41.6%, 28.0% (net of unearned discounts) and 14.1%, respectively,
of Compass's gross loan portfolio as of May 31, 1998. Compass started making
indirect auto loans in 1985 and, between October 31, 1995 and May 31, 1998,
that portion of Compass's loan portfolio grew by 77.4%. 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 May 31, 1998, including some loans classified as commercial loans.
Compass makes loans throughout its market area and originated $363.7
million in loans during 1997 and $303.5 million in loans during the seven
months ended May 31, 1998. It sold, on a servicing retained basis, $33.7
million and $45.4 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.
84
<PAGE>
The following table summarizes the composition of Compass's gross loan
portfolio as of certain dates:
<TABLE>
<CAPTION>
At October 31,
At May 31, ----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------------ ----------------- ---------------- ---------------- ----------------- ------------------
Percent Percent Percent Percent Percent Percent
Amount of total Amount of total Amount of total Amount of total Amount of total Amount of total
--------- -------- -------- -------- ---------------- ------ -------- ------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential
(one- to four-family) . $368,136 41.63% $363,030 44.26% $343,204 45.88% $336,489 49.78% $268,010 52.56% $251,623 55.78%
Commercial (1) ......... 125,089 14.14 124,059 15.13 128,707 17.20 103,096 15.25 67,784 13.30 61,938 13.73
Home equity lines of
credit ............... 15,941 1.80 15,133 1.85 17,288 2.31 18,857 2.79 11,448 2.25 13,016 2.89
Construction, net ...... 41,925 4.74 33,894 4.13 25,007 3.34 15,877 2.35 14,844 2.91 13,719 3.04
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate
loans ............... 551,091 62.31 536,116 65.37 514,206 68.73 474,319 70.17 362,086 71.02 340,296 75.44
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Commercial loans ....... 58,200 6.58 51,371 6.26 46,211 6.18 43,402 6.42 20,763 4.07 17,061 3.78
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Consumer loans:
Indirect auto loans .... 280,215 31.68 238,114 29.03 189,865 25.38 159,433 23.58 125,667 24.65 90,159 19.99
Other .................. 27,553 3.12 24,662 3.01 22,063 2.95 18,764 2.78 15,433 3.03 14,120 3.13
-------- -------- -------- -------- -------- --------
Consumer loans ........ 307,768 262,776 211,928 178,197 141,100 104,279
Less: unearned
discount .............. 32,637 30,066 24,232 19,911 14,081 10,522
-------- -------- -------- -------- -------- --------
Total consumer loans .. 275,131 31.11 232,710 28.37 187,696 25.09 158,286 23.41 127,019 24.91 93,757 20.78
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans ........... $884,422 100.00% $820,197 100.00% $748,113 100.00% $676,007 100.00% $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.
85
<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. Compass
has recently entered into agreements for the origination of, and has begun
purchasing, 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, 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 May 31, 1998, two customers had aggregate borrowing
capacity with Compass which exceeded this limit, with outstanding loans (all of
which were performing in accordance with their terms), commitments and amounts
available under lines of credit totaling $8.2 million and $5.1 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 $20.1 million for Compass as of May 31, 1998.
86
<PAGE>
The following table sets forth certain information concerning Compass's
origination of loans:
<TABLE>
<CAPTION>
Seven months
ended May 31, 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) ................................ 106,569 50,547 94,743 104,856 56,184
Commercial real estate (1) ..................... 6,842 10,392 12,292 21,761 15,502
Construction ................................... 35,196 23,421 46,659 26,784 19,645
Home Equity .................................... 8,168 2,450 7,644 5,934 3,542
-------- -------- -------- -------- --------
Total mortgage loans .......................... 156,775 86,810 161,338 159,335 94,873
Commercial loans ................................ 39,419 37,265 61,333 53,462 48,370
Indirect auto loans ............................. 97,143 62,073 128,117 100,305 85,558
Other consumer loans ............................ 10,122 7,523 12,877 13,518 10,486
-------- -------- -------- -------- --------
Total loans originated ........................ 303,459 193,671 363,665 326,620 239,287
-------- -------- -------- -------- --------
Purchases of mortgage loans ..................... 6,736 500 4,461 8,859 8,313
-------- -------- -------- -------- --------
Acquisition of Martha's Vineyard
National Bank ................................. -- -- -- -- 104,393
-------- -------- -------- -------- --------
Less:
Principal repayments ........................... 198,612 145,866 257,049 224,612 160,012
Loans sold or securitized ...................... 45,360 16,084 33,726 35,260 18,827
Transfers to other real estate owned ........... 1,098 2,023 3,333 2,430 5,783
Principal charged-off .......................... 900 839 1,934 1,071 1,232
-------- -------- -------- -------- --------
Loans outstanding at end of period .............. $884,422 $777,472 $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 May 31, 1998 totaled
$16.1 million, of which $11.2 million was acquired from a bank located on the
island of Nantucket, Massachusetts.
87
<PAGE>
Loan Maturity and Repricing. The following table shows the contractual
maturity and repricing dates of Compass's loan portfolio at May 31, 1998. The
table does not reflect prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
At May 31, 1998
------------------------------------------------ At May 31, 1998
Real estate mortgage loans -----------------------------------------
------------------------------------------------ Indirect Other
Home auto consumer Total
Residential Commercial Construction equity Commercial loans loans loans
----------- ---------- ------------ ------- ---------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due (1):
Within one year ................... $ 65,040 $ 44,940 $ 9,449 $13,267 $41,536 $ 4,215 $ 3,792 $182,239
-------- -------- ------- ------- ------- -------- ------- --------
After one year:
More than one year to
three years ...................... 96,326 54,941 13,528 173 8,137 59,562 5,001 237,668
More than three years to
five years ....................... 59,642 13,937 4,980 527 3,441 167,581 6,417 256,525
More than five years to
ten years ........................ 41,817 8,009 4,409 1,058 4,817 16,220 10,812 87,142
More than ten years ............... 105,311 3,262 9,559 916 269 -- 1,531 120,848
-------- -------- ------- ------- ------- -------- ------- --------
Total due after
May 31, 1999 .................... 303,096 80,149 32,476 2,674 16,664 243,363 23,761 702,183
-------- -------- ------- ------- ------- -------- ------- --------
Total amount due ................. $368,136 $125,089 $41,925 $15,941 $58,200 $247,578 $27,553 884,422
======== ======== ======= ======= ======= ======== =======
Less:
Allowance for loan losses ......... (10,508)
Net loans ........................ --------
$873,914
========
</TABLE>
- ------------
(1) Amounts due are net of unadvanced funds on loans.
The following table sets forth, at May 31, 1998, the dollar amount of
gross loans, net of unadvanced funds on loans, contractually due or scheduled
to reprice after May 31, 1999 and whether such loans have fixed interest rates
or adjustable interest rates:
<TABLE>
<CAPTION>
Due after May 31, 1999
----------------------------------------
Fixed Adjustable Total
----------- ------------ -----------
(In thousands)
<S> <C> <C> <C>
Real estate mortgage loans:
Residential ............................... $147,522 $155,574 $303,096
Commercial ................................ 13,666 66,483 80,149
Construction .............................. 14,276 18,200 32,476
Home equity ............................... 2,674 -- 2,674
-------- -------- --------
Total real estate mortgage loans ......... 178,138 240,257 418,395
Commercial loans ........................... 12,168 4,496 16,664
Indirect auto loans ....................... 243,363 -- 243,363
Other consumer loans ...................... 23,761 -- 23,761
-------- -------- --------
Total loans .............................. $457,430 $244,753 $702,183
======== ======== ========
</TABLE>
Residential Real Estate Loans. As of May 31, 1998, adjustable rate
mortgage loans represented approximately 60% and fixed-rate mortgage loans
represented approximately 40% of Compass's portfolio of residential mortgage
loans secured by one- to four-family owner-occupied properties. Compass
originated $104.9 million, $94.7 million and $106.6 million of such loans in
1996, 1997 and in the first seven months of 1998, respectively. Compass's
portfolio of residential loans totaled $368.1 million, which represented 41.6%
of Compass's total loan portfolio at May 31, 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 15 years or longer 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.
88
<PAGE>
Compass continues to service loans that it sells to FHLMC and receives a
monthly fee for servicing such loans equal to 0.25% per annum of the amounts
outstanding on them. Compass serviced for others loans aggregating $238.2
million as of May 31, 1998 and it earned $571,000 and $305,000 in servicing
fees, representing 9.61% and 8.08%, respectively, of its non-interest income,
in 1997 and during the first seven months of 1998, respectively.
Compass generally retains for its own portfolio fixed-rate residential
mortgage loans with terms of less than 15 years and fixed-rate residential
mortgage loans that are amortized on a bi-weekly basis and have terms between
10 and 30 years. Compass had $56.0 million of such loans in its portfolio as of
May 31, 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 $26.4 million in such
loans during 1997 and during the first seven months of 1998, respectively, and
had $220.5 million of such loans in its residential loan portfolio,
representing approximately 60% of such portfolio, as of May 31, 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 are written in amounts up to 95% of
the appraised value or selling price, whichever is less, of the property
securing the loan, although the majority of such loans are written with ratios
of 80% or less. 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 or adjustable
interest rates that are typically lower than prevailing market rates, are
closed without points, have substantially lower closing costs than Compass's
other 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 $21.3 million of CIP-funded loans and $19.5
million of NEF-funded loans in its residential loan portfolio, representing
11.1% of such portfolio, as of May 31, 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 May 31, 1998, Compass serviced $3.9
million of such loans.
Commercial Real Estate Loans. Compass makes commercial real estate loans
throughout its market area. Compass originated $12.3 million and $6.8 million
in commercial real estate loans in 1997 and during the first seven months of
1998, respectively, and had $125.1 million in commercial real estate loans in
its loan portfolio, representing 14.1% of such portfolio, as of May 31, 1998.
Properties that are used for borrowers' businesses, such as small office
buildings, warehouses, restaurants, inns, retail facilities, industrial
properties and 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.
89
<PAGE>
At May 31, 1998, $24.3 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 $46.7 million and $35.2 million in construction loans
during 1997 and during the first seven months of 1998, respectively, and had
$41.9 million in construction loans in its loan portfolio, representing 4.7% of
such portfolio, as of May 31, 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 but not, in any event, more than the
difference between 80% (for primary homes) or 70% (for secondary
90
<PAGE>
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 $15.9 million in home equity lines of credit in its
loan portfolio, representing 1.8% of the portfolio, as of May 31, 1998. The
undrawn portion of home equity lines of credit totaled $18.0 million at May 31,
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 May 31, 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 $39.4 million in commercial loans
during 1997 and during the first seven months of 1998, respectively, and had
$58.2 million in commercial loans in its loan portfolio, representing 6.6% of
such portfolio, as of May 31, 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 90 dealers at May 31, 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 $247.6 million at
May 31, 1998, or 28.0% (net of unearned discount) of the loan portfolio on the
latter date. No one dealership originated more than $11.6 million of the loan
balances outstanding in Compass's loan portfolio at May 31, 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.
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.
91
<PAGE>
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 May 31, 1998,
approximately half of Compass's indirect auto loans were secured by new cars
and the other half by used cars. Compass originated $128.1 million and $97.1
million in indirect auto loans during 1997 and during the first seven 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 May 31, 1998, the balance of the dealer reserve was $3.4
million, or 1.2% 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 3.1% of Compass's gross loan portfolio
as of May 31, 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 commercial real
estate loans in excess of $250,000, Compass requires prospective borrowers to
make 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.
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<PAGE>
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.
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<PAGE>
The following table sets forth delinquencies in Compass's loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
At May 31, 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 ......................... 5 $ 350 20 $ 1,626 6 $ 306 18 $ 1,463
Commercial real estate .............. 2 111 6 989 1 116 8 1,205
Construction ........................ -- -- -- -- -- -- 1 148
Home equity ......................... 1 41 2 53 -- -- 2 34
Commercial loans .................... 2 23 3 125 1 75 2 344
Indirect auto loans ................. 35 258 47 430 33 223 40 435
Other consumer loans ................ 7 12 18 30 13 19 14 20
-- ------- -- ------- -- ------- -- -------
Total .............................. 52 $ 795 96 $ 3,253 54 $ 739 85 $ 3,649
== ======= == ======= == ======= == =======
Delinquent loans to total loans ..... 0.09% 0.37% 0.09% 0.44%
======= ======= ======= =======
</TABLE>
<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)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
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% 0.63% 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 May 31, 1998, OREO totaled $1.4 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 May 31, 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, commercial real estate and
commercial construction 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.
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<PAGE>
Loan quality ratings are utilized as major criteria in the compilation of
Compass's asset Watch List. All loans 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. In addition,
loan ratings are generally reviewed on an annual basis.
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 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 May 31, 1998, loans designated as Substandard and Special Mention
totaled $10.3 million and $7.2 million, respectively. No loans were designated
Doubtful or Loss. The Substandard loans include 11 commercial loans with
individual borrower balances ranging from $4,000 to $600,000 and a total
outstanding principal balance of $1.2 million and 24 commercial real estate
loans with individual borrower balances ranging from $53,300 to $2,074,000 and
a total outstanding principal balance of $9.1 million. All of the 11 commercial
loans classified as Substandard at May 31, 1998 were substantially current. The
delinquency status of the 24 commercial real estate loans classified as
Substandard was as follows: current--$7,272,000; 30-60 days past due--$716,000;
60-90 days past due--$80,000; and >90 days past due--$989,000.
Included in Special Mention loans at May 31, 1998 were 12 commercial loans
with individual borrower balances ranging from $18,750 to $3.3 million and a
total outstanding principal balance of $4.2 million. The largest borrower was
an auto dealership whose floor plan loans were current. There were 16
commercial real estate loans
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<PAGE>
with individual borrower balances ranging from $36,000 to $572,000 and a total
outstanding principal balance of $2.9 million classified as Special Mention at
May 31, 1998. Of these, all but $413,000 were either current or less than 30
days past due.
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 May 31, 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 .............................. $ 1,707 $ 1,531 $ 2,330 $ 3,123 $ 6,827 $ 7,106
Commercial real estate ................... 7,198 8,501 6,835 4,115 6,997 2,573
Construction ............................. 93 148 147 107 269 --
Home equity .............................. -- -- -- 63 -- --
Commercial loan ........................... 495 745 1,014 1,098 1,078 227
Indirect auto loans (4) ................... -- -- -- -- -- --
Other consumer loans (4) .................. -- -- -- -- -- --
--------- -------- --------- --------- -------- --------
Total non-accrual loans .................. 9,493 10,925 10,326 8,506 15,171 9,906
Other real estate owned .................... 1,395 1,707 2,598 3,918 5,798 6,961
--------- -------- --------- --------- -------- --------
Total non-performing assets ............... $ 10,888 $ 12,632 $ 12,924 $ 12,424 $ 20,969 $ 16,867
========= ======== ========= ========= ======== ========
Restructured loans (2) ..................... $ -- $ 130 $ 4,267 $ 3,119 -- $ 10,953
========= ======== ========= ========= ======== ========
Allowance for loan losses as a percent
of total loans ............................ 1.19% 1.30% 1.38% 1.46% 1.37% 1.33%
Allowance for loan losses as a percent
of total non-performing loans (3) ......... 110.69% 97.41% 100.08% 115.80 46.15% 60.57%
Non-performing loans as a percent of total
loans ..................................... 1.07% 1.33% 1.38% 1.26% 2.98% 2.20%
Non-performing assets as a percent of total
assets .................................... 0.93% 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. See Note 4 for
exception to this policy.
(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.
(4) Consumer loans, including indirect auto loans, are not placed on
non-accrual status due to the expedited manner in which these loans are
resolved and the immaterial balance of individual loans.
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<PAGE>
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."
The following table sets forth activity in Compass's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
Seven months
ended
May 31, Year ended October 31,
------------- ----------------------------------------------------------------
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 ......... 536 1,865 1,166 (351) 2,524 3,838
Acquired allowance ......................... -- -- -- 3,541 -- --
Charge-offs:
Mortgage loans:
Residential .............................. 115 137 130 721 1,033 725
Commercial ............................... 295 761 250 150 661 1,988
Home equity lines of credit .............. -- -- 121 -- -- --
Construction ............................. -- -- -- -- -- --
Commercial loans .......................... 137 442 134 51 33 317
Indirect auto loans ....................... 310 546 373 227 191 279
Other consumer loans ...................... 43 48 63 83 93 134
------- -------- ------- ------ -------- --------
Total charge-offs . ...................... 900 1,934 1,071 1,232 2,011 3,443
------- -------- ------- ------ -------- --------
Recoveries:
Mortgage loans:
Residential .............................. 24 30 17 271 335 80
Commercial ............................... 20 117 174 485 34 23
Home equity lines of credit .............. -- -- -- -- -- --
Construction ............................. -- -- -- -- -- --
Commercial loans .......................... 83 57 96 2 28 30
Indirect auto loans ....................... 66 144 70 93 69 57
Other consumer loans ...................... 37 29 32 39 23 20
------- -------- ------- ------ -------- --------
Total recoveries ......................... 230 377 389 890 489 210
------- -------- ------- ------ -------- --------
Net charge-offs ............................ (670) (1,557) (682) (342) (1,522) (3,233)
------- -------- ------- ------ -------- --------
Balance at end of period ................... $10,508 $ 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 May 31, 1998 1997 1996
--------------------------------- ---------------------------- -----------------------------
Percent Percent
Percent Percent Percent of loans Percent of loans
of of loans of in each of in each
allowance in each allowance category allowance category
to total category to to total to gross to total to gross
Amount allowance gross loans Amount allowance loans Amount allowance loans
-------- ----------- ----------- -------- --------- -------- -------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Residential ................ $ 1,945 18.51% 41.63% $ 1,929 18.13% 44.26% $ 2,171 21.01% 45.88%
Commercial real estate 3,932 37.42 14.14 4,313 40.53 15.13 4,036 39.06 17.20
Construction ............... 368 3.50 4.74 338 3.18 4.13 251 2.43 3.34
Home equity ................ 148 1.41 1.80 136 1.28 1.85 149 1.44 2.31
Commercial loans ............ 1,670 15.89 6.58 1,785 16.77 6.26 1,972 19.08 6.18
Indirect auto loans ......... 2,116 20.14 27.99 1,837 17.26 25.36 1,498 14.50 22.14
Other consumer loans ........ 329 3.13 3.12 304 2.85 3.01 257 2.48 2.95
------- ------ ------ ------- ------ ------ ------- ------ ------
Total allowance for
loan losses ................ $10,508 100.00% 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
Percent of loans Percent of loans Percent of loans
of in each of in each 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 2,808 28.51 15.25 1,827 26.09 13.30 1,682 28.03 13.73
Construction .............. 318 3.23 2.35 315 4.50 2.91 284 4.73 3.04
Home equity ............... 418 4.25 2.79 170 2.43 2.25 194 3.24 2.89
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 1,123 16.04 21.88 894 14.89 17.65
Other consumer loans ....... 255 2.59 2.78 208 2.97 3.03 219 3.65 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.
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
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<PAGE>
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 May 31,
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 May 31, 1998, Compass had $202.3 million, or 17.19% of total assets, in
securities consisting primarily of U.S. Government and Agency obligations
($94.1 million), corporate obligations ($46.0 million), mortgage-backed
securities ($41.4 million), other bonds and obligations ($6.0 million) and
marketable common and preferred equity securities ($9.5 million). Also included
in investments is $5.3 million in restricted equity securities, $4.9 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 May 31, 1998, $183.3
million, or 90.64% of the portfolio, was classified as available for sale,
$13.6 million, or 6.75% of the portfolio, was classified as held for investment
and $5.3 million, or 2.61% of the portfolio, was invested in restricted equity
securities. The net unrealized gain on securities classified as available for
sale was $3.8 million, with $2.9 million of that amount attributable to
marketable equity securities as of May 31, 1998.
U.S. Government and Agency Obligations. At May 31, 1998, Compass's U.S.
Government and Agency securities portfolio totaled $94.1 million, $80.4 million
of which was classified as available for sale and $13.7 million of which was
classified as held to maturity. There were no structured notes in the
portfolio.
Corporate Obligations. At May 31, 1998, Compass's portfolio of corporate
obligations totaled $46.0 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 May 31, 1998, $33.8 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 May 31, 1998, all corporate
obligations were rated "A" or better.
Mortgage-Backed Securities. At May 31, 1998, Compass's portfolio of
mortgage-backed securities totaled $41.4 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 May 31, 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 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.
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<PAGE>
Marketable Equity Securities. At May 31, 1998, Compass's marketable equity
securities portfolio totaled $9.5 million, $8.5 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 make 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 May
31, 1998, Compass held 90,000 shares of Sandwich Bancorp Common Stock in its
portfolio having a market value of $5.7 million and representing 4.4% of the
issued and outstanding shares of such stock. The majority of these shares were
purchased in February 1998, after Seacoast Financial and Sandwich Bancorp 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."
100
<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 May 31, 1998 At October 31,
---------------------- ----------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
Amortized Market Amortized Market Amortized Market Amortized Market
cost value cost value cost value cost value
----------- ---------- ----------- ----------- ----------- ----------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and
Agency obligations ............ $ 80,172 $ 80,424 $113,231 $113,496 $111,861 $111,613 $ 65,336 $ 65,015
Corporate obligations .......... 45,799 46,033 44,773 44,966 22,632 22,520 6,085 6,051
Mortgage-backed securities ..... 40,998 41,362 45,652 46,157 64,760 64,650 6,470 6,496
Other bonds and obligations 6,001 6,001 1,001 1,001 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total debt securities ......... 172,970 173,820 204,657 205,620 199,253 198,783 77,891 77,562
-------- -------- -------- -------- -------- -------- -------- --------
Marketable equity securities:
Common stocks .................. 5,605 8,520 1,164 2,696 835 1,523 474 788
Preferred stocks ............... 1,000 1,000 1,000 1,000 -- -- 276 276
-------- -------- -------- -------- -------- -------- -------- --------
Total marketable equity
securities ................... 6,605 9,520 2,164 3,696 835 1,523 750 1,064
-------- -------- -------- -------- -------- -------- -------- --------
Total securities available
for sale .................... $179,575 $183,340 $206,821 $209,316 $200,088 $200,306 $ 78,641 $ 78,626
======== ======== ======== ======== ======== ======== ======== ========
Securities held to maturity:
U.S. Government and
Agency obligations ............ $ 13,649 $ 13,702 $ 12,633 $ 12,694 $ 11,752 $ 11,744 $ 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 ..................... $ 13,649 $ 13,702 $ 12,633 $ 12,694 $ 11,752 $ 11,744 $153,805 $153,258
======== ======== ======== ======== ======== ======== ======== ========
Restricted equity securities:
Federal Home Loan Bank of
Boston stock .................. $ 4,856 $ 4,856 $ 4,726 $ 4,726 $ 4,215 $ 4,215 $ 3,829 $ 3,829
Massachusetts Savings Bank
Life Insurance Company
stock ......................... 251 251 251 251 251 251 251 251
Depositors Insurance Fund ...... 179 179 179 179 179 179 179 179
-------- -------- -------- -------- -------- -------- -------- --------
Total restricted equity
securities .................. $ 5,286 $ 5,286 $ 5,156 $ 5,156 $ 4,645 $ 4,645 $ 4,259 $ 4,259
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
101
<PAGE>
The following table sets forth the composition of Seacoast Financial's
investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
At October 31,
--------------------------------------------------------------------
At May 31, 1998 1997 1996 1995
----------------------- --------------------- --------------------- ----------------------
Carrying Percent Carrying Percent Carrying Percent Carrying Percent
value of total value of total value of total value of total
---------- ------------ ---------- ---------- ---------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government and
agency obligations ............ $ 94,073 46.51% $126,129 55.54% $123,365 56.93% $150,951 63.78%
Corporate obligations ........... 46,033 22.76 44,966 19.80 22,520 10.39 42,591 17.99
Mortgage-backed securities 41,362 20.45 46,157 20.32 64,650 29.83 35,825 15.14
Other bonds and obligations 6,001 2.96 1,001 0.44 -- -- 2,000 0.84
-------- ------ -------- ------ -------- ------ -------- ------
Total debt securities .......... 187,469 92,68 218,253 96.10 210,535 97.15 231,367 97.75
Marketable equity securities ..... 9,520 4.71 3,696 1.63 1,523 0.71 1,064 0.45
Restricted equity securities ..... 5,286 2.61 5,156 2.27 4,645 2.14 4,259 1.80
-------- ------ -------- ------ -------- ------ -------- ------
Total securities ............... $202,275 100.00% $227,105 100.00% $216,703 100.00% $236,690 100.00%
======== ====== ======== ====== ======== ====== ======== ======
Debt and equity securities
available for sale .............. $183,340 90.64% $209,316 92.17% $200,306 92.43% $ 78,626 33.22%
Debt securities held to
maturity ........................ 13,649 6.75 12,633 5.56 11,752 5.43 153,805 64.98
Restricted equity securities ..... 5,286 2.61 5,156 2.27 4,645 2.14 4,259 1.80
-------- ------ -------- ------ -------- ------ -------- ------
Total securities ............... $202,275 100.00% $227,105 100.00% $216,703 100.00% $236,690 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
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 May 31, 1998:
<TABLE>
<CAPTION>
After one year After five years
One year or less through five years through ten years After ten years Total
------------------ ------------------ ------------------ ------------------ -------------------
Weighted Weighted Weighted Weighted Weighted
Carrying average Carrying average Carrying average Carrying average Carrying average
value yield value yield value yield value yield value yield
-------- --------- -------- --------- -------- -------- -------- --------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
Debt securities:
U.S. Government and
Agency obligations ............ $11,497 5.48% $ 62,950 5.64% $5,978 6.51% $ -- --% $ 80,425 5.68%
Corporate obligations .......... 11,049 6.09 32,961 6.22 2,023 6.20 -- -- 46,033 6.13
Mortgage-backed securities ..... 1,218 6.42 12,488 6.71 585 6.65 27,070 6.21 41,361 6.37
Other bonds and obligations 5,000 5.45 1,001 6.39 -- -- -- -- 6,001 5.61
------- -------- ------ ------- --------
Total debt securities ......... 28,764 5.66 109,400 5.94 8,586 6.45 27,070 6.21 173,820 5.96
------- -------- ------ ------- --------
Marketable equity securities
Common stocks .................. 8,520 2.38
Preferred stocks ............... 1,000 4.05
Total marketable --------
equity securities ............ 9,520 2.56
Total securities available --------
for sale .................... 183,340 5.79
Securities held to maturity: ========
U.S. Government and
Agency obligations ............ 3,999 5.92 9,650 5.87
------- -------- -- -- -- -- 13,649 5.88
Total securities held to ------ ------- --------
maturity ...................... 3,999 5.92 9,650 5.87 -- -- -- -- 13,649 5.88
------- -------- ------ ------- --------
Restricted equity securities:
Federal Home Loan Bank of
Boston stock .................. 4,856 6.30
Massachusetts Savings Bank
Life Insurance Company
stock ......................... 251 2.90
Depositors Insurance Fund ...... 179 5.60
Total restricted equity --------
securities ................... 5,286 5.97
--------
Total securities .............. $32,763 5.69% $119,050 5.93% $8,586 6.45% $27,070 6.21% $202,275 5.80%
======= ======== ====== ======= ========
</TABLE>
102
<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,
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 May 31, 1998, Compass's deposits of $982.4 million were comprised of
$59.4 million of non-interest-bearing checking accounts and $923.0 million of
interest-bearing deposit accounts, of which $507.4 million, or 55.0% were
certificates of deposit. Of this total of certificates of deposit at May 31,
1998, $421.4 million, or 83.1%, 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
certificate 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 CD 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 on-line banking, including bill payment capability,
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.
103
<PAGE>
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."
104
<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>
Year ended October 31,
---------------------------------
Seven months ended May 31, 1998 1997
--------------------------------- ---------------------------------
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 ....................... $ 80,170 8.40% 1.45% $ 72,837 8.02% 1.46%
Savings accounts ................... 170,023 17.82 2.59 171,157 18.86 2.59
Money market savings accounts ...... 146,465 15.35 2.75 140,413 15.47 2.82
Non-interest-bearing demand
checking accounts ................. 56,213 5.89 -- 56,284 6.20 --
-------- ------ -------- ------
Total transaction deposit
accounts ......................... 452,871 47.46 2.12 440,691 48.55 2.15
-------- ------ -------- ------
Certificate of deposit accounts:
Six months or less ................ 143,740 15.06 5.44 122,934 13.54 5.39
Over six months through
12 months ........................ 219,617 23.02 5.75 209,668 23.10 5.70
Over 12 months through
24 months ........................ 56,497 5.92 5.78 52,157 5.75 5.83
Over 24 months .................... 81,470 8.54 6.15 82,183 9.06 6.12
-------- ------ -------- ------
Total certificates
of deposit accounts ............. 501,324 52.54 5.73 466,942 51.45 5.71
-------- ------ -------- ------
Total average deposits ........... $954,195 100.00% 4.02% $907,633 100.00% 3.98%
======== ====== ======== ======
<CAPTION>
Year ended October 31,
------------------------------------------------------------------
1996 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 21.84 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>
105
<PAGE>
Compass had $88.4 million in certificates of deposit of $100,000 or more
outstanding as of May 31, 1998, maturing as follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount average rate
- ----------------------------------------------- ---------- -------------
(Dollars in thousands)
<S> <C> <C>
Three months or less .......................... $25,450 5.60%
Over three months through six months .......... 25,782 5.59
Over six months through twelve months ......... 22,763 5.88
Over twelve months ............................ 14,433 5.99
-------
$88,428 5.73%
=======
</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 $64.6 million in outstanding loans from the FHLB as of May 31,
1998. The FHLB charges a fixed rate of interest on its loans. Compass may
borrow up to $358.6 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>
Seven months
ended May 31, 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 ........................... $ 9,605 $ 2,343 $ 3,923 $ 120 --
Maximum amount outstanding at any month
end during the period ............................... 11,616 3,147 9,533 1,925 --
Balance outstanding at end of period .................. 11,616 3,147 9,533 1,925 --
Weighted average interest rate during the period ...... 4.73% 4.57% 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 ........................... $ 1,178 $ 1,152 $ 1,163 $ 1,078 $ 1,205
Maximum amount outstanding at any month
end during the period ............................... 2,071 2,117 2,117 2,175 2,190
Balance outstanding at end of period .................. 597 2,117 164 2,000 1,501
Weighted average interest rate during the period ...... 5.45% 4.64% 5.00% 4.90% 5.30%
Weighted average interest rate at end of period ....... 5.46% 5.36% 5.41% 5.10% 5.56%
Total short term borrowings:
Average balance outstanding ........................... $10,783 $ 3,495 $ 5,086 $ 1,198 $ 1,205
Maximum amount outstanding at any month
end during the period ............................... 12,213 5,264 9,742 3,925 2,190
Balance outstanding at end of period .................. 12,213 5,264 9,697 3,925 1,501
Weighted average interest rate during the period ...... 4.80% 4.59% 4.77% 4.82% 5.30%
Weighted average interest rate at end of period ....... 4.78% 5.00% 4.76% 4.93% 5.56%
Federal Home Loan Bank of Boston advances:
Average balance outstanding ........................... $61,986 $51,293 $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 .................. 64,572 54,017 51,006 45,375 39,364
Weighted average interest rate during the period ...... 6.52% 6.61% 6.68% 6.77% 6.58%
Weighted average interest rate at end of period ....... 6.43% 6.56% 6.63% 6.50% 6.64%
</TABLE>
106
<PAGE>
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 May 31, 1998, CBS
Corporation had total assets of $135.3 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 May 31, 1998,
CC Corporation had total assets of $15.9 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
and is the 99.9% owner of Compass Preferred Capital Corporation ("Compass
Preferred"). At May 31, 1998, BBR Corporation had total assets of $158.5
million, consisting primarily of its investment in Compass Preferred.
Compass Preferred Capital Corporation. Compass Preferred is a 99.9% owned
subsidiary of BBR Corporation. 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 $159.2 million at May 31, 1998, $145.9 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 May 31, 1998,
1855 Corporation had total assets of $7.4 million of which $2.5 million
consisted of real estate used for banking purposes and $3.5 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 May 31, 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
May 31, 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, including 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.
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
107
<PAGE>
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. Mission
critical systems include hardware, software, program interfaces, operating
systems as well as other mechanical or computer-generated requirements that are
beyond Compass's main central processing system and network. 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. Testing
has begun and testing of mission critical systems is expected to be completed
by June 30, 1999. Compass has not yet developed contingency plans to ensure
that critical operations continue in the event its service bureau or other
vendors are unable to achieve millenium requirements. Contingency plans will be
initiated if a vendor misses its target date or is not considered Y2K compliant
by December 31, 1998.
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 $750,000 to $1.0 million on its Year
2000 readiness efforts. Costs of the Y2K project are based on current estimates
and actual results could vary significantly from such estimates once detailed
testing is completed. 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 twelve
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, four 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. 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. Two of
Compass's remote ATMs are located in the City of New Bedford. One of Compass's
limited service high school branches is located in the City of New Bedford.
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<PAGE>
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 and owned branches in each of Somerset, Swansea
and Westport. One of Compass's remote ATMs is also located in the 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 executive 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 an
estimated $20 million 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 May 31, 1998, Compass had 321 full-time and 51 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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CERTAIN EFFECTS OF THE MERGER ON SEACOAST FINANCIAL
Assuming that the Conversion and the Merger had been consummated as of May
31, 1998, Seacoast Financial would have had, on a pro forma basis assuming
issuance of 18,400,000 Conversion Shares at the maximum of the Estimated
Valuation Range, total assets of $1.9 billion, total deposits of $1.4 billion,
net loans of $1.2 billion and total stockholders equity of $307.8 million. For
pro forma income statements and balance sheets, see "Pro Forma Data."
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 banks.
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 August 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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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
Seven months ended May 31, 1998 Six months ended June 30, 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 ................................. $ 80,170 8.40% 1.45% $ 41,327 9.65% 1.09%
Savings accounts ............................. 170,023 17.82 2.59 26,362 6.16 1.93
Money market savings accounts ................ 146,465 15.35 2.75 107,650 25.15 3.28
Non-interest-bearing demand checking
accounts .................................... 56,213 5.89 -- 40,156 9.38 --
-------- ------ -------- ------
Total transaction deposit accounts ......... 452,871 47.46 2.12 215,495 50.34 2.08
-------- ------ -------- ------
Certificate of deposit accounts: .............
6 months or less ............................ 143,740 15.06 5.44 91,778 21.44 5.37
Over 6 months through 12 months ............. 219,617 23.02 5.75 45,072 10.53 5.45
Over 12 months through 24 months ............ 56,497 5.92 5.78 34,806 8.13 5.68
Over 24 months .............................. 81,470 8.54 6.15 40,960 9.56 5.71
-------- ------ -------- ------
Total certificates of deposit accounts ..... 501,324 52.54 5.73 212,616 49.66 5.50
-------- ------ -------- ------
Total average deposits ..................... $954,195 100.00% 4.02% $428,111 100.00% 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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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 May 31, 1998 June 30, 1998
---------------------------------- -----------------------------------
Percent Average Percent Average
Amount of total yield Amount of total yield
------------- ---------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential (one-to four-family) ................ $ 368,136 41.63% $ 242,709 67.30%
Commercial ...................................... 125,089 14.14 61,609 17.09
Home equity lines of credit ..................... 15,941 1.80 11,227 3.11
Construction, net ............................... 41,925 4.74 29,669 8.23
--------- ------ --------- ------
Total real estate loans ........................ 551,091 62.31 8.31% 345,214 95.73 7.92%
--------- ------ ----- --------- ------ -----
Commercial loans ................................. 58,200 6.58 9.86 8,161 2.26 10.06
--------- ------ ----- --------- ------ -----
Consumer loans:
Indirect auto loans, net ........................ 280,215 31.68 7.95 -- --
Other ........................................... 27,553 3.12 8.92 7,242 2.01 9.83
--------- ----- --------- -----
Consumer loans ................................. 307,768 7,242
Less: unearned discount ......................... 32,637 --
--------- ---------
Total consumer loans ........................... 275,131 31.11 8.05 7,242 2.01 9.83
--------- ------ ----- --------- ------ -----
Total loans .................................... $ 884,422 100.00% 8.33% $ 360,617 100.00% 8.01%
========= ====== ===== ========= ====== =====
Non-performing loans as a percent of total loans 1.07% 0.75%
Non-performing assets as a percent of total assets 0.93% 0.56%
</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 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.
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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 $136.0 million and $184.0 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 Exchange Shares to
be issued in the Merger are in addition to the Conversion Shares to be issued
in the Offering.
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
October , 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
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Merger Agreement. A copy of the Merger Agreement is attached hereto at Appendix
A. 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 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, which continued through the fall, 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 January 8, 1998, 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 February 2 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. (A stock-for-stock merger
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<PAGE>
would not have been possible under Seacoast Financial's existing mutual holding
company structure.) Seacoast Financial and Compass held a series of meetings
with their respective Boards to consider such a proposal.
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 May 31, 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 16.5% 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 Bank 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 Bank, 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 May 31, 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 depositors 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
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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 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 For further information about the reasons for
and background of the Merger from the perspective of Sandwich Bancorp's Board
of Directors, see "The Proposed Merger--Reasons for the Merger and
Recommendation of the Sandwich Bancorp Board of Directors" and "--Background of
the Merger."
Description of the Conversion
The Offering and Sale of Conversion Shares. Seacoast Financial is offering
between 13,600,000 and 18,400,000 Conversion Shares (subject to adjustment to
up to 21,160,000 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.
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, LC., an independent appraisal firm ("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
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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 September 4, 1998, the estimated pro
forma market value of the Conversion Shares ranged from a minimum of $136.0
million to a maximum of $184.0 million with a midpoint of $160.0 million (the
"Estimated Valuation Range"), giving 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 13,600,000 to 18,400,000 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 59.2% and 40.8%, 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 66.2% and 33.8%, 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 voting for the Merger. 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
September 4, 1998 estimate of the pro forma market value of the Conversion
Shares upon consummation of the Conversion. If such is not the case, the
Offering can be terminated; a new Estimated Valuation Range may be set and
investors resolicited 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.
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 Data--Pro Forma Conversion Data."
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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."
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
Trading Price Exchange Ratio Per Sandwich Bancorp Share Value
- ----------------------- -------------------------------------------- ---------------------------------
<S> <C> <C>
More than $15.00 Less than 4.7407 $71.11
($71.11 [divided by] 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 [divided by] 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. This pricing mechanism is also depicted graphically in "Summary-- The
Proposed Merger". 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
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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.
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
excess 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
Bancorp 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
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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 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. The FRB has approved the
Merger (including the Conversion as a precondition to the Merger) and the FDIC
has approved the Bank Merger under the Bank Merger Act, and in each case the
required 15-day waiting period has passed. In addition, the Conversion and the
Merger cannot be consummated unless the BBI and the Commissioner approve the
Merger and the Bank Merger. There can be no assurances that the required
approvals will be obtained. 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 a majority of Seacoast Financial's Corporators, including a majority of
the "independent Corporators," as such term is defined in Massachusetts banking
regulations. 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 August 24, 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
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the Merger on October , 1998. Under Massachusetts law, the Merger 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,
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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 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 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 Aspects 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,
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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 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 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
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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 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
The summary information below concerning the material terms of the Stock
Option Agreement is qualified in its entirety by reference to the full text of
such agreement, attached in its entirety hereto as Exhibit A to the Merger
Agreement attached hereto at Appendix A.
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% 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;
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(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 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
5% of the Sandwich Bancorp Common Stock, pursuant to the exercise of the Option
or otherwise, without prior approval of the FRB. Seacoast Financial has
received approval from the FRB 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 trustees, directors and
executive officers of Seacoast Financial and Compass, as a group (19 persons),
have proposed to purchase 405,000 Conversion Shares, or 3.0% and 2.2% 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 1,088,000 shares ($10.9 million) and 1,472,000 shares
($14.7 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
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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."
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: Kevin G. Champagne; Arthur W. Short; John D. Kelleher; Francis S.
Mascianica, Jr.; and Carolyn A. Belanger. 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,
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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 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 ending December 31, 1998; however, these payments would be subject to
reduction in the event the Seacoast Financial Trading Price is above $13.50.
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 June 30, 1998, there were outstanding under the
Sandwich Stock Option Plans options to acquire an aggregate of 45,203 shares of
Sandwich Bancorp Common Stock at exercise prices ranging from $9.00 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 value of the Sandwich Stock Options held by each
executive officer of Sandwich Bancorp at the time the Merger Agreement was
executed was approximately as follows: Frederic D. Legate, President and Chief
Executive Officer, $2,241,299; Dana S. Briggs, Senior Vice President and
Corporate Secretary, $970,605; George L. Larson, Senior Vice President, Chief
Financial Officer and Treasurer, $1,199,040; David A. Parsons, Senior Vice
President, Senior Loan Officer, $904,756.
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.
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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 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 145 under the Securities Act. 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 145 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
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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 under the Securities Act, which restrict, among
other things, the number of shares sold in any quarter and the manner of sale,
during the one year following the Merger Effective Time. After such one-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
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 revenues 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 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.
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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. Although these opinions are not complete
descriptions of all federal income tax consequences of the Conversion and the
Merger, they address all material 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 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: (i) 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; (ii) no gain or loss will be recognized by Seacoast Financial, Compass,
Sandwich or Sandwich Bank as a result of the Merger; (iii) no gain or loss will
be recognized by a shareholder of Sandwich Bancorp who exchanges all of such
shareholder's Sandwich Bancorp Common Stock solely for Exchange Shares; (iv)
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 (v) 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
"Selected Unaudited Pro Forma Financial Data of Seacoast Financial."
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.
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FEDERAL AND STATE TAXATION OF SEACOAST FINANCIAL AND COMPASS
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.
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 1996 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, 1997 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. For federal income tax purposes, 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 May 31,
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
$667,000 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, Compass 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
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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 year beginning November 1, 1999 and thereafter, it will be allowed a
deduction equal to 95% of dividends received, as is permitted under the
corporate excise rules. Seacoast Financial may also qualify to be 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-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 at a rate of 9.0%.
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REGULATION OF SEACOAST FINANCIAL AND COMPASS
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 financial 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, in micro-lending to small businesses (including fishing
and farm loans) and in providing certain technical assistance. 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.
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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
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
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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 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 May 31, 1998 and June
30, 1998, respectively, Compass and Sandwich Bank, respectively, held
marketable equity securities with a carrying value of $5.8 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
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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.
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
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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 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 Shares 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 145 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 May 31,
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 Bank. 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 May 31, 1998, Compass owned $4.9 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 11 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 June 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
Name (1) Age Expires Date 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
A. William Munro ................ 66 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. Seacoast Financial's Board
does not currently have a Chairman due to the death of Richard Marchisio on
September 10, 1998. Mr. Marchisio served as Chairman of the Boards of both
Seacoast Financial and Compass from 1994 until his death. He was President of
Compass from 1984 until his retirement in 1990. Mr. Marchisio first joined
Compass in 1946.
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.
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.
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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 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 Vice President of Seacoast
Financial, 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 53 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 and as Treasurer of Seacoast
Financial 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 50 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 45 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.
The executive officers of Seacoast Financial and Compass are elected
annually and hold office until their successors are chosen and qualified.
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
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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.
Committees of the Boards of Seacoast Financial and Compass
The Boards of Seacoast Financial and Compass have two committees, an
Executive Committee and an Audit Committee. The current members of the
Executive Committee are Messrs. Champagne, Dyer, Johnson, LeBlanc, Munro and
Silverstein, and following the consummation of the Merger, Frederic D. Legate,
currently the President of Sandwich Bancorp, will join the Executive Committee.
The Executive Committee is vested with the authority of the Board in most
matters, except those powers which by law may not be delegated. The Executive
Committee also serves as the Compensation Committee, in which capacity it
reviews and establishes salaries and other compensation and benefit programs of
all officers and employees of Seacoast Financial and Compass, and as the
Nominating Committee, which recommends to the Boards of Seacoast Financial and
Compass nominees for election to the Boards of Seacoast Financial and Compass.
The Audit Committee, of which Messrs. Camacho, Cameron, Klaren, Ribeiro
and Silvia are members, reviews the results and scope of the audit and other
services provided by Seacoast Financial's and Compass's independent auditors.
Compensation Committee Interlocks and Insider Participation
The Executive Committee serves as the Compensation Committee. Its members
are Messrs. Champagne, Dyer, Johnson, LeBlanc, Munro and Silverstein. Mr.
Champagne, the President and Chief Executive Officer of Seacoast Financial and
Compass, does not participate in deliberations involving his own compensation.
No executive officer of Seacoast Financial or Compass served (i) as a
member of the compensation committee of another entity, one of whose executive
officers served on the Executive Committee of Seacoast Financial and Compass,
(ii) as a director of another entity, one of whose executive officers served on
the Executive Committee of Seacoast Financial and Compass, or (iii) as a member
of the compensation committee of another entity, one of whose executive
officers served as a trustee or director of Seacoast Financial or Compass.
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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 Seacoast
Financial's and 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").
<TABLE>
<CAPTION>
All Other
Annual Compensation Compensation(4)
----------------------------------------- ----------------
Name and Principal
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
Vice President of Seacoast Financial;
Executive Vice President and Chief Operating
Officer 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.
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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, Short, Kelleher and Mascianica and Ms. Belanger
(collectively, the "Officers"). The Employment Agreements provide that the
Officers will receive certain benefits and a base salary equal to $270,003,
$156,505, $141,654, $103,382 and $110,346, 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.
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
commence on the date of consummation of the Conversion, 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 the
Officer 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 (which, as a result of
the daily extension of the term of the Agreements, will always be three years
for Mr. Champagne and two years for the other Officers); 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, continuation of 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
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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.
Compass also has a severance agreement with James E. Lambert, its
Executive Vice President/Commercial Lending. Mr. Lambert was formerly President
of Martha's Vineyard National Bank, which Compass acquired in December 1994.
Pursuant to this agreement, which Compass assumed from Martha's Vineyard
National Bank, Compass has agreed to pay Mr. Lambert one year's severance for
any termination of his employment by Compass, other than termination for
"cause", and for any termination by Mr. Lambert for "good reason," as such
terms are defined in the 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 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 25 Years
Compensation 10 Years 15 Years 20 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).
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At October 31, 1997, the approximate years of credited service for the
named executive officers were as follows:
<TABLE>
<CAPTION>
Years of Credited Service
Name 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 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 $10,000 (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 under the subscription priorities set
forth in the Plan of Conversion.
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
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Conversion, the ESOP intends to borrow funds from Seacoast Financial and use
those funds to purchase a number of shares equal to up to 8% of the Conversion
Shares. Collateral for the loan will be the unallocated 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 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 1,360,000 shares, 1,600,000 shares,
1,840,000 shares or 2,116,000 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 544,000 shares, 640,000 shares, 736,000
or 846,400 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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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 $4,250,000 of
Conversion Shares, equal to 3.0%, 2.5%, 2.2%, and 1.9% 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
Name Purchase Price of Shares at Midpoint
- ------------------------------------------- ---------------- ----------- ------------
<S> <C> <C> <C>
Manuel G. Camacho, D.D.S. ................. $ 100,000 10,000 *
David P. Cameron .......................... 50,000 5,000 *
Kevin G. Champagne ........................ 250,000 25,000 *
Howard C. Dyer, Jr. ....................... 40,000 4,000 *
Glen F. Johnson ........................... 150,000 15,000 *
Thornton P. Klaren, Jr. ................... 55,000 5,500 *
J. Louis LeBlanc .......................... 650,000 65,000 *
A. William Munro .......................... 1,500,000 150,000 *
Carl Ribeiro .............................. 300,000 30,000 *
Joseph Silverstein ........................ 300,000 30,000 *
Gerald H. Silvia .......................... 160,000 16,000 *
All non-director executive officers
(8 persons) as a group ................... 495,000 49,500 *
---------- -------
Total shares to be purchased by
directors and executive officers ......... $4,050,000 405,000 2.5%
========== =======
</TABLE>
- ------------
* Less than 1%.
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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 13,600,000 and 18,400,000
Conversion Shares, with an adjusted maximum of 21,160,000 shares, in the
Offerings, and between 12,686,225 and 8,817,053 Exchange Shares in the Merger
(based on 1,953,475 shares of Sandwich Common Stock, which is exclusive of
90,000 shares owned by Seacoast Financial, and 45,203 Sandwich Options
outstanding as of June 30, 1998 and assuming Exchange Ratios of 6.4 and 4.4444,
respectively). See "The Conversion and the Merger--Description of the Merger
and 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.
CERTAIN DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
Introduction
Upon consummation of the transactions contemplated in the Merger
Agreement, the stockholders of Sandwich Bancorp will become stockholders of
Seacoast Financial. Since both Sandwich Bancorp and Seacoast Financial are
Massachusetts business corporations, Sandwich Bancorp stockholders who receive
Seacoast Financial Common Stock will continue to be subject to the privileges
and restrictions set forth in the Massachusetts Business Corporation Law (the
"MBCL"). In addition, the rights of Sandwich Bancorp stockholders as
stockholders of Seacoast Financial will be governed by the Articles of
Organization and By-Laws of Seacoast Financial, which differ in certain
respects from Sandwich Bancorp's Articles and By-Laws.
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. Stockholders of Sandwich Bancorp considering whether to
vote for approval of the Merger Agreement and the transactions contemplated
thereby 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 briefly summarizes material differences that will
exist between the rights of stockholders of Sandwich Bancorp and Seacoast
Financial, as well as provisions of Seacoast Financial's Articles and By-Laws,
the ESOP and certain laws, which may be deemed to have an anti-takeover effect.
The following discussion is not intended to be a complete statement of all
differences affecting the rights of stockholders, or all provisions that may
have an anti-takeover effect, and is qualified in its entirety by reference to
the Articles and By-Laws of Sandwich Bancorp, the Articles and By-Laws of
Seacoast Financial, the ESOP and the referenced federal and Massachusetts laws
and regulations. See "Available Information" and "Risk Factors--Certain Anti-
takeover Effects of the Articles of Organization and By-Laws of Seacoast
Financial, the ESOP and Federal and State Regulations and Laws."
Issuance of Common Stock
The Articles of Sandwich Bancorp authorize the issuance of 15,000,000
shares of Sandwich Bancorp Common Stock. Seacoast Financial's Articles authorize
the issuance of 100,000,000 shares of Seacoast Financial Common Stock. On the
Record Date, 2,083,678 shares of Sandwich Bancorp Common Stock were issued and
outstanding. It is expected that, upon the consummation of the Conversion, there
will be between 13,600,000 and 18,400,000 shares of Seacoast Financial Common
Stock issued and outstanding and that, upon the consummation of the Merger,
assuming the Seacoast Financial Trading Price is between $10.00 and $13.50 and
the Exchange Ratio therefore is between 4.7407 and 6.3936, there will be between
12,778,747 and 9,475,132 more shares of Seacoast Financial Common Stock issued
and outstanding (assuming exercise of all remaining Sandwich Options prior to
consummation of the Merger). Both Sandwich Bancorp's and Seacoast Financial's
Boards of Directors
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may, subject to applicable law and rules of their respective exchanges,
authorize the issuance of additional common stock at such times, for such
purposes and for such consideration as they may deem advisable without
stockholder approval.
Issuance of Preferred Stock
Sandwich Bancorp's Articles authorize the Board of Directors to issue,
without stockholder approval, of up to 5,000,000 shares of preferred stock, par
value $1.00 per share, none of which is issued and outstanding. Seacoast
Financial's Articles authorize the Board of Directors to provide for the
issuance of 10,000,000 shares of Seacoast Financial Preferred Stock, of which
there are no shares outstanding and no present plans with respect to the future
issuance of any such shares. Both Sandwich Bancorp's and Seacoast Financial's
Boards of Directors may, subject to applicable law and rules of their
respective exchanges, authorize the issuance of preferred stock at such times,
for such purposes and for such consideration as they deem advisable without
stockholder approval. The ability of Sandwich Bancorp and Seacoast Financial to
issue shares of preferred stock up to the prescribed amounts in their
respective Articles could have a possible anti-takeover effect. See "Risk
Factors--Certain Anti-takeover Effects of the Articles of Organization and
By-Laws of Seacoast Financial, the ESOP and Federal and State Regulations and
Laws."
Voting Rights
Holders of Sandwich Bancorp and Seacoast Financial Common Stock are
entitled to one vote per share on all matters submitted to vote to their
respective stockholders. The Sandwich Bancorp and Seacoast Financial's Articles
expressly do not permit cumulative voting in the election of Directors.
A holder of a substantial block of Sandwich Bancorp Common Stock, however,
could become subject to certain voting restrictions under Massachusetts'
control share statute, Chapter 110D of the Massachusetts Corporation-Related
Laws. Massachusetts' control share statute generally would restrict the voting
rights of a stockholder who acquires beneficial ownership of shares of a
corporation, such as Sandwich Bancorp, that is subject to the statute, which
acquisition results in such stockholder possessing voting power in the election
of directors that falls within the following ranges: (i) one-fifth or more but
less than one-third of all voting power; (ii) one-third or more but less than a
majority of all voting power or (iii) a majority or more of all voting power
(in each case, a "control share acquisition"). Shares acquired in a control
share acquisition in excess of the applicable threshold effectively would have
the same voting rights as all other shares of the same class or series of the
corporation only to the extent approved by the affirmative vote of a majority
of stockholders entitled to vote generally in the election of directors at an
annual meeting or special meeting of the stockholders (such excess acquired
shares not being entitled to vote). If the voting of the excess shares is not
approved by the corporation's shareholders, those shares will remain restricted
until such time as their beneficial ownership is transferred to another person,
where such transfer does not itself qualify as a control share acquisition.
Seacoast Financial has opted-out of Massachusetts' control share statute
in its Articles, and therefore the control share statute would not apply to
acquisitions of Seacoast Financial Common Stock.
10% Beneficial Ownership Limitation
Seacoast Financial's 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, 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 provision of
Seacoast Financial's Articles does not apply to: (i) any acquisition of shares
of capital stock 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 (plus a
vote of at least two-thirds (2/3) of the Disinterested Directors then in office
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
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to the exercise of any dissenters' appraisal rights. This beneficial ownership
limitation could have an anti-takeover effect by discouraging potential
acquirors form expressing an interest in acquiring Seacoast Financial or from
acquiring a large block of Seacoast Financial Common Stock in anticipation of
an acquisition.
Sandwich Bancorp's Articles do not contain a similar provision which
limits the beneficial ownership of Sandwich Bancorp Common Stock. For
information about possible restrictions on voting of certain shares of Sandwich
Bancorp Common Stock, see "--Voting Rights."
Preemptive Rights
Holders of the shares of any class or series of stock, options, warrants
or other rights to purchase shares of any class or series of stock or other
securities of Sandwich Bancorp do not have preemptive rights to purchase
additional shares of any class of stock or security issued. Similarly, under
Seacoast Financial's Articles, holders of capital stock of Seacoast Financial
are not entitled to preemptive rights with respect to any shares of capital
stock that may be issued.
Amendment of Articles of Organization
Sandwich Bancorp's Articles reserve the right to Sandwich Bancorp to
repeal, alter, amend or rescind any provision contained in the Articles, and
all rights conferred on stockholders are granted subject to the following
reservation, which requires that the provisions set forth in Article V
(Restriction Upon Transfer of Stock), Article VI(C) (Meetings of Stockholders;
Cumulative Voting), Article VI(D) (Notice for Nominations and Proposals),
Article VI(F) (Removal of Directors), Article VI(G) (Affiliated Transactions),
Article VI(H) (Indemnification), Article VI (J) (Amendment of By-Laws) and
Article VI(K) (Amendment of Articles of Organization) may not be repealed,
altered, amended or rescinded without the approval of the affirmative vote of
not less than two-thirds of the outstanding shares of Sandwich Bancorp capital
stock entitled to vote generally in the election of Directors cast at a meeting
called for that purpose.
Seacoast Financial's 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 at least
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.
Amendment of By-Laws
In furtherance of and not to limit the powers conferred by the MBCL,
Sandwich Bancorp's Articles authorize the Board of Directors to repeal, alter
and rescind Sandwich Bancorp's By-Laws. Also, stockholders are permitted under
the Articles to make, repeal, alter and rescind the By-Laws, provided that such
change to the By-Laws is approved by the vote of two-thirds of the outstanding
shares of Sandwich Bancorp Common Stock entitled to vote generally in the
election of Directors at a meeting held for that purpose.
Seacoast Financial's Articles provide that Seacoast Financial's By-Laws
may be amended by the affirmative vote of a majority of the Directors (plus the
affirmative vote of at least two-thirds (2/3) of the Disinterested Directors if
there is an Interested Stockholder), with notice being given to stockholders
entitled to vote to amend the By-Laws which is not later than the time of
giving notice for the next annual meeting following such amendment. Also,
Seacoast Financial's By-Laws may be amended by Seacoast Financial stockholders
by the affirmative vote of at least 75% of the total vote eligible to be cast
by stockholders on such amendment; provided, that if the Board of Directors
recommends, by the affirmative vote of at least two-thirds (2/3) of the
Directors then in office (plus the affirmative vote of at least two-thirds
(2/3) of the Disinterested Directors then in office if there is Interested
Stockholder), that stockholders approve such amendment, then such amendment
will only require the affirmative vote of a majority of the total votes
eligible to be cast by stockholders on such amendment.
Number and Terms of Directors
The Board of Directors of Sandwich Bancorp is classified into three
classes, with one class elected at each annual meeting of stockholders.
Pursuant to the Sandwich Bancorp's Articles, the Board of Directors must
consist of between seven and eighteen persons with the precise number to be
specified in the By-Laws (currently there
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are thirteen Directors). Sandwich Bancorp's Board of Directors may increase or
decrease the number of members of the Board of Directors by a vote of at least
two-thirds of the board members then in office, provided that the membership
remains between seven and eighteen Directors.
The Board of Directors of Seacoast Financial is classified into three
classes, with one class elected at each annual meeting of stockholders.
Seacoast Financial's Articles and By-Laws do not specify a number or a range of
numbers of directors of Seacoast Financial or how the number of directors of
Seacoast Financial shall be determined, so under Massachusetts law Seacoast
Financial may have any number of directors as determined by the Board of
Directors (though such number may not be less than three as long as there are
at least three stockholders). Pursuant to the terms of the Plan of Conversion,
upon the consummation of the Conversion, the Board of Directors of Seacoast
Financial initially will consist of those members who serve on the Board of
Directors of Compass. After the Merger, three additional Directors, Mr.
Frederic D. Legate and two other members of the Sandwich Bancorp's Board of
Directors, will join Seacoast Financial's Board of Directors. See "Management
of Seacoast Financial and Compass."
Vacancies on the Board of Directors
Sandwich Bancorp's Articles provide that vacancies in Sandwich Bancorp's
Board of Directors, however caused, and newly created directorships will be
filled solely by the affirmative vote of a majority of the directors remaining
in office, whether or not a quorum. Any directors chosen to fill such vacancy
will hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director was chosen to serve expires.
Seacoast Financial By-Laws set forth that any vacancy occurring on
Seacoast Financial's Board of Directors as a result of resignation, removal,
death or other cause, as well as newly created directorships resulting from any
increase in the number of directors, may be filled only by the affirmative vote
of the majority of the Directors then in office, provided that, if at the time
of such vacancy, there is an Interested Stockholder such vacancy may only be
filled by the vote of a majority of Disinterested Directors. A director elected
to fill a vacancy will be elected to serve for the full term of the class of
directors in which the vacancy occurred or the new directorship was created.
Removal of Directors
Sandwich Bancorp's Articles provide that any Director or the entire Board
of Directors of Sandwich Bancorp may be removed at any time for cause by the
affirmative vote of the holders of a majority of the outstanding shares of
Sandwich Bancorp Common Stock entitled to vote generally in the election of
directors cast, at a meeting of stockholders called for that purpose. Cause is
defined under the Articles as (i) a conviction of a felony by a court of
competent jurisdiction, which conviction is no longer subject to direct appeal,
(ii) a declaration of unsound mind by order of court, (iii) a gross dereliction
of the director's duty to Sandwich Bancorp, (iv) the commission by the director
of an action involving moral turpitude, or (v) the commission by the director
of an action that constitutes intentional misconduct or a knowing violation of
law if such action in either event results both in an improper substantial
personal benefit and a material injury to Sandwich Bancorp. Also, any Director
or the entire Board of Directors of Sandwich Bancorp may be removed at any time
without cause by the affirmative vote of holders of at least two-thirds of the
outstanding shares of Sandwich Bancorp Common Stock entitled to vote generally
in the election of Directors, cast at a meeting of stockholders called for that
purpose.
The Articles and By-Laws of Seacoast Financial provide that any Director
of Seacoast Financial may be removed from office only for cause and only by the
affirmative vote of not less than two-thirds (2/3) of the total votes eligible
to be cast by stockholders. Written notice must be delivered to the Director(s)
whose removal will be considered at the meeting at least thirty (30) days prior
to such meeting, and the Director(s) will have an opportunity to be heard at
the meeting.
Special Meetings of Stockholders
Sandwich Bancorp's Articles provide that special meetings of stockholders
for any purpose(s) may be called at any time by the Board of Directors, the
President or a committee of the Board of Directors which has been duly
designated and granted the power and authority to call special meetings by the
Board of Directors. Under the MBCL, special meetings may also be called by
stockholder(s) holding at least forty percent (40%) of the shares entitled to
vote at a special meeting upon submitting a written application to Sandwich
Bancorp's Clerk or other officer in the case of the death, absence, incapacity
or refusal of the Clerk to recognize the application.
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Seacoast Financial's 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 the Disinterested Directors) or upon application by one or more stockholders
who hold at least 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.
Director Nominations
Procedures to be followed by stockholders of Sandwich Bancorp seeking to
make nominations for Directors are contained in Sandwich Bancorp's Articles and
By-Laws. In order for a stockholder to make any such nominations, the
stockholder must give written notice to the Clerk not less than thirty (30)
days nor more than sixty (60) days prior to the date of any such meeting. Each
such notice given by a stockholder with respect to nominations for the election
of Directors must set forth (i) the name, age, business address and, if known,
a residence address of each nominee proposed in such notice, (ii) the principal
occupation or employment of each such nominee and (iii) the number of shares of
Sandwich Bancorp stock which are beneficially owned by each such nominee. In
addition, the stockholder making such nomination will promptly provide any
other information reasonably requested by Sandwich Bancorp.
Nomination of candidates for election as Directors at any annual meeting
of Seacoast Financial stockholders may be made (i) by, or at the direction of,
a majority of the Board of Directors or a designated committee thereof (unless
there is an Interested Stockholder, as defined in the Articles (see above), in
which case the affirmative vote of a majority of Disinterested Directors, as
defined in the Articles (see above), is required) or (ii) by any holder of
record of any shares of Seacoast Financial capital stock as of the time of the
nomination and as of the record date, provided that written notice is given.
Written notice must be delivered, received or mailed to the Clerk of Seacoast
Financial at the principal executive office not less than sixty (60) days nor
more than one-hundred and fifty (150) days prior to the date of the scheduled
annual meeting, provided, however, that if less than seventy (70) days notice
or prior public disclosure of the date of the annual meeting is given or made,
notice by the nominating stockholder must be delivered or received not later
than the close of business on the tenth (10) day following the earlier of the
day on which such public disclosure was made. The written notice submitted by
the nominating stockholder to the Clerk of Seacoast Financial must set forth
the following information: (i) the name, age, business address and residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of Seacoast
Financial stock which are beneficially owned by each such nominee and (iv) any
other information relating to such persons 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. In addition, the nominating stockholder must provide his,
her or its name and address as it appears on Seacoast Financial capital stock
transfer books, the names and addresses of any other stockholders known by the
nominating stockholder to be supporting such nominees and the class and number
of shares of Seacoast Financial capital stock which are beneficially owned by
the nominating stockholder and any supporting stockholder on the date notice is
given.
Stockholder Proposals
Sandwich Bancorp's Articles set forth the procedures and limitations for
stockholders who are entitled to vote generally in the election of Directors to
submit proposals for new business to be taken up at annual or special meetings
of stockholders. A stockholder proposing new business must deliver or mail
written notice of such proposal to Sandwich Bancorp's Clerk not less than
thirty (30) days nor more than sixty (60) days prior to any such meeting. Each
such notice given by a stockholder with respect to new business must set forth
as to each matter that the stockholder proposes to bring before the meeting of
stockholders (i) a brief description of the proposal desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(ii) the name and address, as they appear on Sandwich Bancorp's stock transfer
books, of the stockholder proposing such business and of the beneficial owners
(if any) of the stock registered in such stockholder's name and the name and
address of other stockholders known by such stockholder to be supporting the
proposal, (iii) the class and the number of shares of Sandwich Bancorp's
capital stock which are held of record, beneficially owned or represented by
proxy by the
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stockholder and by any other stockholders known by such stockholder to be
supporting such proposal on the record date for the meeting in question and on
the date of such stockholder's notice and (iv) any material interest of the
stockholder (or any other stockholders known by such stockholders to be
supporting such proposal) in such proposal.
The By-Laws of Seacoast Financial permit proposals to be submitted at an
annual meeting of stockholders by Seacoast Financial stockholders of record,
entitled to vote at the annual meeting, and who are holders of Seacoast
Financial stock as of the date of timely submitting due written notice of the
proposal to the Clerk. Timely written notice of the proposal is notice that is
received at the principal executive offices of Seacoast Financial not less than
sixty (60) days nor more than one-hundred and fifty (150) days prior to the
scheduled annual meeting, provided, however, that if less than seventy (70)
days notice or prior public disclosure of the date of the annual meeting is
given or made, notice by the nominating stockholder must be delivered or
received not later than the close of business on the tenth (10) day following
the earlier of the day on which such public disclosure was made. The content of
the written notice submitted by the proposing stockholder must contain the
following: (i) 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, (ii) the name and address, as they appear on Seacoast Financial books,
of the stockholder proposing such business and any other stockholders known by
such stockholder to be supporting such proposal, (iii) the class and number of
shares of Seacoast Financial'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 such proposal on the
date of such stockholder notice and (iv) any financial interest of the
stockholder in such proposal.
Indemnification
Sandwich Bancorp's Articles require indemnification of each director or
officer to the fullest extent now or hereafter permitted by Massachusetts law
against all expenses (including attorneys' fees and disbursements), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
individual in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, to
which he or she is or is threatened to be made a party by reason of the fact
that he or she is or was a director, officer, employee or agent of Sandwich
Bancorp or of a Sandwich Bancorp subsidiary, or is or was a director,
custodian, administrator, committeeman or fiduciary of any employee benefit
plan established and maintained by Sandwich Bancorp or by a Sandwich Bancorp
subsidiary, or is or was serving another enterprise in any such capacity at the
written request of the Sandwich Bancorp. To the extent authorized at any time
by the Board of Directors, Sandwich Bancorp may similarly indemnify other
persons against liability incurred in any capacity, or arising out of any
status, of the character described in the immediately preceding sentence. At
the discretion of the Board of Directors, any indemnification hereunder may
include payment of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he will be adjudicated to be not entitled to indemnification under this
provision of the Articles or applicable laws. In no event, however, must
Sandwich Bancorp indemnify any Director, officer, or other person hereunder
with respect to any matter as to which he or she has been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that his or
her action was in the best interests of Sandwich Bancorp.
Sandwich Bancorp's Articles authorize the purchase and maintenance of
insurance to protect itself and any present or former Director, officer or
other person against any liability of any character asserted against and
incurred by Sandwich Bancorp or any such Director, officer or other person in
any capacity, or arising out of any status, regardless of whether or not
Sandwich Bancorp would have the power to indemnify such person against such
liability by law or under the provisions of its the Articles.
Seacoast Financial's Articles provide for mandatory indemnification for
"Officers" and permissive indemnification for "non-Officer Employees" against
all "Expenses" incurred by them in connection with any "Proceeding" in which
they are involved as a result of their (i) serving or having served as an
"Officer" or employee of Seacoast Financial (ii) serving or having served as a
director, officer or employee of any wholly-owned subsidiary of Seacoast
Financial, or (iii) 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.
Indemnification is not required to be provided to an Officer 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
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that the Board of Directors may provide indemnification to such Officer, even
though the Board of Directors vote was not obtained. In addition,
indemnification is not required to be provided for Officers where it is
determined by final judicial decision (from which there is no further right of
appeal) that such person is not entitled to be indemnified.
The terms "Officer," "non-Officer Employee," "Proceeding" and "Expenses"
are defined in Seacoast Financial's Articles. An "Officer" is defined as (i) a
Director of Seacoast Financial, (ii) any person who served in an office filled
by election or appointment by the Board of Directors or (iii) any other person
who serves or has served at the request of Seacoast Financial as a Director or
officer of a wholly-owned subsidiary of Seacoast Financial. A "non-Officer
Employee" is any person who serves or has served as an employee or agent of
Seacoast Financial but is not an Officer. A "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.
"Expenses" include any liability fixed by judgment, order, decree or award
(including, but not limited to, judgements, 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.
Seacoast Financial's Articles authorize the purchase and maintenance of
insurance to protect Seacoast Financial, any Officer or any non-Officer
Employee against any liability of any character asserted that arose out of such
status with Seacoast Financial, regardless of whether Seacoast Financial would
have the power to indemnify such person against such liability under the MBCL
or Seacoast Financial's Articles.
Approval of Certain Business Combinations
Sandwich Bancorp's Articles require that any merger, reorganization or
consolidation, or any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of assets, of Sandwich Bancorp with any Related Person, as
defined in the Articles (generally, a beneficial owner of ten percent (10%) or
more of the outstanding voting stock), who owns in the aggregate 10% or more of
the outstanding shares of voting stock of Sandwich Bancorp must first be
approved by the affirmative vote of the holders of not less than two-thirds
(2/3) of the outstanding shares of voting stock, excluding the shares
beneficially owned by the Related Person. In addition, the Massachusetts
General Laws contain comparable statutory requirements under Chapter 110F,
which is applicable to Sandwich Bancorp.
Seacoast Financial's Articles require the affirmative vote of the holders
of not less than eighty percent (80%) of all the then outstanding shares of
voting stock entitled to vote generally in the election of directors to approve
certain business combination transactions with Interested Stockholders.
However, if either of the following conditions is satisfied: (i) if there is a
Disinterested Director, at least two-thirds (2/3) of the Disinterested
Directors serving on the Board of Directors approve the business combination or
(ii) certain "fair price and procedure" requirements (as set forth in the
Articles) are met, then the stockholder vote requirement would be only such
affirmative vote, if any, as may be required by law or by any other provision
of the Articles. See "--Stockholder Action." The affirmative vote of eighty
percent (80%) or more of the outstanding voting stock is required to amend,
adopt or repeal this provision of Seacoast Financial's Articles. The comparable
statutory requirements under Chapter 110F of the Massachusetts General Laws do
not apply to Seacoast Financial, because Seacoast Financial's Articles contain
a provision opting out of that chapter.
Stockholder Action
Seacoast Financial's Articles provide that the affirmative vote of the
holders of not less than seventy-five percent (75%) of the outstanding voting
stock is required to approve (i) a merger or consolidation of Seacoast
Financial with or into another corporation or (ii) a sale, exchange or lease of
substantially all of the property or assets, including the goodwill of Seacoast
Financial to any person or entity (except where the Seacoast Financial voting
stock outstanding prior to a merger, share exchange or consolidation will
represent more than seventy percent (70%) of the voting stock in the surviving
corporation after that transaction, in which event only a majority of the total
number of votes eligible to be case by stockholders is required). This
super-majority stockholder approval requirement could have an anti-takeover
effect by making stockholder approval of an acquisition very difficult to
obtain and may, therefore, discourage potential acquirors from pursuing an
acquisition of Seacoast Financial, even one approved by Seacoast Financial's
Board of Directors.
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Sandwich Bancorp's Articles have no comparable provision, so any merger or
consolidation of Sandwich Bancorp with another entity or sale of all or
substantially all of Sandwich Bancorp's assets would be governed by the MBCL,
which generally requires a two-thirds vote of the outstanding stock.
Liability of Directors
Under Seacoast Financial's Articles, a Director is not 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; provided, however that liability will not be eliminated for a
Director (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 knowing violation of law, (iii) any
transaction from which the Director derived an improper personal benefit or
(iv) for violations of Sections 61 and 62 of Chapter 156B of the MBCL.
Sandwich Bancorp's Articles do not contain a similar provision which
limits or eliminates Director liability, so Sandwich Bancorp's Directors are
subject to all fiduciary and other legal duties under applicable Massachusetts
law.
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 Compass."
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 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 holding company without prior written approval
of the Commissioner.
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TRANSFER AGENT AND REGISTRAR FOR SEACOAST FINANCIAL COMMON STOCK
Registrar and Transfer Company 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.
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 incorporated by reference herein and
in the Registration Statement on Form S-4 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.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, in order to be eligible for inclusion in
Sandwich Bancorp's proxy materials for next year's annual meeting of the
stockholders of Sandwich Bancorp, any stockholder proposal to take action at
such meeting must be received at Sandwich Bancorp's office, 100 Old Kings
Highway, Sandwich, Massachusetts 02563, no later than December 31, 1998. Any
such proposal would be subject to the requirements of the proxy rules adopted
under the Exchange Act.
INQUIRIES
Please take the time to consider this important matter and vote now. In
order to make sure that your vote is represented, indicate your vote on the
enclosed proxy card, date and sign it and return it to us in the enclosed
postage-paid envelope. If you attend the meeting in person, you may revoke your
proxy at the meeting and vote in person.
If you have any questions or require assistance, please call either us at
800-292-9222 or Morrow & Co., which is assisting us in the solicitation of
proxies, at 1-800-566-9061.
BY ORDER OF THE BOARD OF DIRECTORS
Dana S. Briggs
Secretary
Sandwich, Massachusetts
September , 1998
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SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Public Accountants ................................................. F-2
Consolidated Balance Sheets as of May 31, 1998 (Unaudited) and October 31, 1997 and 1996 . F-3
Consolidated Statements of Income for the Seven Months ended May 31, 1998 and 1997
(Unaudited) and the Years Ended October 31, 1997, 1996 and 1995 ......................... F-4
Consolidated Statements of Changes in Surplus for the Seven Months Ended May 31, 1998
(Unaudited) and the Years Ended October 31, 1997, 1996 and 1995 ......................... F-5
Consolidated Statements of Cash Flows for the Seven Months Ended May 31, 1998 and 1997
(Unaudited) and the Years Ended October 31, 1997, 1996 and 1995 ......................... F-6
Notes to Consolidated Financial Statements ............................................... F-8
</TABLE>
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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Audit Committee of
Seacoast Financial Services Corporation:
We have audited the accompanying consolidated balance sheets of Seacoast
Financial Services Corporation (formerly 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 Seacoast Financial Services Corporation 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>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
October 31,
-----------------------------
May 31,
1998 1997 1996
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks .................................. $ 34,561 $ 25,611 $ 34,511
Federal funds sold ....................................... 10,440 7,150 53
---------- ---------- ----------
Total cash and cash equivalents ...................... 45,001 32,761 34,564
Investment securities (Note 2)--
Available-for-sale, at fair value ....................... 183,340 209,316 200,306
Held-to-maturity, at amortized cost ..................... 13,649 12,633 11,752
Restricted equity securities ............................ 5,286 5,156 4,645
Loans held-for-sale (Note 1) ............................. 19,810 4,277 4,394
Loans, net (Notes 3 and 13) .............................. 873,914 809,555 737,779
Accrued interest receivable .............................. 6,782 5,805 5,422
Banking premises and equipment, net (Note 5) ............. 13,932 12,254 12,588
Other real estate owned (Note 4) ......................... 1,395 1,707 2,598
Net deferred tax asset (Note 9) .......................... 5,877 6,988 8,276
Other assets (Notes 1 and 12) ............................ 7,573 6,138 5,440
---------- ---------- ----------
Total assets ......................................... $1,176,559 $1,106,590 $1,027,764
========== ========== ==========
LIABILITIES AND SURPLUS:
Deposits (Note 6) ........................................ $ 982,351 $ 937,948 $ 882,608
Short-term borrowings (Notes 2 and 7) .................... 12,213 9,697 3,925
Federal Home Loan Bank advances (Note 8) ................. 64,572 51,006 45,375
Other borrowings (Note 12) ............................... 289 -- 648
Mortgagors' escrow payments .............................. 1,059 1,002 890
Accrued expenses and other liabilities (Note 12) ......... 9,565 8,796 9,401
---------- ---------- ----------
Total liabilities .................................... 1,070,049 1,008,449 942,847
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 9, 10 and 13)
SURPLUS (Note 11) ........................................... 104,193 96,527 84,743
NET UNREALIZED GAIN ON INVESTMENT
SECURITIES AVAILABLE-FOR-SALE, NET OF
INCOME TAXES ............................................... 2,317 1,614 174
---------- ---------- ----------
Total surplus ........................................ 106,510 98,141 84,917
---------- ---------- ----------
Total liabilities and surplus ........................ $1,176,559 $1,106,590 $1,027,764
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Seven Months Ended
May 31, 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) .............................. $41,580 $37,375 $65,499 $60,423 $52,459
Interest and dividends on investment securities ......... 7,523 7,560 13,298 12,756 12,756
Interest on federal funds sold .......................... 887 708 1,235 947 1,257
------- ------- ------- ------- -------
Total interest and dividend income .................. 49,990 45,643 80,032 74,126 66,472
------- ------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits .................................... 22,360 20,546 36,109 34,621 31,852
Interest on borrowed funds .............................. 2,672 2,106 3,722 2,624 2,687
------- ------- ------- ------- -------
Total interest expense .............................. 25,032 22,652 39,831 37,245 34,539
------- ------- ------- ------- -------
Net interest income ................................. 24,958 22,991 40,201 36,881 31,933
PROVISION (CREDIT) FOR POSSIBLE LOAN
LOSSES (Note 3) ........................................... 536 890 1,865 1,166 (351)
------- ------- ------- ------- -------
Net interest income after provision
(credit) for possible loan losses ................ 24,422 22,101 38,336 35,715 32,284
------- ------- ------- ------- -------
NONINTEREST INCOME:
Deposit and other banking fees .......................... 1,841 1,760 3,213 2,733 2,271
Loan servicing fees (Note 3) ............................ 305 342 571 607 584
Card fee income, net .................................... 195 138 398 354 402
Other loan fees ......................................... 277 250 449 412 386
Gain (loss) on sales of investment
securities, net ........................................ (3) 23 37 60 (84)
Gain on sales of loans, net ............................. 568 190 542 181 94
Other income ............................................ 590 405 733 799 750
-------- ------- ------- ------- -------
Total noninterest income ............................ 3,773 3,108 5,943 5,146 4,403
-------- ------- ------- ------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits (Note 12) ................ 8,534 8,041 13,633 12,890 12,747
Occupancy and equipment expenses (Notes 5
and 10) ................................................ 2,023 1,911 3,344 3,276 2,970
Data processing expenses ................................ 1,417 1,230 2,192 2,049 1,896
Marketing expenses ...................................... 792 542 1,225 743 901
Professional services expenses .......................... 645 647 1,044 975 950
Deposit insurance premiums .............................. 90 58 121 392 1,198
Other real estate owned expenses, net (Note 1) .......... 138 293 519 644 1,072
Other operating expenses ................................ 1,936 1,949 2,732 3,189 2,956
-------- ------- ------- ------- -------
Total noninterest expense ........................... 15,575 14,671 24,810 24,158 24,690
-------- ------- ------- ------- -------
Income before provision for
income taxes .................................... 12,620 10,538 19,469 16,703 11,997
PROVISION FOR INCOME TAXES (Note 9) ........................ 4,954 4,254 7,685 6,548 4,511
-------- ------- ------- ------- -------
Net income .......................................... $7,666 $ 6,284 $11,784 $10,155 $ 7,486
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS
FOR THE SEVEN MONTHS ENDED MAY 31, 1998 (UNAUDITED)
AND FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
Net Unrealized Gain
(Loss) on Securities
Classified as
Available-for-Sale,
Surplus Net of Income Taxes Total Surplus
----------- --------------------- --------------
<S> <C> <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) ............................... 7,666 -- 7,666
Change in unrealized gain on securities available-for-
sale (unaudited) .................................... -- 703 703
-------- -------- --------
BALANCE, MAY 31, 1998 (UNAUDITED) ....................... $104,193 $ 2,317 $106,510
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Seven Months Ended
May 31, Years Ended October 31,
------------------------- --------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................... $ 7,666 $ 6,284 $ 11,784 $ 10,155 $ 7,486
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization of premises
and equipment ..................................... 847 818 1,420 1,301 1,066
Amortization and accretion, net ..................... 386 569 906 337 349
Provision (credit) for possible loan losses ......... 536 890 1,865 1,166 (351)
(Gain) loss on sale of investment securities ........ 3 (23) (37) (60) 84
Write-down of other real estate owned ............... 43 149 198 385 749
Provision for deferred (prepaid) taxes .............. 547 318 453 (757) 648
Originations of loans held-for-sale ................. (60,893) (15,650) (30,014) (19,006) (16,917)
Proceeds from sales of loans originated
for resale ........................................ 45,928 16,273 34,268 35,441 18,921
Gain on sales of loans .............................. (568) (190) (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 ....... (977) (1,289) (383) -- (283)
Net (increase) decrease in other assets ........... 1,584 457 (714) 3,770 170
Net increase (decrease) in accrued expenses
and other liabilities ........................... 769 (1,447) (605) 1,932 1,154
--------- --------- ---------- ---------- ---------
Net cash (used in) provided by
operating activities ........................... (7,297) 7,159 18,599 34,488 12,982
--------- --------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Martha's Vineyard National Bank,
net of cash acquired ................................ -- -- -- -- (7,301)
Purchase of securities classified as
available-for-sale .................................. (37,720) (47,190) (104,748) (77,055) (33,303)
Purchase of securities classified as
held-to-maturity .................................... (5,433) (3,489) (5,971) (6,924) (39,364)
Proceeds from sales, calls and maturities of
securities classified as available-for-sale ......... 54,194 32,262 87,831 105,166 46,969
Proceeds from maturities and calls of securities
classified as held-to-maturity ...................... 4,300 3,069 5,069 9,600 40,661
Purchase of premises and equipment ................... (2,525) (530) (1,123) (1,670) (2,019)
Purchase of loans .................................... (6,736) (500) (4,461) (8,859) (8,313)
Net increase in loans ................................ (58,637) (30,913) (78,620) (106,726) (64,016)
Recoveries of loans previously charged off ........... 230 227 377 389 890
Proceeds from sales of other real estate owned ....... 517 1,409 2,315 2,722 4,033
Principal receipts from mortgage-backed
investments classified as available-for-sale ........ 10,516 7,766 12,722 9,654 1,180
Principal receipts from mortgage-backed -- -- -- 676 5,491
investments classified as held-to-maturity ........... -- -- -- 4 --
Proceeds from sales of premises and equipment ........ -- -- -- 4 --
--------- --------- ---------- ---------- ---------
Net cash (used in) investing activities .......... (41,294) (37,889) (86,609) (73,023) (55,092)
--------- --------- ---------- ---------- ---------
</TABLE>
F-6
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(In Thousands)
<TABLE>
<CAPTION>
Seven Months Ended
May 31, Years Ended October 31,
----------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in NOW accounts and
demand deposits .................................... $ 8,362 $ 2,094 $ (11,072) $ 15,441 $ 19,949
Increase (decrease) in passbook and other
savings accounts ................................... 13,123 (630) 29,014 (7,743) (21,969)
Increase in term certificates ....................... 22,918 26,143 37,398 15,187 58,350
Advances from Federal Home Loan Bank ................ 21,586 15,192 17,007 16,992 55,719
Repayments of Federal Home Loan Bank
advances ........................................... (8,020) (6,550) (11,376) (10,981) (47,821)
Increase (decrease) in short-term and
other borrowings ................................... 2,805 1,361 5,124 2,759 (1,289)
Increase (decrease) in mortgagors'
escrow payments .................................... 57 22 112 (111) 119
-------- -------- --------- --------- ---------
Net cash provided by
financing activities ......................... 60,831 37,632 66,207 31,544 63,058
-------- -------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .................................. 12,240 6,902 (1,803) (6,991) 20,948
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ..................................... 32,761 34,564 34,564 41,555 20,607
-------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ......................................... $ 45,001 $ 41,466 $ 32,761 $ 34,564 $ 41,555
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid on deposits and borrowed funds ........ $ 24,982 $ 22,556 $ 39,734 $ 37,244 $ 34,492
Income taxes paid ................................... 3,868 4,076 8,434 6,264 3,342
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Transfers from loans to other real estate owned ..... 1,098 2,023 3,333 2,430 5,783
Financed other real estate owned sales .............. 850 809 1,460 638 2,881
Loans securitized into mortgage-backed
investments classified as available-for-sale ....... -- -- 3,595 20,837 2,532
Transfer of investments from held-to-maturity
to available-for-sale .............................. -- -- -- 138,701 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 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 Seacoast Financial Services Corporation,
formerly 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 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.
F-8
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 May 31, 1998 and October 31, 1997 and 1996, the Bank had
net deferred loan fees of approximately $756,000, $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.
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 May 31, 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
F-9
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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
seven months ended May 31, 1998 and 1997, OREO losses on sale and write-downs
were $43,000 and $149,000, respectively, and net operating expenses were
$95,000 and $144,000, 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.
F-10
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 was approximately
$163,000 for each of the seven months ended May 31, 1998 and 1997. The core
deposit intangible asset is reported net of accumulated amortization and
amounted to approximately $1,523,000, $1,726,000 and $2,029,000 at May 31, 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.
(2) INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities
available-for-sale at May 31, 1998 and October 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
May 31, 1998
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency
obligations ......................... $ 80,172 $ 335 $ 83 $ 80,424
Other bonds and obligations .......... 51,800 283 49 52,034
Mortgage-backed investments .......... 40,998 391 27 41,362
-------- ------ ---- --------
Total debt securities ............. 172,970 1,009 159 173,820
Marketable equity securities ......... 6,605 2,916 1 9,520
-------- ------ ---- --------
Total securities available for sale $179,575 $3,925 $160 $183,340
======== ====== ==== ========
</TABLE>
F-11
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(2) INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
October 31, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
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 for sale $206,821 $2,718 $223 $209,316
======== ====== ==== ========
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost 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 for sale $200,088 $1,215 $997 $200,306
======== ====== ==== ========
</TABLE>
A schedule of the maturity distribution of debt securities
available-for-sale 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 ................. $ 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-12
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(2) INVESTMENT SECURITIES (Continued)
The amortized cost and estimated fair value of securities held-to-maturity
at May 31, 1998 and October 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
May 31, 1998
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations ......... $13,649 $55 $2 $13,702
------- --- -- -------
Total debt securities ....................... $13,649 $55 $2 $13,702
======= === == =======
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations ......... $12,633 $68 $7 $12,694
------- --- -- -------
Total debt securities ....................... $12,633 $68 $7 $12,694
======= === == =======
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations ......... $11,752 $40 $48 $11,744
------- --- --- -------
Total debt securities ....................... $11,752 $40 $48 $11,744
======= === === =======
</TABLE>
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 May 31, 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.
F-13
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(2) INVESTMENT SECURITIES (Continued)
Proceeds from the sales of investment securities and related gains and
losses for the seven months ended May 31, 1998 and 1997 and for the years ended
October 31, 1997, 1996 and 1995 (all classified as available-for-sale) were as
follows:
<TABLE>
<CAPTION>
Seven Months Ended
May 31, Years Ended October 31,
--------------------- ------------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
In Thousands)
<S> <C> <C> <C> <C> <C>
Proceeds from sales ......... $6,010 $9,223 $22,017 $26,051 $46,884
Gross gains ................. 14 31 58 101 330
Gross losses ................ 17 8 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).
(3) LOANS
The Bank's loan portfolio consisted of the following:
<TABLE>
<CAPTION>
October 31,
May 31, -------------------------
1998 1997 1996
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
Real estate loans:
Residential (one-to-four family) ................ $368,136 $363,030 $343,204
Commercial ...................................... 125,089 124,059 128,707
Home equity lines of credit ..................... 15,941 15,133 17,288
Construction .................................... 41,925 33,894 25,007
-------- -------- --------
Total real estate loans ..................... 551,091 536,116 514,206
-------- -------- --------
Commercial loans ................................. 58,200 51,371 46,211
-------- -------- --------
Consumer loans:
Indirect auto loans ............................. 280,215 238,114 189,865
-------- -------- --------
Other ........................................... 27,553 24,662 22,063
-------- -------- --------
Total consumer loans ........................ 307,768 262,776 211,928
-------- -------- --------
Less--Unearned discount .......................... 32,637 30,066 24,232
-------- -------- --------
Total consumer loans, net ................... 275,131 232,710 187,696
-------- -------- --------
Total loans ................................. 884,422 820,197 748,113
Less--Allowance for possible loan losses ......... 10,508 10,642 10,334
-------- -------- --------
Total loans, net ............................ $873,914 $809,555 $737,779
======== ======== ========
</TABLE>
F-14
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(3) LOANS (Continued)
Nonaccrual loans consisted of the following:
<TABLE>
<CAPTION>
October 31,
May 31, ----------------------
1998 1997 1996
--------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
Real estate ......... $8,998 $10,180 $ 9,312
Commercial .......... 495 745 1,014
------ ------- -------
$9,493 $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.
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)
-------- --------
Balance, end of year ............... $ 5,116 $ 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-15
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(3) LOANS (Continued)
An analysis of the allowance for possible loan losses follows:
<TABLE>
<CAPTION>
Seven Months Ended
May 31, 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 possible loan losses ......... -- -- -- -- 3,541
Provision for possible loan losses .................. 536 890 1,865 1,166 (351)
Charge-offs--
Real estate ........................................ (410) (475) (898) (501) (871)
Commercial ......................................... (137) (113) (442) (134) (51)
Consumer ........................................... (353) (251) (594) (436) (310)
------- ------- -------- -------- --------
(900) (839) (1,934) (1,071) (1,232)
------- ------- -------- -------- --------
Recoveries--
Real estate ........................................ 44 104 147 191 756
Commercial ......................................... 83 36 57 96 2
Consumer ........................................... 103 87 173 102 132
------- ------- -------- -------- --------
230 227 377 389 890
------- ------- -------- -------- --------
Net charge-offs ................................ (670) (612) (1,557) (682) (342)
------- ------- -------- -------- --------
Balance, end of year ................................ $10,508 $10,612 $ 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.
(4) OTHER REAL ESTATE OWNED
Other real estate owned acquired through foreclosure consisted of the
following:
<TABLE>
<CAPTION>
October 31,
May 31, -------------------
1998 1997 1996
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Land and construction ........... $ -- $ -- $ 43
Residential real estate ......... 794 1,227 1,769
Commercial real estate .......... 601 480 786
------ ------ ------
$1,395 $1,707 $2,598
====== ====== ======
</TABLE>
F-16
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(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>
October 31,
May 31, ---------------------
Estimated
1998 1997 1996 Useful Lives
--------- --------- --------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Land ............................. $ 2,503 $ 2,503 $ 2,503 --
Buildings ........................ 10,147 9,378 9,139 30 to 50 years
Leasehold improvements ........... 2,075 2,143 1,774 8 to 10 years
Furniture and equipment .......... 8,039 7,026 6,572 3 to 20 years
Construction-in-progress ......... 967 156 194
------- ------- -------
23,731 21,206 20,182
Less--Accumulated depreciation and
amortization .................... 9,799 8,952 7,594
------- ------- -------
$13,932 $12,254 $12,588
======= ======= =======
</TABLE>
Total depreciation and amortization expense of banking premises and
equipment for the seven months ended May 31, 1998 and 1997 amounted to
approximately $847,000 and $818,000, 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.
(6) DEPOSITS
A summary of deposit balances is as follows:
<TABLE>
<CAPTION>
October 31,
May 31, -----------------------
1998 1997 1996
----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Demand deposit accounts ......................... $ 59,378 $ 58,840 $ 48,466
NOW and money market deposit accounts ........... 238,684 223,580 211,215
Passbook and other savings accounts ............. 176,915 171,072 175,869
-------- -------- --------
Total noncertificate accounts ................ 474,977 453,492 435,550
Term certificates--
Term certificates of $100,000 and over ......... 88,428 82,647 71,729
Term certificates less than $100,000 ........... 418,946 401,809 375,329
-------- -------- --------
Total term certificate accounts .............. 507,374 484,456 447,058
-------- -------- --------
Total deposits .................................. $982,351 $937,948 $882,608
======== ======== ========
</TABLE>
F-17
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(6) DEPOSITS (Continued)
A schedule of the maturity distribution of term certificates with weighted
average interest rates is as follows:
<TABLE>
<CAPTION>
October 31,
--------------------------------------------
May 31,
1998 1997 1996
---------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Interest Interest Interest
Amount Rate Amount Rate Amount Rate
----------- ---------- ----------- ---------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Within 1 year ............. $421,364 5.62% $408,291 5.69% $354,969 5.50%
Over 1 to 2 years ......... 46,830 5.86 46,405 6.17 58,012 5.94
Over 2 to 3 years ......... 30,831 5.98 18,129 5.90 22,994 6.45
Over 3 to 5 years ......... 8,349 5.97 11,631 6.05 11,083 5.82
-------- -------- --------
$507,374 5.67% $484,456 5.75% $447,058 5.62%
======== ======== ========
</TABLE>
(7) SHORT-TERM BORROWINGS
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
October 31,
---------------------
May 31,
1998 1997 1996
---------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Securities sold under agreements to repurchase ......... $11,616 $9,533 $1,925
Treasury tax and loan note account ..................... 597 164 2,000
------- ------ ------
$12,213 $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 seven months ended May 31,
1998, the average daily outstanding short-term borrowings were approximately
$10,783,000 with the maximum amount outstanding at any month end of
approximately $12,213,000. The weighted average interest rate during the seven
months ended May 31, 1998 was 4.80%.
(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 May 31, 1998
and October 31, 1997 and 1996.
F-18
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(8) FEDERAL HOME LOAN BANK ADVANCES (Continued)
A schedule of the maturity distribution of FHLB advances with weighted
average interest rates is as follows:
<TABLE>
<CAPTION>
October 31,
------------------------------------------------
May 31,
1998 1997 1996
----------------------- ----------------------- ----------------------
(Dollars in Thousands)
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Within 1 year .............. $ 2,719 5.54% $ 6,087 6.40% $ 4,291 5.46%
Over 1 to 5 years .......... 32,979 6.02 16,528 6.02 15,030 5.84
Over 5 to 10 years ......... 9,775 6.64 10,741 6.61 11,317 6.52
10 years and over .......... 19,099 7.16 17,650 7.29 14,737 7.47
------- ------- -------
$64,572 6.43% $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>
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>
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 benefit .......... 5.68 6.56 4.72
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
seven months ended May 31, 1998 and 1997 and the related effective tax rate
were $4,954,000 (39.3%) and $4,254,000 (40.4%), respectively.
F-19
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(9) INCOME TAXES (Continued)
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 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.
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 Future Lease
October 31, Lease Payments Income
- ------------------------ ---------------- -------------
(In Thousands)
<S> <C> <C>
1998 ............... $388 $165
1999 ............... 432 88
2000 ............... 431 59
2001 ............... 285 54
2002 ............... 285 --
Thereafter ......... 840 --
</TABLE>
F-20
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(10) COMMITMENTS AND CONTINGENCIES (Continued)
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.
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-21
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(11) REGULATORY CAPITAL REQUIREMENTS (Continued)
The Bancorp's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
Corrective
For Capital Action
Actual Adequacy Purposes Provisions
-------------------- -------------------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
----------- -------- --------------- ------------ -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of October 31, 1997:
Bancorp (consolidated)--
Total capital (to risk weighted assets) .... $104,158 13.92% greater greater
than or than or
equal to $59,867 equal to 8.0% N/A N/A
Tier I capital (to risk weighted assets) ... $ 94,788 12.67% greater greater
than or than or
equal to $29,933 equal to 4.0% N/A N/A
Tier I capital (to average assets) ......... $ 94,788 8.60% greater greater
Bank-- than or than or
equal to $44,092 equal to 4.0% N/A N/A
greater greater greater
than or than or than or
Total capital (to risk weighted assets) .... $100,637 13.47% equal to $59,766 equal to 8.0% equal to 10.0%
$74,796
greater greater greater
than or than or than or
Tier I capital (to risk weighted assets) ... $ 91,283 12.22% equal to $29,883 equal to 4.0% equal to 6.0%
$44,877
greater greater greater
than or than or than or
Tier I capital (to average assets) ......... $ 91,283 8.29% equal to $44,045 equal to 4.0% equal to 5.0%
$55,056
As of October 31, 1996:
Bancorp (consolidated)--
greater greater
than or than or
Total capital (to risk weighted assets) .... $91,005 13.73% equal to $52,948 equal to 8.0% N/A N/A
greater greater
than or than or
Tier I capital (to risk weighted assets) ... $ 82,693 12.47% equal to $26,525 equal to 4.0% N/A N/A
greater greater
than or than or
Tier I capital (to average assets) ......... $ 82,693 8.13% equal to $40,685 equal to 4.0% N/A N/A
Bank--
greater greater greater
than or than or than or
Total capital (to risk weighted assets) .... $ 87,252 13.19% equal to $52,920 equal to 8.0% equal to 10.0%
$66,150
greater greater greater
than or than or than or
Tier I capital (to risk weighted assets) ... $ 78,959 11.94% equal to $26,452 equal to 4.0% equal to 6.0%
$39,678
greater greater greater
than or than or than or
Tier I capital (to average assets) ........ $ 78,959 7.79% equal to $40,544 equal to 4.0% equal to 5.0%
$50,680
</TABLE>
(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.
F-22
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(12) EMPLOYEE BENEFITS (Continued)
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 .................................. $ 534 $ 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
(substantially all vested) ................................. 9,884 8,748
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.
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 obligation .......... 7.5% 7.5% 7.5%
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>
F-23
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(12) EMPLOYEE BENEFITS (Continued)
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 excess of plan assets (314) (293)
Unrecognized transition obligation ................................... 25 27
Unrecognized prior service cost ...................................... 62 64
Unrecognized net gain ................................................ (31) (30)
------ ------
Accrued postretirement benefit cost .................................. $ (258) $ (232)
====== ======
</TABLE>
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 benefit obligation ........ 22 21 16
Amortization of transition obligation over 20 years ................... 2 2 2
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.
F-24
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(12) EMPLOYEE BENEFITS (Continued)
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.
(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>
October 31,
-----------------------
May 31,
1998 1997 1996
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Unused portion of existing lines of credit ......... $38,551 $37,744 $32,839
Standby letters of credit .......................... 1,428 1,110 1,265
Unadvanced construction loans ...................... 19,486 16,327 10,542
Firm commitments to extend credit:
Residential mortgage loans--
Fixed rate ...................................... 20,267 12,245 3,980
Adjustable rate ................................. 5,937 5,447 5,099
Commercial loans ................................... 20,273 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
F-25
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(13) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISK (Continued)
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.
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.
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
F-26
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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.
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
--------------------------- --------------------------
Estimated Estimated
Book Value Fair Value Book 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-27
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(15) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The balance sheets of the Bancorp are as follows:
<TABLE>
<CAPTION>
October 31,
May 31, ----------------------
1998 1997 1996
----------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks ......................................... $ 87 $ 142 $ 111
Investment securities available-for-sale, at fair value ......... 5,313 4,856 3,904
Accrued interest receivable ..................................... 55 62 62
Investment in Subsidiary ........................................ 101,738 93,603 81,046
Other assets .................................................... 42 41 61
-------- ------- -------
Total assets ............................................... $107,235 $98,704 $85,184
======== ======= =======
LIABILITIES AND SURPLUS:
Accrued expenses and other liabilities .......................... $ 725 $ 563 $ 267
Surplus ......................................................... 106,510 98,141 84,917
-------- ------- -------
Total liabilities and surplus .............................. $107,235 $98,704 $85,184
======== ======= =======
</TABLE>
The income statements of the Bancorp are as follows:
<TABLE>
<CAPTION>
Seven Months Ended
May 31, 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 securities ......... $ 115 $ 121 $ 217 $ 195 $ 179
NONINTEREST INCOME:
Gain on sales of investment securities .................. -- -- -- -- 11
NONINTEREST EXPENSE:
Salaries and employee benefits .......................... 71 34 58 62 59
Amortization of organization costs ...................... 8 12 21 43 --
Other operating expenses ................................ 22 1 14 23 12
------ ------ ------- ------- ------
Total noninterest expense .......................... 101 47 93 128 71
------ ------ ------- ------- ------
Income before income taxes and equity in
undistributed net income of subsidiary ................. 14 74 124 67 119
PROVISION FOR INCOME TAXES ................................. 5 26 18 23 41
------ ------ ------- ------- ------
Income before equity in undistributed net
income of subsidiary ................................... 9 48 106 44 78
EQUITY IN UNDISTRIBUTED NET INCOME
OF SUBSIDIARY ............................................. 7,657 6,236 11,678 10,111 7,408
------ ------ ------- ------- ------
Net income .............................................. $7,666 $6,284 $11,784 $10,155 $7,486
====== ====== ======= ======= ======
</TABLE>
F-28
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(15) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (Continued)
The cash flow statements of the Bancorp are as follows:
<TABLE>
<CAPTION>
Seven Months Ended
May 31, Years Ended October 31,
------------------------ --------------------------------------
1998 1997 1997 1996 1995
----------- ------------ ------------- ------------ -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 7,666 $ 6,284 $ 11,784 $ 10,155 $ 7,486
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sales of investments ....................... -- -- -- -- (11)
Net (accretion) amortization of
investment securities ............................. 3 (2) (2) (17) 17
Equity in undistributed earnings of subsidiary ..... (7,657) (6,236) (11,678) (10,111) (7,408)
Net increase in other liabilities .................. 17 19 3 (12) 44
Net decrease in other assets ....................... 6 17 20 4 (61)
-------- --------- ---------- --------- --------
Net cash provided by operating
activities .................................. 35 82 127 19 67
-------- --------- ---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
held-to-maturity and available-for-sale
securities ........................................ 496 -- -- 2,017 551
Purchase of securities classified as
held-to-maturity .................................. -- -- (96) -- (497)
Purchase of securities classified as
available-for-sale ................................ (586) -- -- (2,071) --
-------- --------- ---------- --------- --------
Net cash provided by (used in)
investing activities ........................ (90) -- (96) (54) 54
-------- --------- ---------- --------- --------
Net increase (decrease) in cash and
cash equivalents .................................. (55) 82 31 (35) 121
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR .................................... 142 111 111 146 25
-------- --------- ---------- --------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ........................................ $ 87 $ 193 $ 142 $ 111 $ 146
======== ========= ========== ========= ========
SUPPLEMENTAL CASH DISCLOSURE:
Income taxes paid .................................. $ 1 $ 10 $ 27 $ 43 $ 62
======== ========= ========== ========= ========
Transfer of investments from held-to-
maturity to available-for-sale .................... $ -- $ -- $ -- $ 496 $ --
======== ========= ========== ========= ========
</TABLE>
F-29
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(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 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 the 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.
F-30
<PAGE>
SEACOAST FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MAY 31, 1998 AND 1997 (UNAUDITED) AND
OCTOBER 31, 1997, 1996 AND 1995
(16) EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (Continued)
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-31
<PAGE>
APPENDIX A
AFFILIATION AND MERGER AGREEMENT
<PAGE>
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
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS
1.1 Certain Definitions ................................................ 5
ARTICLE II
THE MERGER
2.1 The Merger ......................................................... 8
2.2 Effective Time ..................................................... 8
2.3 Charter and By-laws ................................................ 8
2.4 Directors and Officers of Surviving Corporation .................... 8
2.5 Directors of 1855 Bancorp and Compass Bank ......................... 8
2.6 Additional Actions ................................................. 9
2.7 Effects of the Merger .............................................. 9
2.8 The Sandwich Option Agreement ...................................... 9
2.9 Possible Alternative Structures .................................... 9
ARTICLE III
CONVERSION OF SHARES
3.1 Merger Consideration ............................................... 9
3.2 Employee Stock Options ............................................. 10
3.3 Dissenting Shares .................................................. 10
3.4 Procedures for Exchange of Sandwich Common Stock ................... 11
3.5 Reservation of Shares .............................................. 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SANDWICH
4.1 Capital Structure .................................................. 13
4.2 Organization, Standing and Authority of Sandwich ................... 13
4.3 Ownership of Sandwich Subsidiaries ................................. 13
4.4 Organization, Standing and Authority of Sandwich Subsidiaries ...... 13
4.5 Authorized and Effective Agreement ................................. 13
4.6 Securities Documents and Regulatory Reports ........................ 14
4.7 Financial Statements ............................................... 15
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 ......................................................... 19
4.18 Loan Portfolio .................................................... 19
4.19 Properties ........................................................ 19
4.20 Labor ............................................................. 19
4.21 Required Vote; Inapplicability of Antitakover Statutes ............ 19
4.22 Material Interests of Certain Persons ............................. 19
4.23 Certain Transactions .............................................. 20
</TABLE>
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<TABLE>
<S> <C>
4.24 Disclosures ......................................................... 20
4.27 Pooling of Interests ................................................ 20
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF 1855 BANCORP
5.1 Capital Structure .................................................... 20
5.2 Organization, Standing and Authority of 1855 Bancorp ................. 20
5.3 Ownership of the 1855 Bancorp Subsidiaries ........................... 21
5.4 Organization, Standing and Authority of the 1855 Bancorp Subsidiaries 21
5.5 Authorized and Effective Agreement ................................... 21
5.6 Regulatory Reports ................................................... 22
5.7 Financial Statements ................................................. 22
5.8 Material Adverse Change .............................................. 23
5.9 Environmental Matters ................................................ 23
5.10 Tax Matters ......................................................... 23
5.11 Legal Proceedings ................................................... 23
5.12 Compliance with Laws ................................................ 23
5.13 Certain Information ................................................. 24
5.14 Employee Benefit Plans .............................................. 24
5.15 Certain Contracts ................................................... 25
5.16 Brokers and Finders ................................................. 25
5.17 Insurance ........................................................... 25
5.18 Properties .......................................................... 25
5.19 Labor ............................................................... 25
5.20 Ownership of Sandwich Common Stock .................................. 26
5.21 Certain Transactions ................................................ 26
5.22 Disclosures ......................................................... 26
5.23 Disclosure Schedule ................................................. 26
5.24 Pooling of Interests ................................................ 26
5.25 Merger Sub .......................................................... 26
ARTICLE VI
COVENANTS OF SANDWICH
6.1 Conduct of Business .................................................. 26
6.2 Current Information .................................................. 28
6.3 Access to Properties and Records ..................................... 29
6.4 Financial and Other Statements ....................................... 29
6.5 Disclosure Supplements ............................................... 29
6.6 Consents and Approvals of Third Parties .............................. 29
6.7 All Reasonable Efforts ............................................... 29
6.8 Failure to Fulfill Conditions ........................................ 30
6.9 No Solicitation ...................................................... 30
6.10 Cease Negotiations .................................................. 30
ARTICLE VII
COVENANTS OF 1855 BANCORP
7.1 Conduct of Business .................................................. 30
7.2 Current Information .................................................. 30
7.3 Access to Properties and Records ..................................... 31
7.4 Financial and Other Statements ....................................... 31
</TABLE>
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<TABLE>
<S> <C>
7.5 Disclosure Supplements ................................................. 31
7.6 Consents and Approvals of Third Parties ................................ 31
7.7 All Reasonable Efforts ................................................. 31
7.8 Failure to Fulfill Conditions .......................................... 32
7.9 Employee Benefits ...................................................... 32
7.10 Directors and Officers Indemnification and Insurance .................. 32
7.11 Merger Sub ............................................................ 33
7.12 Stock Listing ......................................................... 34
ARTICLE VIII
REGULATORY AND OTHER MATTERS
8.1 Sandwich Special Meeting ............................................... 34
8.2 Proxy Statement-Prospectus ............................................. 34
8.3 1855 Bancorp Conversion from Mutual to Stock Form ...................... 35
8.4 Regulatory Approvals ................................................... 36
8.5 Affiliates; Publication of Combined Financial Results .................. 36
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligations under this Agreement ............ 36
9.2 Conditions to the Obligations of 1855 Bancorp under this Agreement ..... 37
9.3 Conditions to the Obligations of Sandwich under this Agreement ......... 38
ARTICLE X
THE CLOSING
10.1 Time and Place ........................................................ 39
10.2 Deliveries at the Pre-Closing and the Closing ......................... 39
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination ........................................................... 39
11.2 Effect of Termination ................................................. 40
11.3 1855 Bancorp Special Payment .......................................... 41
11.4 Sandwich Change in Control Expense Fee ................................ 41
11.5 Amendment, Extension and Waiver ....................................... 43
ARTICLE XII
MISCELLANEOUS
12.1 Confidentiality. ...................................................... 43
12.2 Public Announcements .................................................. 43
12.3 Survival .............................................................. 43
12.4 Notices ............................................................... 43
12.5 Parties in Interest ................................................... 44
12.6 Complete Agreement .................................................... 44
12.7 Counterparts .......................................................... 44
12.8 Severability .......................................................... 44
12.9 Governing Law ......................................................... 44
12.10 Interpretation ....................................................... 44
Exhibit A Form of Stock Option Agreement .................................... 47
Exhibit B Form of Voting Agreement .......................................... 59
Exhibit C Form of Affiliates Agreement ...................................... 60
Exhibit D Form of Opinion of Housley, Kantarian & Bronstein, P.C. ........... 63
Exhibit E Form of Opinion of Foley, Hoag & Eliot LLP ........................ 64
</TABLE>
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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 sufficiency 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, references 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.
"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 3.4 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.
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"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.
[sec]9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. [sec]6901, et seq; the Clean Air Act, as amended, 42 U.S.C. [sec]7401,
et seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
[sec]1251, et seq; the Toxic Substances Control Act, as amended, 15 U.S.C.
[sec]9601, et seq; the Emergency Planning and Community Right to Know Act, 42
U.S.C. [sec]1101, et seq; the Safe Drinking Water Act, 42 U.S.C. [sec]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 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
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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.
"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 10.1 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.
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"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.
"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
Massachusetts 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.
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.
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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.
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
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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.
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) [divided by] 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
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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 [sec]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 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, [sec]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 Certificates surrendered pursuant to the provisions of this Section
3.4, and the Certificates so surrendered shall forthwith be cancelled.
Certificates surrendered for 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 be 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
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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 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.
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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.
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
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Sandwich's shareholders of this Agreement) to 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.
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.
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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.
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,
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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 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 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,
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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).
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
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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 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
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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.
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.
4.21.2 Assuming the accuracy of the representation and warranty of 1855
Bancorp contained in Section 5.20 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
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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, 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
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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 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.
5.5.2 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
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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 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.
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
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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, 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.
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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), 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).
5.14.4 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 may be based. Neither 1855 Bancorp
nor any 1855 Bancorp Subsidiary has any liability under any such plan that
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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 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
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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 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 obligations 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
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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 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;
(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
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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;
(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
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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 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
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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 11.1 hereof, neither
Sandwich nor any of its subsidiaries shall (and Sandwich and Sandwich Bank
shall use all commercially reasonable efforts to cause its 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 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, (iii) disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code; or (iv) result in the
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 representatives of Sandwich and report the
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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.
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, 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.
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.
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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 employee benefits which, in the aggregate, are no
less favorable than those generally afforded to other employees 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.
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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 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 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
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Bancorp, (iii) the directors and stockholder or stockholders 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 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
8.1 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
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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 necessary 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:
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 deliver to the placement agent for
the Conversion such opinions as 1855 Bancorp may reasonably request.
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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 Agreement. Sandwich and
1855 Bancorp shall have the right to review and approve in advance all
characterizations 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 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 consummation 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.
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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 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
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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 approvals 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.
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 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.
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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 notice by 1855 Bancorp to Sandwich (or by Sandwich to 1855 Bancorp) of
such breach (for 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
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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 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
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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.
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 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
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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):
(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.
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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 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 respect to, any subsequent or
other failure.
ARTICLE XII
MISCELLANEOUS
12.1 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.
12.2 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
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With required copies 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 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 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
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(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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<PAGE>
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;
(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.
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(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 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,
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<PAGE>
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 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
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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 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
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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").
(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
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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.
(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.
(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,
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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 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
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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 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
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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 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
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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.
(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
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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 copies 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.
(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
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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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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.
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
A-59
<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 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
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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.
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.
*****
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<PAGE>
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:
A-62
<PAGE>
EXHIBIT D
FORM OF OPINION OF HOUSLEY, KANTARIAN & BRONSTEIN, P.C./LOCAL COUNSEL
REASONABLY ACCEPTABLE TO 1855 BANCORP
(a) Each of Sandwich Bancorp and Sandwich Bank is validly existing under
the laws of The Commonwealth of Massachusetts, and Sandwich Bancorp is duly
registered as a bank holding company under the BHCA.
(b) The authorized capital stock of Sandwich Bancorp consists of
15,000,000 shares of Sandwich Bancorp Common Stock and 5,000,000 shares of
Sandwich Bancorp Preferred Stock. All of the outstanding shares of Sandwich
Bancorp Common Stock have been duly authorized and are nonassessable, and the
shareholders of Sandwich Bancorp have no preemptive rights with respect to any
shares of capital stock of Sandwich Bancorp. All of the outstanding shares of
capital stock of Sandwich Bank and each other Sandwich Subsidiary have been
duly authorized and are nonassessable, and, to the actual knowledge of such
counsel, are directly or indirectly owned by Sandwich Bancorp free and clear of
all liens, claims, encumbrances, charges, restrictions or rights of third
parties of any kind whatsoever.
(c) The Agreement has been duly authorized, executed and delivered by
Sandwich Bancorp and Sandwich Bank and, assuming due authorization, execution
and delivery by 1855 Bancorp and Compass Bank, constitutes a valid and binding
obligation of Sandwich Bancorp and Sandwich Bank enforceable in accordance with
its terms, except that the enforceability of the obligations of Sandwich
Bancorp and Sandwich Bank may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors,
(ii) equitable principles limiting the right to obtain specific performance or
other similar equitable relief and (iii) considerations of public policy.
(d) Sandwich Bancorp and Sandwich Bank have all requisite corporate power
and authority to execute and deliver the Agreement and to consummate the
Merger. All corporate actions required to be taken by Sandwich Bancorp and
Sandwich Bank by law and their respective Charters and Bylaws to authorize the
execution and delivery of the Agreement and consummation of the Merger have
been taken.
(e) All consents or approvals of or filings or registrations with any
federal or state banking agency which are necessary to be obtained by Sandwich
Bancorp and Sandwich Bank to permit the execution of the Agreement and
consummation of the Merger have been obtained.
(f) Neither the execution of the Agreement nor consummation of the Merger
will (i) conflict with or result in a breach of any provision of the Charter or
By-laws or similar governing instruments, of Sandwich Bancorp or any of its
Subsidiaries, (ii) constitute a breach of or default under, or give rise to a
right of termination, cancellation or acceleration with respect to, [specified
agreements listed in Disclosure Schedules] except as described in the Sandwich
Disclosure Schedule, or (iii) violate any Massachusetts banking or corporate
law or federal banking law of the United States binding upon Sandwich Bancorp
or any of its Subsidiaries, or any order, writ, injunction or decree of which
we have actual knowledge to which Sandwich Bancorp or any of its Subsidiaries,
is subject.
(g) We do not have actual knowledge of any actions, suits or proceedings
pending or threatened against Sandwich Bancorp or any Subsidiary, at law or in
equity, before any court or governmental body which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay consummation of the Merger.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials, certificates or opinions of other counsel to Sandwich
Bancorp or a Sandwich Bancorp Subsidiary reasonably satisfactory to 1855
Bancorp and, as to matters of fact, certificates of officers of Sandwich
Bancorp or a Sandwich Bancorp Subsidiary. The opinion of such counsel need
refer only to matters of Massachusetts and federal law and may add other
qualifications and explanations of the basis of their opinion as may be
reasonably acceptable to 1855 Bancorp.
Counsel may expressly exclude any opinions as to choice of law and
anti-trust matters and may add such other qualifications and explanations of
the basis of its opinions as are consistent with the Legal Opinion Accord
prepared by the Section of Business Law of the American Bar Association.
A-63
<PAGE>
EXHIBIT E
FORM OF OPINION OF FOLEY, HOAG & ELIOT LLP
(a) Each of 1855 Bancorp and Compass Bank is validly existing under the
laws of The Commonwealth of Massachusetts, and 1855 Bancorp is duly registered
as a bank holding company under the BHCA.
(b) The Agreement has been duly authorized, executed and delivered by 1855
Bancorp and Compass Bank and, assuming due authorization, execution and
delivery by Sandwich Bancorp and Sandwich Bank, constitutes a valid and binding
obligation of 1855 Bancorp and Compass Bank enforceable in accordance with its
terms, except that the enforceability of the obligations of 1855 Bancorp and
Compass Bank may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors, (ii)
equitable principles limiting the right to obtain specific performance or other
similar equitable relief and (iii) considerations of public policy, and except
that certain remedies may not be available in the case of a nonmaterial breach
of the Agreement.
(c) 1855 Bancorp and Compass Bank have all requisite corporate power and
authority to execute and deliver the Agreement and to consummate the Merger.
All corporate actions required to be taken by 1855 Bancorp and Compass Bank by
law and their respective Charters and Bylaws to authorize the execution and
delivery of the Agreement and consummation of the Merger have been taken.
(d) All consents or approvals of or filings or registrations with any
federal or state banking agency which are necessary to be obtained by 1855
Bancorp and Compass Bank to permit the execution of the Agreement and
consummation of the Merger have been obtained.
(e) Neither the execution of the Agreement nor consummation of the Merger
will (i) conflict with or result in a breach of any provision of the Charter or
By-laws or similar governing instruments, of 1855 Bancorp or any of its
Subsidiaries or (ii) violate any Massachusetts banking or corporate law or
federal banking law of the United States binding upon 1855 Bancorp or any of
its Subsidiaries, or any order, writ, injunction or decree of which we have
actual knowledge to which 1855 Bancorp or any of its Subsidiaries, is subject.
(f) We do not have actual knowledge of any actions, suits or proceedings
pending or threatened against 1855 Bancorp or any Subsidiary, at law or in
equity, before any court or governmental body which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay consummation of the Merger.
(g) The authorized capital stock of 1855 Bancorp consists of shares of
1855 Common Stock and shares of Preferred Stock. The shares of 1855 Common
Stock to be issued to Sandwich shareholders in connection with the Merger will
be, upon consummation of the Merger in accordance with the terms of the
Agreement, duly authorized, validly issued, fully paid and non-assessable.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials and, as to matters of fact, certificates of officers of
1855 Bancorp or any 1855 Bancorp Subsidiary. The opinion of such counsel need
refer only to matters of Massachusetts and federal law, and may add other
qualifications and explanations of the basis of their opinion as may be
reasonably acceptable to Sandwich Bancorp.
Counsel may expressly exclude any opinions as to choice of law and
anti-trust matters and may add such other qualifications and explanations of
the basis of its opinions as are consistent with the Legal Opinion Accord
prepared by the Section of Business Law of the American Bar Association.
A-64
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APPENDIX B
OPINION OF SANDLER O'NEIL & PARTNERS, L.P.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P.]
September __, 1998
Board of Directors
Sandwich Bancorp, Inc.
100 Old Kings Highway
Sandwich, MA 02563
Ladies and Gentlemen:
Sandwich Bancorp, Inc. ("Sandwich") and its wholly-owned subsidiary, The
Sandwich Co-operative Bank ("Sandwich Bank"), and the 1855 Bancorp (now known as
Seacoast Financial Services Corporation and referred to herein as "Seacoast
Financial") and its wholly-owned subsidiary, Compass Bank for Savings ("Compass
Bank"), have entered into an Amended and Restated Affiliation and Merger
Agreement, dated as of March 23, 1998 (the "Agreement"), pursuant to which
Sandwich will be acquired by Seacoast Financial through the merger (the
"Merger") of a newly-created, wholly-owned subsidiary of Seacoast Financial with
and into Sandwich (the "Merger"). Upon consummation of the Merger, each share of
Sandwich common stock, par value $1.00 per share, issued and outstanding
immediately prior to the effective time of the Merger (the "Sandwich Shares"),
other than certain shares specified in the Agreement, will be converted into and
be exchangeable for a number of shares of common stock of Seacoast Financial,
par value $.01 per share (the "Seacoast Financial Common Stock"), equal to one
share multiplied by the Exchange Ratio (the "Merger Consideration"). The
Exchange Ratio shall be determined by reference to the Seacoast Financial
Trading Price (defined in the Agreement as the 1855 Trading Price), as follows:
if the Seacoast Financial Trading Price is between $10.01 and $13.50, the
Exchange Ratio shall be 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 shall be 4.7407; if the Seacoast Financial Trading
Price is greater than $15.00, the Exchange Ratio shall be determined by dividing
$71.11 by the Seacoast Financial Trading Price; and if the Seacoast Financial
Trading Price is $10.00 or less, the Exchange Ratio shall be 6.4. If the initial
public offering price of Seacoast Financial Common Stock in the Conversion (as
defined in the Agreement) is other than $10.00 per share, the Exchange Ratio
will be proportionately adjusted to reflect the actual initial public offering
price. The terms and conditions of the Merger are more fully set forth in the
Agreement. You have requested our opinion as to the fairness, from a financial
point of view, of the Merger Consideration to be received by the holders of the
Sandwich Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement and exhibits thereto; (ii) the Stock
Option Agreement, dated as of March 23, 1998, by and between Sandwich and
Seacoast Financial; (iii) certain publicly available financial statements and
other historical financial information relating to Sandwich and Sandwich Bank
provided by Sandwich that we deemed relevant; (iv) certain publicly available
financial statements and other historical financial information relating to
Seacoast Financial and Compass Bank provided by Seacoast Financial that we
deemed relevant; (v) certain financial analyses and forecasts of Sandwich
prepared by and reviewed with management of Sandwich and the views of senior
management of Sandwich regarding Sandwich's past and current business
operations, results thereof, financial condition and future prospects; (vi)
certain financial analyses and forecasts of Seacoast Financial prepared by and
reviewed with management of Seacoast Financial and the views of senior
management of Seacoast Financial regarding Seacoast Financial's past and
current business operations, results thereof, financial condition and future
prospects; (vii) the pro forma impact of the Merger on Seacoast Financial;
(viii) the publicly reported historical price and trading activity for
Sandwich's common stock, including a comparison of certain financial and stock
market information for Sandwich with similar publicly available information for
certain other companies the securities of which are publicly traded; (ix) the
financial terms of recent business combinations in the savings institution
industry, to the extent publicly available; (x) the current market environment
generally and the banking environment in particular; and (xi) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
B-1
<PAGE>
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability therefor. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities (contingent or otherwise) of Sandwich or Seacoast Financial
or any of their subsidiaries, or the collectibility of any such assets, nor have
we been furnished with any such evaluations or appraisals (relying, where
relevant, on the analyses and estimates of Sandwich and Seacoast Financial).
With respect to the financial projections reviewed with management, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of the
respective future financial performances of Sandwich and Seacoast Financial and
that such performances will be achieved, and we express no opinion as to such
financial projections or the assumptions on which they are based. We have also
assumed that there has been no material change in Sandwich's or Seacoast
Financial's assets, financial condition, results of operations, business or
prospects since the dates of the last publicly reported financial statements
made available to us. We have assumed in all respects material to our analysis
that Sandwich and Seacoast Financial will remain as going concerns for all
periods relevant to our analyses, that all of the representations and warranties
contained in the Agreement and all related agreements are true and correct, that
each party to such agreements will perform all of the covenants required to be
performed by such party under such agreements, that the Conversion (as defined
in the Agreement) will be consummated as set forth in the Agreement, that the
Merger will be accounted for as a pooling of interests and that the conditions
precedent in the Agreement are not waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Seacoast Financial common
stock will be when issued to Sandwich's shareholders pursuant to the Agreement
or the prices at which Seacoast Financial's or Sandwich's common stock will
trade at any time.
We have acted as Sandwich's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Sandwich and have received compensation for
such services.
In the ordinary course of our business, we may actively trade the equity
securities of Sandwich for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion is directed to the Board of Directors of Sandwich in
connection with its consideration of the Merger and, except as set forth in the
engagement letter between Sandwich and Sandler O'Neill dated January 8, 1998,
shall not be used for any other purpose, nor shall it be quoted or referred to
in any other document, without Sandler O'Neill's prior written consent. This
opinion does not constitute a recommendation to any stockholder of Sandwich as
to how such stockholder should vote at any meeting of stockholders called to
consider and vote upon the Merger and is not to be quoted or referred to, in
whole or in part, in a registration statement, prospectus, proxy statement or
in any other similar document without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion as
an exhibit to the Proxy Statement/Prospectus of Sandwich and Seacoast Financial
dated the date hereof.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Merger Consideration is fair, from a financial point of view,
to the holders of Sandwich Shares.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
B-2
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APPENDIX C
DISSENTERS' RIGHTS STATUTE
<PAGE>
DISSENTERS' RIGHTS STATUTE
Sections 85-98 of Chapter 156B of the General Laws of Massachusetts
85 PAYMENT FOR STOCK OF DISSENTING STOCKHOLDER. -- A stockholder in any
corporation organized under the laws of Massachusetts which shall have duly
voted to consolidate or merge with another corporation or corporations under
the provisions of sections seventy-eight or seventy-nine who objects to such
consolidation or merger may demand payment for his stock from the resulting or
surviving corporation and an appraisal in accordance with the provisions of
sections eighty-six to ninety-eight, inclusive, and such stockholder and the
resulting or surviving corporation shall have the rights and duties and follow
the procedure set forth in those sections. This section shall not apply to the
holders of any shares of stock of a constituent corporation surviving a merger
if, as permitted by subsection (c) of section seventy-eight, the merger did not
require for its approval a vote of the stockholders of the surviving
corporation.
86 RIGHT OF APPRAISAL. -- If a corporation proposes to take a corporate
action as to which any section of this chapter provides that a stockholder who
objects to such action shall have the right to demand payment for his shares
and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive,
shall apply except as otherwise specifically provided in any section of this
chapter. Except as provided in sections eighty-two and eighty-three, no
stockholder shall have such right unless (1) he files with the corporation
before the taking of the vote of the stockholders on such corporate action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) his shares are not voted
in favor of the proposed action.
87 NOTICE OF STOCKHOLDERS MEETING TO CONTAIN STATEMENT AS TO APPRAISAL
RIGHTS. -- The notice of the meeting of stockholders at which the approval of
such proposed action is to be considered shall contain a statement of the
rights of objecting stockholders. The giving of such notice shall not be deemed
to create any rights in any stockholder receiving the same to demand payment
for his stock, and the directors may authorize the inclusion in any such notice
of a statement of opinion by the management as to the existence or
non-existence of the right of the stockholders to demand payment for their
stock on account of the proposed corporate action. The notice may be in such
form as the directors or officers calling the meeting deem advisable, but the
following form of notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or
surviving corporation shall be inserted), within twenty days after the date of
mailing to him of notice in writing that the corporate action has become
effective, payment for his shares and an appraisal of the value thereof. Such
corporation and any such stockholder shall in such cases have the rights and
duties and shall follow the procedure set forth in sections 88 to 98, inclusive
of chapter 156B of the General Laws of Massachusetts."
88 NOTICE TO OBJECTING STOCKHOLDER THAT CORPORATE ACTION HAS BECOME
EFFECTIVE. -- The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last know address as it appears in
the records of the corporation.
89 DEMAND FOR PAYMENT BY OBJECTING STOCKHOLDER. -- If within twenty days
after the date of mailing of a notice under subsection (e) of section
eighty-two, subsection (f) of section eighty-three, or section eighty-eight any
stockholder to whom the corporation was required to give such notice shall
demand in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment
for his stock, the corporation upon which such demand is made shall pay to him
the fair value of his stock within thirty days after the expiration of the
period during which such demand may be made.
90 DETERMINATION OF VALUE OF STOCK BY SUPERIOR COURT. -- If during the
period of thirty days provided for in section eighty-nine the corporation upon
which such demand is made and any such objecting
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stockholder fail to agree as to the value of such stock, such corporation or
any such stockholder may within four months after the expiration of such
thirty-day period demand a determination of the value of the stock of all such
objecting stockholders by a bill in equity filed in the superior court in the
county where the corporation in which such objecting stockholder held stock had
or has its principal office in the commonwealth.
91 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF ETC.; PARTIES TO BILL ETC; SERVICE OF BILL ON
CORPORATION; NOTICE TO STOCKHOLDER PARTIES ETC. -- If the bill is filed by the
corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares and with whom the corporation has not reach
agreement as to the value thereof. If the bill is filed by a stockholder, he
shall bring the bill in his own behalf and in behalf of all other stockholders
who have demanded payment for their shares and with whom the corporation has
not reach agreement as to the value thereof, and service of the bill shall be
made upon the corporation by subpoena with a copy of the bill annexed. The
corporation shall file with its answer a duly verified list of all such other
stockholders, and such corporation shall give notice in such form and
returnable on such date as the court shall order to each stockholder party to
the bill by registered or certified mail, addressed to the last known address
of such stockholder as shown in the records of the corporation, and the court
may order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section relating to
notice, and the giving of notice shall be a sufficient service of process on
him. Failure to give notice to any stockholder making demand shall not
invalidate the proceedings as to other stockholders to whom notice was properly
given, and the court may at any time before the entry of a final decree make
supplementary orders of notice.
92 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; ENTRY OF DECREE DETERMINING VALUE OF
STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED. -- After hearing the court
shall enter a decree determining the fair value of the stock of those
stockholders who have become entitled to the valuation of and payment for their
shares, and shall order the corporation to make payment of such value, together
with interest, if any, as hereinafter provided, to the stockholders entitled
thereto upon the transfer by them to the corporation of the certificates
representing such stock if certificated or if uncertificated, upon receipt of
an instruction transferring such stock to the corporation. For this purpose,
the value of the shares shall be determined as of the day preceding the date of
the vote approving the proposed corporate action and shall be exclusive of any
element of value arising from the expectation or accomplishment of the proposed
corporation action.
93 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; COURT MAY REFER BILL, ETC.; TO SPECIAL
MASTER TO HEAR PARTIES, ETC. -- The court in its discretion may refer the bill
or any question arising thereunder to a special master to hear the parties,
make findings and report the same to the court, all in accordance with the
usual practice in suits in equity in the superior court.
94 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE REQUIRED TO
SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF BILL, ETC.
- -- On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST ON
AWARD, ETC. -- The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of the, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approved the proposed corporate action, and
the court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
C-2
<PAGE>
96 STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF
STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.;
EXCEPTIONS. -- Any stockholder who has demanded payment for his stock as
provided in this chapter shall not thereafter be entitled to notice of any
meeting of stockholders or to vote such stock for any purpose and shall not be
entitled to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote approving the proposed corporate action)
unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and
an acceptance of such corporation action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97 CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY
STOCK, ETC. -- The shares of the corporation paid for by the corporation
pursuant to the provisions of this chapter shall have the status of treasury
stock or in the case of a consolidation or merger the shares or the securities
of the resulting or surviving corporation into which the shares of such
objecting stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
98 ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES
TO BE EXCLUSIVE REMEDY; EXCEPTION. -- The enforcement by a stockholder of his
right to receive payment for his shares in the manner provided in this chapter
shall be an exclusive remedy except that this chapter shall not exclude the
right of such stockholder to bring or maintain an appropriate proceeding to
obtain relieve on the ground that such corporate action will be or is illegal
or fraudulent as to him.
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. 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.
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.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit No. Description
- ----------- -----------
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 Opinion of Foley, Hoag & Eliot LLP regarding legality of securities
being registered
8 Opinion of Foley, Hoag & Eliot LLP regarding certain tax matters
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*
II-1
<PAGE>
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 January 1998 Incentive Compensation 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 Consents of Foley, Hoag & Eliot LLP (included in Exhibits 5 and 8 to
this Registration Statement)
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Sandler O'Neill & Partners, L.P.
24 Power of Attorney (contained on the signature page of this Registration
Statement)
27 EDGAR Financial Data Schedule*
99.1 Consent of Frederic D. Legate
- ------------------------------------------------
* Filed as an Exhibit to Seacoast Financial's Registration Statement on
Form S-1, File No. 333-52889, and incorporated herein by reference.
** Filed as Appendix A to the proxy statement/prospectus which is a part
of this Registration Statement.
(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 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable
II-2
<PAGE>
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
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.
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 to respond to requests for
information that is incorporated by reference into the prospectus which is a
part of this Registration Statement pursuant to Items 4, 10(b), 11 or 13 of this
Registration Statement, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant 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 August 31, 1998.
SEACOAST FINANCIAL SERVICES CORPORATION
By: /s/ Kevin G. Champagne
----------------------------------
Kevin G. Champagne
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and trustees of Seacoast Financial Services
Corporation, 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-4 filed herewith and any and all pre-effective and post-effective
amendments to said Registration Statement, 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.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of August 31, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Kevin G. Champagne
- ------------------------------- President, Chief Executive Officer and Trustee
Kevin G. Champagne (Principal Executive Officer)
/s/ Francis S. Mascianica, Jr.
- ------------------------------- Vice President and Treasurer (Principal
Francis S. Mascianica, Jr. Financial and Accounting Officer)
/s/ Manuel G. Camacho
- ------------------------------- Trustee
Manuel G. Camacho
/s/ David P. Cameron Trustee
- -------------------------------
David P. Cameron
/s/ Howard C. Dyer, Jr.
- ------------------------------- Trustee
Howard C. Dyer, Jr.
</TABLE>
II-4
<PAGE>
Signature Title
--------- -----
/s/ Glen F. Johnson Trustee
- -------------------------------
Glen F. Johnson
/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
/s/ A. William Munro Trustee
- ---------------------------
A. William Munro
/s/ Carl Ribeiro Trustee
- -------------------------------
Carl Ribeiro
/s/ Arthur W. Short Trustee
- -------------------------------
Arthur W. Short
/s/ Joseph H. Silverstein Trustee
- -------------------------------
Joseph H. Silverstein
/s/ Gerald H. Silvia Trustee
- -------------------------------
Gerald H. Silvia
/s/ William N. Whalen Trustee
- -------------------------------
William N. Whalen
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
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 Opinion of Foley, Hoag & Eliot LLP regarding legality of securities
being registered
8 Opinion of Foley, Hoag & Eliot LLP regarding certain tax matters
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 January 1998 Incentive Compensation 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 Consents of Foley, Hoag & Eliot LLP (included in Exhibits 5 and 8 to
this Registration Statement)
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Sandler O'Neill & Partners, L.P.
24 Power of Attorney (contained on the signature page of this Registration
Statement)
27 EDGAR Financial Data Schedule*
99.1 Consent of Frederic D. Legate
- ------------------------------------------------
* Filed as an Exhibit to Seacoast Financial's Registration Statement on
Form S-1, File No. 333-52889, and incorporated herein by reference.
** Filed as Appendix A to the proxy statement/prospectus which is a part
of this Registration Statement.
Exhibit 5
September 14, 1998
Seacoast Financial Services Corporation
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-4 (the
"Registration Statement") filed today by Seacoast Financial Services
Corporation, 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 issuance by the Company of up
to 12,793,844 shares (the "Company Shares") of its common stock, par value $.01
per share, in connection with the merger (the "Merger") of Sandwich Bancorp,
Inc., a Massachusetts bank holding company ("Sandwich"), with a corporate
subsidiary of the Company pursuant to the terms of a certain Amended and
Restated Affiliation and Merger Agreement dated as of March 23, 1998 (the
"Merger Agreement") by and among the Company, Compass Bank for Savings, a
wholly-owned subsidiary of the Company, Sandwich and The Sandwich Co-operative
Bank, a wholly-owned subsidiary of Sandwich.
We are familiar with the Merger Agreement, 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 of 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 Merger pursuant to the terms
of the Merger Agreement 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.
<PAGE>
We consent to the filing of this opinion as an exhibit to the Registration
Statement, as amended, 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: /s/ Carol Hempfling Pratt
-------------------------
A Partner
Exhibit 8
[FOLEY, HOAG & ELIOT LLP LETTERHEAD]
September 14, 1998
SEACOAST FINANCIAL SERVICES CORPORATION
791 Purchase Street
New Bedford, Massachusetts 02740-2101
SANDWICH BANCORP, INC.
100 Old King's Highway
Sandwich, Massachusetts 02563
Ladies and Gentlemen:
We have acted as counsel to Seacoast Financial Services Corporation
("Seacoast Financial"), a Massachusetts mutual holding company, and Compass Bank
for Savings ("Compass Bank"), a Massachusetts savings bank and wholly-owned
subsidiary of Seacoast Financial, in connection with the proposed merger (the
"Merger") of a to-be-formed special-purpose subsidiary ("Merger Sub") of
Seacoast Financial with and into Sandwich Bancorp, Inc. ("Sandwich"), a
Massachusetts corporation and bank holding company, the proposed merger (the
"Holding Company Merger") of Sandwich with and into Seacoast Financial, and the
proposed merger (the "Bank Merger") of The Sandwich Co-operative Bank ("Sandwich
Bank"), a Massachusetts co-operative bank and wholly-owned subsidiary of
Sandwich, with and into Compass Bank, in accordance with the Amended and
Restated Affiliation and Merger Agreement dated as of March 23, 1998 (the
"Agreement") by and among Seacoast Financial, Compass Bank, Sandwich and
Sandwich Bank.
We have examined the law and such papers, including the Agreement, as
deemed necessary to render these opinions. As to questions of fact material to
our opinions we have relied upon representations set forth in the Agreement
(including the Exhibits), and such other documents pertaining to the Merger and
the Bank Merger as we have deemed appropriate and necessary, and upon
representations of Seacoast Financial, Compass Bank, Sandwich and Sandwich Bank
contained in letters of even date addressed to us and attached to this letter
(the "Letters of Representation"), without undertaking to verify the same by
independent investigation.
In our examination we have assumed that (i) the Merger and the Bank
Merger will be consummated in accordance with the terms of the Agreement; (ii)
the Holding Company Merger will be effected prior to the Bank Merger (if the
Bank Merger is effected); (iii) each entity that is a party to any of the
documents (the "Documents") described in the preceding paragraphs has been duly
organized under the laws of its state or country of organization, is validly
existing and in good standing under such laws, and is duly qualified and in good
<PAGE>
SEACOAST FINANCIAL
SANDWICH BANCORP, INC.
September 14, 1998
Page 2
standing in each jurisdiction in which it is required to be qualified to engage
in the transactions contemplated by the Documents; (iv) each such entity has
full power, authority, capacity and legal right to enter into and perform the
terms of the Documents and the transactions contemplated thereby; (v) the copies
or originals of the Documents furnished to us are authentic (if originals) or
accurate (if copies), those that are contracts or instruments are enforceable
and effective in accordance with their terms against all parties thereto, and
all signatures are genuine; (vi) any representations made in the Documents are,
and will continue to be, true and complete, and no default exists under any of
the Documents; (vii) the business and affairs of each of the entities that is a
party to any of the Documents will be conducted in accordance with the Documents
and all relevant laws; (viii) no actions will be taken, no change in any of the
Documents will occur, and no other events will occur, after the date hereof,
that would have the effect of altering the facts, Documents or assumptions upon
which this opinion is based; and (ix) the business reasons for the Merger and
the Bank Merger will constitute a valid business purpose, within the meaning of
Treasury Regulation section 1.368-1(b) and (c).
The opinions rendered herein are based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Department
proposed, temporary and final regulations, judicial decisions, and rulings and
administrative interpretations of the Internal Revenue Service (the "IRS"), as
each of the foregoing exists on the date hereof. The opinions rendered herein
are 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 the
opinion rendered below will not be forthcoming. Any such differences could be
retroactive to transactions or business operations prior to such action or
decisions.
We express no opinion as to the federal income tax consequences of the
Merger and the Bank Merger other than those described below, if any; as to the
federal income tax consequences of any transaction other than the Merger and the
Bank Merger; or as to any state, local or foreign income or other tax
consequences with respect to the Merger and the Bank Merger.
Based on the foregoing, we are of opinion, as of the date hereof and
under existing law, as follows:
1. Each of the Merger and the Bank 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;
<PAGE>
SEACOAST FINANCIAL
SANDWICH BANCORP, INC.
September 14, 1998
Page 3
2. No gain or loss will be recognized by Seacoast Financial,
Compass Bank, Sandwich or Sandwich Bank by reason of the
Merger or the Bank Merger;
3. No gain or loss will be recognized by a shareholder of
Sandwich to the extent that such shareholder exchanges such
shareholder's Sandwich Common Stock solely for 1855 Common
Stock;
4. The basis of the 1855 Common Stock to be received (including
any fractional shares deemed received for tax purposes) by a
Sandwich shareholder will be the same as the basis of the
Sandwich Common Stock surrendered pursuant to the Merger in
exchange therefor; and
5. The holding period of the shares of 1855 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 that
such Sandwich Common Stock is held as a capital asset at the
Effective Time.
We are furnishing this letter to you solely for the purpose of
satisfying Section 9.1.6 of the Agreement. We undertake no responsibility to
update or supplement our opinion. This letter is not to be used, circulated,
quoted or otherwise referred to for any other purpose without our prior written
consent. We hereby consent, however, to the filing with the Securities and
Exchange Commission of this opinion as an exhibit to the registration statement
on Form S-4 filed by Seacoast Financial with the Securities and Exchange
Commission. 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: /s/ Richard Schaul-Yoder
----------------------
A Partner
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated November 25, 1997, (except with
respect to the matters discussed in Note 16, as to which the date is March 31,
1998), included herein and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 10, 1998
Exhibit 23.2
[LETTERHEAD OF RP FINANCIAL, LC.]
September 11, 1998
Board of Directors
Seacoast Financial Services Corporation
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-4 for Seacoast Financial
Services Corporation with the Securities and Exchange Commission in order to
effect Seacoast Financial's acquisition of Sandwich Bancorp, Inc. and related
issuance of shares of its common stock. We also hereby consent to the inclusion
of, summary of and references to our Appraisal Report in such filing.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ James P. Hennessey
James P. Hennessey
Senior Vice President
Exhibit 23.4
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement to be
filed on Form S-4 of Seacoast Financial Services Corporation of our report dated
January 26, 1998, except as to Note 17, which is as of 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
Boston, Massachusetts
August 13, 1998
Exhibit 23.5
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Sandwich Bancorp, Inc. (the "Company") as an Appendix to the Proxy
Statement/Prospectus relating to the proposed merger of the Company with and
into a subsidiary of Seacoast Financial Services Corporation contained in the
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission on the date hereof, and to the references to our firm and such
opinion in such Proxy Statement/Prospectus. In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended (the "Act"), or the
rules and regulations of the Securities and Exchange Commission thereunder (the
"Regulations"), nor do we admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "experts" as used in
the Act or the Regulations.
/s/ SANDLER O'NEILL & PARTNERS, L.P.
September 14, 1998
Exhibit 99.1
CONSENT
I hereby consent to being elected as a director of Seacoast Financial Services
Corporation and to being named as a person who will be so elected in this
Registration Statement.
Date: September 14, 1998 /s/ Frederic D. Legate
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Frederic D. Legate
