<PAGE>
As filed with the Securities and Exchange Commission on November 13, 1998
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WORONOCO BANCORP, INC.
WORONOCO SAVINGS BANK
401(K) EMPLOYEE BENEFIT PLAN
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6036 BEING APPLIED FOR
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
31 COURT STREET
WESTFIELD, MASSACHUSETTS 01085-0978
(413) 568-9141
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
CORNELIUS D. MAHONEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WORONOCO SAVINGS BANK
31 COURT STREET
WESTFIELD, MASSACHUSETTS 01085-0978
(413) 568-9141
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
KENT M. KRUDYS, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
----
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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 number of the earlier effective registration statement for the same
offering. / /
----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----
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<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Unit Price (2) Fee
- --------------------------- ------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C>
Common Stock 5,998,860
$.01 par value Shares(1) $10.00 $59,988,600 $16,677
- --------------------------- ------------- ---------------- ------------------ ------------
Participation (3) _______ $726,478 (4)
Interests
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</TABLE>
(1) Includes shares of Common Stock to be issued to the Woronoco Savings
Charitable Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) In addition, pursuant to Rule 416(c) under the Securities Act, this
registration statement also covers an indeterminate amount of interests to
be offered or sold pursuant to the employee benefit plan described herein.
(4) The securities of Woronoco Bancorp, Inc. to be purchased by Woronoco Savings
Bank 401(k) Employee Benefit Plan are included in the amount shown for
Common Stock. Accordingly, no separate fee is required for the participation
interests. In accordance with Rule 457(h) of the Securities Act, as amended,
the registration fee has been calculated on the basis of the number of
shares of Common Stock that may be purchased with the current assets of such
Plan.
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 SECTION 8(A), MAY
DETERMINE.
<PAGE>
[To be used in connection with sales to Participants in the WORONOCO SAVINGS
BANK 401(k) Plan]
PROSPECTUS SUPPLEMENT
- ---------------------
WORONOCO BANCORP, INC.
WORONOCO SAVINGS BANK
401(K) PLAN
(PARTICIPATION INTERESTS IN UP TO 72,647 SHARES OF COMMON STOCK)
________________________
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the Woronoco Savings Bank 401(k) Plan (the "Plan") of
participation interests and shares of common stock, par value $.01 per share of
Woronoco Bancorp, Inc. (the "Common Stock"), as set forth herein.
In connection with the proposed conversion (the "Conversion") of the Bank
from a Massachusetts-chartered mutual savings bank to a Massachusetts-chartered
stock savings bank and the simultaneous offering of Woronoco Bancorp, Inc. (the
"Company") Common Stock the Plan will be amended to permit the investment of
Plan assets in the Common Stock. The amended Plan will permit Participants to
direct the trustee of the Plan (the "Trustee") to invest in the Common Stock
with amounts in the Plan attributable to such Participants. Such investments in
the Common Stock will be made by means of the Woronoco Bancorp, Inc. Stock Fund
(the "Employer Stock Fund"). Based upon the value of the Plan assets at
September 30, 1998, 72,647 shares of the Common Stock could be purchased with
Plan assets (assuming a purchase price of $10.00 per share). This Prospectus
Supplement relates to the initial election of participants to direct that all or
a portion of their accounts be invested in the Employer Stock Fund in connection
with the Conversion and also their election to direct such investments after the
offering is completed.
The prospectus dated _______________________________, 1999, of the Company
(the "Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Bank. This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus and should be
retained for future reference.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1999.
<PAGE>
THE INTERESTS IN THE PLAN AND THE OFFERING OF THE COMMON STOCK HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE
MASSACHUSETTS DIVISION OF BANKS, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR
ANY OTHER STATE OR FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS
SUCH COMMISSION OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THE INTEREST OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF COMMON STOCK
GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A PURCHASER'S
PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof.
<PAGE>
TABLE OF CONTENTS
THE OFFERING....................................................................
Securities Offered.........................................................
Election to Purchase the Common Stock in the Conversion....................
Value of Participation Interests...........................................
Method of Directing Transfer...............................................
Time for Directing Transfer................................................
Irrevocability of Transfer Direction.......................................
Direction to Purchase the Common Stock After the Conversion................
Purchase Price of the Common Stock.........................................
Nature of a Participant's Interest in the Common Stock.....................
Voting and Tender Rights of the Common Stock...............................
DESCRIPTION OF THE PLAN.........................................................
Introduction...............................................................
Eligibility and Participation..............................................
Contributions Under the Plan...............................................
Limitations on Contributions...............................................
Investment of Contributions................................................
Benefits Under the Plan....................................................
Withdrawals and Distributions From the Plan................................
Administration of the Plan.................................................
Reports to Plan Participants...............................................
Plan Administrator.........................................................
Amendment and Termination..................................................
Merger, Consolidation or Transfer..........................................
Federal Income Tax Consequences............................................
ERISA and Other Qualification..............................................
Restrictions on Resale.....................................................
SEC Reporting and Short-Swing Profit Liability.............................
Financial Information Regarding Plan Assets................................
CONTRIBUTION AND INVESTMENT FORM................................................
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan. Up
to 72,647 shares (assuming the actual purchase price is $10.00 per share) of the
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Company is the issuer of the Common Stock. Only employees of the Bank
(hereinafter referred to as the "Employer") may participate in the Plan. The
Common Stock to be issued hereby is conditioned on the consummation of the
Conversion. A Participant's investment in the Employer Stock Fund in connection
with the Conversion is subject to priorities set forth in the Plan of
Conversion.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus. The address of the principal executive office of the Bank
is 31 Court Street, Westfield, Massachusetts 01086-0978. The Bank's telephone
number is (413) 568-9141.
ELECTION TO PURCHASE THE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Plan will be amended to
permit each Participant to direct that all or part of the funds which represent
his or her beneficial interest in the assets of the Plan may be transferred to
the Employer Stock Fund. The Trustee of the Plan will subscribe for Common
Stock offered for sale in connection with the Conversion in accordance with each
Participant's direction. In the event the Conversion Offering is oversubscribed
and the Trustee is unable to use the full amount allocated by a Participant to
purchase Common Stock in the Conversion Offering, the amount that is not
invested in the Employer Stock Fund will be reallocated on a pro rata basis to
the other investment options that the Participant has selected. If a
Participant fails to direct the investment of his or her account, the
Participant's account balance will remain in the other investment options of the
Plan previously directed by the Participant.
The ability of each Participant to invest in the Employer Stock Fund will
be based on such Participant's status as an Eligible Account Holder (depositors
whose accounts with the Bank totalled $50.00 or more on July 31, 1997) or
Supplemental Eligible Account Holder (depositors whose account totalled $50.00
or more on June 30, 1998) pursuant to the Plan of Conversion. No Eligible
Account Holders or Supplemental Eligible Account Holders may purchase in the
Subscription Offering more than $200,000 of the Common Stock. To the extent
that Participants fall into one of the Subscription Offering categories, they
have subscription rights to purchase shares of Common Stock in the Subscription
Offering and are being permitted to use funds in their Plan account to pay for
the Common Stock that they subscribed for.
1
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VALUE OF PARTICIPATION INTERESTS
The market value of the assets of the Plan, as of September 30, 1998, was
$726,478 and each Participant was informed of the value of his or her beneficial
interest in the Plan. This value represented the past contributions to the Plan
by the Participants and any earnings or losses thereon, less previous
withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Contribution and Investment Form"). If a
Participant wishes to transfer all or part (in multiples of not less than 1%) of
his or her beneficial interest in the assets of the Plan to the Employer Stock
Fund, he or she should complete the Contribution and Investment Form. If a
Participant does not wish to make such an election, he or she does not need to
take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund which will purchase the Common Stock issued in connection with the
Conversion is ten (10) days prior to ____________________ (the "Expiration
Date") of the Offering. The Contribution and Investment Form should be returned
to the Bank's Human Resources Department by _:__ p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund shall be
irrevocable.
DIRECTION TO PURCHASE THE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant shall be able to direct that a certain
percentage (in multiples of not less than 1%) of the net value of such
Participant's interests in the trust fund established for the Plan (the "Trust
Fund") be transferred to the Employer Stock Fund and invested in the Common
Stock, or to the other investment funds available under the Plan. Alternatively,
a Participant may direct that a certain percentage of such Participant's
interest in the Employer Stock Fund be transferred to the Trust Fund to be
invested in accordance with the terms of the Plan. Participants will be
permitted to direct that future contributions made to the Plan by or on their
behalf will be invested in the Common Stock. Following the initial election,
the allocation of a Participant's interest in the Employer Stock Fund may be
changed on the first day of any calendar quarter by submitting to the Savings
Bank Employees Retirement Association ("SBERA") the requisite change form which
is available from the Bank's Human Resources Department. Special restrictions
apply to transfers directed by those participants who are officers, directors
and principal shareholders of the Bank who are subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act").
2
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PURCHASE PRICE OF THE COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of the
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of the Common Stock. The price to be paid by the Trust Fund
for such shares of the Common Stock will be the same price as is paid by all
persons who purchase shares of the Common Stock in the Conversion.
The Common Stock purchased by the Trustee after the Conversion will be
acquired in open market transactions. The prices paid by the Trustee for shares
of the Common Stock will not exceed "adequate consideration" as defined in
Section 3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Transaction fees associated with purchase, sale or transfer of the
Common Stock after the Conversion will be paid by the Employer Stock Fund.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Plan, as Trustee. Shares
of Common Stock acquired at the direction of a Participant will be allocated to
the Participant's account under the Plan. Therefore, earnings with respect to a
Participant's account should not be affected by the investment designations
(including investments in Common Stock) of other Participants. The Plan
Administrator will vote such allocated shares, if any, as described in the
following paragraph under the heading "Voting and Tender Rights of Common
Stock."
VOTING AND TENDER RIGHTS OF THE COMMON STOCK
The Plan Administrator generally will exercise voting rights attributable
to all the Common Stock held by the Employer Stock Fund. With respect to
matters involving tender offers for the Company, the Plan Administrator will
vote such allocated shares, if any, as directed by a Participant with interests
in the Employer Stock Fund. Each Participant will be allocated voting
instruction rights reflecting such Participant's proportion interest in the
Employer Stock Fund. The number of shares of the Common Stock held in the
Employer Stock Fund that are voted in the affirmative and negative on each
matter shall be proportionate to the number of voting instruction rights
exercised in the affirmative and negative, respectively. For matters not
involving a tender offer, the Plan Administrator will vote such allocated shares
in his own discretion and Participants will not have an opportunity to direct
the voting of shares.
DESCRIPTION OF THE PLAN
I. INTRODUCTION
Effective July 1, 1994, the Bank adopted the Woronoco Savings Bank 401(k)
Plan in SBERA Trust. On ______, 1998, the Plan was amended to provide for the
Employer Stock Fund. The Plan is a cash or deferred arrangement established in
accordance with the
3
<PAGE>
requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The Plan, as amended, will be submitted to the
Internal Revenue Service (the "IRS") in a timely manner for a determination that
the amended Plan is qualified under Section 401(a) of the Code, and that its
related trust(s) are qualified under Section 501(a) of the Code. The Employer
intends that the Plan, in operation, will comply with the requirements under
Section 401(a) and Section 401(k) of the Code. The Employer will adopt any
amendments to the Plan that may be necessary to ensure the qualified status of
the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan. Copies of the Plan are available
to all employees by filing a request with the Plan Administrator, Thomas Forese,
Jr., Savings Banks Employees Retirement Association, One Linscott Road, Woburn,
Massachusetts 01801. The Plan Administrator's telephone number is (781) 938-
3500. Each employee is urged to read carefully the full text of the Plan.
II. ELIGIBILITY AND PARTICIPATION
Any employee of the Employer may participate in the Plan on the first day
of the month following satisfaction of certain eligibility requirements. A Year
of Service is defined as the 12 month period during which an employee completes
at least 1,000 hours of service with the Bank.
4
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As of September 30, 1998, there were approximately 116 employees eligible
to participate in the Plan, and 102 employees had elected to participate in the
Plan.
III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Each Participant of the Plan is permitted to
-------------------------
elect to defer such Participant's Pay (as defined below) on a pre-tax basis up
to the lesser of 15% of annual Pay (expressed in terms of whole percentages) or
the applicable limit under the Code (for 1998, the applicable limit is $10,000)
and subject to certain other restrictions imposed by the Code, and to have that
amount contributed to the Plan on such Participant's behalf. For purposes of
the Plan, "Pay" means, generally, a Participant's total pay received from the
Bank as reported on IRS Form W-2 for purposes of income-tax withholding. In
1998, the annual Pay of each Participant taken into account under the Plan was
and is limited to $160,000. (Limits established by the IRS are subject to
increase pursuant to an annual cost of living adjustment, as permitted by the
Code). A Participant may elect to modify the amount contributed to the Plan,
effective on the first day of the month, by filing a new deferral agreement at
least 15 days prior to the effective date of the modification.
Employer Contributions. The Bank currently makes matching contributions to
----------------------
the Plan up to 3% of the Participant's deferred Pay for the Plan Year. The Plan
does not require that the Bank make a matching contribution.
IV. LIMITATIONS ON CONTRIBUTIONS
Limitation on Employee Salary Deferral. The annual amount of deferred Pay
--------------------------------------
of a Participant (when aggregated with any elective deferrals of the Participant
under a simplified employee pension plan or a tax-deferred annuity) may not
exceed the limitation contained in Section 402(g) of the Code, adjusted for
increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15th following the close of the taxable year in which the excess deferral
is made. Any income on the excess deferral that is distributed not later than
such date shall be treated, for federal income tax purposes, as earned and
received by the Participant in the taxable year in which the distribution is
made.
Limitations on Annual Additions and Benefits. Pursuant to the requirements
--------------------------------------------
of the Code, the Plan provides that the amount of contributions allocated to
each Elective Deferral Account and Employer Matching Contribution Account during
any Plan Year may not exceed the lesser of 25% of the participant's (S)415
Compensation for the Plan Year or $30,000 (adjusted for increases in the cost of
living as permitted by the Code). A participant's (S)415 Compensation is a
participant's Compensation, excluding any Employer contribution to the Plan or
to any other plan
5
<PAGE>
of deferred compensation or any distributions from a plan of deferred
compensation. In addition, annual additions shall be limited to the extent
necessary to prevent the limitations set forth in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by the
Bank from being exceeded.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the percentage of elective deferrals made on behalf of a
Participant who is a Highly Compensated Employee shall be limited so that the
Average Actual Deferral Percentage for the group of such Highly Compensated
Employees for the Plan Year does not exceed the greater of (i) the Average
Actual Deferral Percentage for the group of eligible Employees who are Non-
Highly Compensated Employees for the Plan Year multiplied by 1.25; or (ii) the
Average Actual Deferral Percentage for the group of eligible Employees who are
Non-Highly Compensated Employees for the Plan Year, multiplied by two (2);
provided that the difference in the Average Actual Deferral Percentage for
eligible Non-Highly Compensated Employees does not exceed two percent (2%). Use
of this alternative limitation shall be subject to the provisions of Income Tax
Regulations Section 1.401(m)-2 regarding the multiple use of the alternative
deferral test set forth in Sections 401(k) and 401(m) of the Code.
In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so elects, was in the top 20% of employees by
compensation for such year. The dollar amounts in the foregoing sentence are
for 1998. Such amounts are adjusted annually to reflect increases in the cost
of living.
In addition, the compensation of an employee who is a family member of a
5% owner, or one of the ten most highly compensated employees during the
relevant period is aggregated with that of the Highly Compensated Employee. All
such family members are treated as a single employee with respect to the
application of the limitations on Highly Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
---------------------------
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions
6
<PAGE>
would apply with respect to the combination of annual additions to the Plan and
projected annual benefits under any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of participants who are Key Employees (as defined below) exceeds
60% of the aggregate balance of the Accounts of all participants. Key Employees
generally include any employee who, at any time during the Plan Year or any of
the four preceding Plan Years, is (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in the Bank,
(3) a 5% owner of the Bank, (i.e., owns directly or indirectly more than 5% of
the stock of the Bank, or stock possessing more than 5% of the total combined
voting power of all stock of the Bank) or (4) a 1% owner of the Bank having
annual compensation in excess of $150,000. The dollar amounts in the foregoing
sentence are for 1998.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Directors.
Prior to [INSERT DATE OF PROSPECTUS HERE], the Accounts of a Participant
held in the Trust have been invested by the Trustee at the direction of the
Participant in the following funds:
MONEY MARKET ACCOUNT: This Account seeks to maximize current income while
preserving capital and liquidity. The Account intends to maintain a consistent
net cash value of $1.00 per share. The objective of the Account is to
consistently out-perform the Donoghue Money Fund Average. The Account is
managed by the Savings Bank Employees Retirement Association.
ASSET ALLOCATION ACCOUNT: This Account seeks to offer a competitive long-
term total return and below-average volatility through a balanced and
diversified investment approach. The Account invests in a carefully selected
portfolio of mutual funds that emphasizes either equity, fixed income, or money
market securities, both foreign and domestic. The Asset Allocation Account is
managed by Putnam Investments.
EQUITY ACCOUNT: This Account seeks long-term growth of capital and income
by investing in common stocks of domestic and foreign companies. This account
is managed by five investment advisors selected by the Board of Trustees of the
Savings Bank Employees Retirement Association.
BOND ACCOUNT: This Account's objective is to produce a positive real rate
of return after inflation with a high degree of stability and limited
volatility. The entire portfolio will be invested in United States Treasury
obligations, Government National Mortgage Association mortgage-backed
certificates, other United States Agency obligations and cash equivalents. The
7
<PAGE>
goal of the Account is to exceed the returns of the Lehman Brothers Mortgage
Backed securities Index. The Account is managed by Putnam Investment
Management.
ENHANCED INDEX ACCOUNT: This Account is a domestic common stock portfolio.
The goal of the account is to consistently provide excess returns over the
Standard & Poor's 500 Index. The account seeks to control risk by maintaining
portfolio characteristics and industry weights similar to those of the S&P 500
Index. This account is managed by the Fidelity Management Trust Company.
INDEX 500 ACCOUNT: This Account attempts to provide investment results that
parallel the performance of the Standard & Poor's 500 Composite Stock Price
Index. The portfolio holds all of the 500 underlying securities in proportion
to their weighting in the Index. Given this objective, the account is expected
to provide investors with long-term growth of capital and income. This account
is administered by the Vanguard Group.
INTERNATIONAL EQUITY ACCOUNT: This Account's objective is to obtain long-
term growth through a diversified portfolio of marketable equity securities of
foreign companies. The performance objective is to outperform the Morgan
Stanley Capital International EAFE (Europe, Australia, Far East) Index in U.S.
dollars over a market cycle. This account is managed by Putnam International
Equity Management.
SMALL CAP EQUITY ACCOUNT: This Account's investment objective is capital
appreciation. The account is designed for participants willing to assume above-
average risk in exchange for above-average capital potential. The account
invests primarily in common stocks of small to medium-sized companies that the
account's investment advisor believes have potential for capital appreciation
significantly greater than the market average. The account is administered by
Putnam Investment Management.
The Plan, as amended, will provide that in addition to the Accounts
specified above, a Participant who is employed by the Bank may direct the
Trustee to invest all or a portion of his Account balance in the Employer Stock
Fund.
On the first day of any calendar quarter a Participant may elect (in
increments of 1%), to have both past and future contributions and additions to
his Accounts invested in the Employer Stock Fund. These elections will be
effective as of the last day of the calendar quarter for which the election is
made, provided that written notice is filed with the administrator at least 15
days before it is to become effective. Any amounts credited to a Participant's
Account for which investment directions are not given will be invested in the
Money Market Account in accordance with the terms of the Plan.
8
<PAGE>
A. Previous Funds.
--------------
Prior to the Conversion, contributions under the Plan were invested in the
Funds specified below. The annual percentage return on these funds for the
prior three years was:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------
<S> <C> <C> <C>
a. Money Market Account 5.45% 5.43% 5.83%
b. Asset Allocation Account 14.57 12.17 28.92
c. Equity Account 21.99 21.09 29.49
d. Bond Account 8.79 5.10 16.28
e. Enhanced Index Account 29.03 22.51 39.47(1)
f. Index 500 Account 33.28 22.91 37.41
g. International Equity Account 12.61 15.43 4.85
h. Small Cap Equity Account 17.20 28.72 38.18
</TABLE>
__________________
(1) Fidelity Select Equity Account
B. The Employer Stock Fund.
----------------------------
The Employer Stock Fund will consist of investments in Common Stock made on
and after the effective date of the Conversion. After the Conversion, the
Trustee will, to the extent practicable, use all amounts held by it in the
Employer Stock Fund, including cash dividends paid on Common Stock held in the
Employer Stock Fund, to purchase shares of Common Stock of the Company. It is
expected that all purchases will be made at prevailing market prices. Under
certain circumstances, the Trustee may be required to limit the daily volume of
shares purchased. Pending investment in Common Stock, assets held in the
Employer Stock Fund will be placed in the Money Market Account.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is not established market
for the Common Stock. Accordingly, there is no record of the historical
performance of the Employer Stock Fund. Performance will be dependent upon a
number of factors, including the financial condition and profitability of the
Company and the Bank and market conditions for the Common Stock generally.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS IN
INVESTMENTS IN THE COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
9
<PAGE>
VI. BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Account under the Plan.
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. Plan participants may take
----------------------------------------------
in-service distributions under limited circumstances in the form of hardship
distributions and Plan loans. Participants can apply for Plan loans through the
Human Resources Department by completing a Loan Application which is filed with
the Plan Administrator for processing. All Plan loans are repaid by payroll
withholding and no Participant can have more than one loan outstanding at a
time. Participants can apply for a minimum of $1,000 and a maximum of the
lesser of $50,000 or 50% of a Participant's total vested Account balance.
Participants may also be eligible for hardship withdrawals. In order to qualify
for a hardship withdrawal, a Participant must have an immediate and substantial
need to meet certain expenses and have no other reasonably available resources
to meet the financial need. If a Participant qualifies for a hardship
distribution, the distribution will be made, pro rata, from the Investment Funds
in which a participant has invested his or her Account balances. Participants
may not make more than one hardship withdrawal in any calendar year.
Distribution Upon Retirement or Disability. Unless an optional form of
------------------------------------------
benefit has been elected, the automatic form of benefit payable to a Participant
who retires, incurs a disability, or otherwise terminates employment shall be a
life annuity (for married participants, a qualified joint and survivor annuity).
A Participant may elect to receive a lump sum payment; however, if the
Participant is married, spousal consent is required.
Distribution Upon Death. A Participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment shall
have his or her benefits paid to the surviving spouse or beneficiary under one
or more of the forms available under the Plan.
Distribution Upon Termination for Any Other Reason. Distribution of
--------------------------------------------------
benefits to a Participant who terminates employment for any reason other than
retirement, disability or death whose account balance exceeds $5,000 will be
made on the Participant's normal retirement date unless the Participant requests
otherwise. Distribution of benefits to Participants whose account balances do
not exceed $5,000 will be made as soon as administratively practicable following
termination of employment but shall be made on the occurrence of an event which
would result in a distribution had the Participant remained in the employ of the
Bank (i.e., upon the Participant's death, disability, or attainment of early or
normal retirement age). Alternatively, at the Participant's election, a
Participant may receive a distribution of his account after he ceases to be an
employee.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits
10
<PAGE>
payable under the Plan shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either voluntary or involuntary,
and any attempt to anticipate, alienate, sell, transfer, assign, pledge,
encumber, charge or otherwise dispose of any rights to benefits payable under
the Plan shall be void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustee is appointed by the Board of Trustees of the Bank to
--------
serve at its pleasure. The Savings Bank Employees Retirement Association
("SBERA") has been appointed as trustee of the Employer Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The Trustee
is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Plan Administrator will furnish to each participant a statement at
least quarterly showing (i) the balance in the participant's Account as of the
end of that period, (ii) the amount of contributions allocated to such
participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Currently, the Plan Administrator is Thomas Forese, Jr., SBERA, One
Linscott Road, Woburn, Massachusetts 01801, (781) 938-3500. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
participants, Beneficiaries and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully
11
<PAGE>
vested interest in his Accounts. The Bank reserves the right to make, from time
to time, any amendment or amendments to the Plan which do not cause any part of
the Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of participants or their beneficiaries; provided, however, that the Bank
may make any amendment it determines necessary or desirable, with or without
retroactive effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following: (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code. Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code. Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to
12
<PAGE>
another qualified retirement plan, and the Bank may be denied certain deductions
taken with respect to the Plan.
Lump Sum Distribution. A distribution from the Plan to a participant or
---------------------
the beneficiary of a participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the participant or beneficiary; (ii) on
account of the participant's death, disability or separation from service, or
after the participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a participant who has completed at least five (5) years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
participant's death (regardless of the period of the participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the participant or beneficiary, provided such amount is received on or after
the participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
The Common Stock Included in Lump Sum Distribution. If a Lump Sum
--------------------------------------------------
Distribution includes the Common Stock, the distribution generally will be taxed
in the manner described above, except that the total taxable amount will be
reduced by the amount of any net unrealized appreciation with respect to such,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of
such Common Stock, to the extent of the amount of net unrealized appreciation at
the time of distribution, will be considered long-term capital gain regardless
of the holding period of such Common Stock. Any gain on a subsequent sale or
other taxable disposition of the
13
<PAGE>
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered long-term capital gain regardless of the
holding period of the Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term, mid-term or long-term capital gain depending upon the length of the
holding period of the Common Stock. The recipient of a distribution may elect to
include the amount of any net unrealized appreciation in the total taxable
amount of such distribution to the extent allowed by the regulations to be
issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. Pursuant to a change in the law, effective January 1, 1993, virtually
- ----------
all distributions from the Plan may be rolled over to another qualified Plan or
to an individual retirement account ("IRA") without regard to whether the
distribution is a Lump Sum Distribution or a Partial Distribution. Effective
January 1, 1993, participants have the right to elect to have the Trustee
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan or to an IRA, the distribution
will be subject to an mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the participant or the joint
lines of the participant and his or her designated beneficiary, or (b) for a
specified period of ten years or more; (2) any amount that is required to be
distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of ERISA and will
be submitted to the IRS for a determination that it is qualified under Section
401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities
14
<PAGE>
Act of 1933, as amended (the "Securities Act") (e.g., directors, officers and
substantial shareholders of the Bank) may reoffer or resell such shares only
pursuant to a registration statement filed under the Securities Act assuming the
availability thereof, pursuant to Rule 144 or some other exemption of the
registration requirements of the Securities Act. Any person who may be an
"affiliate" of the Bank may wish to consult with counsel before transferring any
Common Stock owned by him. In addition, participants are advised to consult with
counsel as to the applicability of Section 16 of the 1934 Act which may restrict
the sale of Common Stock where acquired under the Plan, or other sales of Common
Stock.
Persons who are not deemed to be "affiliates" of the Bank at the time of
---
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person
who may be deemed an "affiliate" of the Bank at the time of a proposed resale
will be permitted to make public resales of the Bank's Common Stock only
pursuant to a "reoffer" Prospectus or in accordance with the restrictions and
conditions contained in Rule 144 under the Securities Act or some other
exemption from registration, and will not be permitted to use this Prospectus in
connection with any such resale. In general, the amount of the Bank's Common
Stock which any such affiliate may publicly resell pursuant to Rule 144 in any
three-month period may not exceed the greater of one percent of the Bank's
Common Stock then outstanding or the average weekly trading volume reported on
the National Association of Securities Dealers Automated Quotation System during
the four calendar weeks prior to the sale. Such sales may be made only through
brokers without solicitation and only at a time when the Bank is current in
filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Bank's fiscal year. Participation in the Employer Stock Fund
of the Plan by officers, directors and persons beneficially owning more than ten
percent of Common Stock of the Holding Company must be reported to the SEC
annually on a Form 5 by such individuals.
15
<PAGE>
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Common Stock ("Section 16(b) Persons") resulting from the
purchase and sale or sale and purchase of the Common Stock within any six-month
period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of the Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of the Common Stock
distributed from the Plan for six months following such distribution.
FINANCIAL INFORMATION REGARDING PLAN ASSETS
The financial statements and schedules of the Plan as of October 31, 1997
and 1996 and for the years then ended have been included herein.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Conversion.
16
<PAGE>
WORONOCO SAVINGS BANK
401(K) PLAN FINANCIALS (AS REPORTED
ON THE PLAN'S FORM 5500)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
31,
----------------------
1997 1996
----------------------
<S> <C> <C>
ASSETS:
Cash............................................................ -- --
Receivables..................................................... -- --
Investments:
U.S. Government securities.................................... -- --
Corporate debt and equity instruments......................... -- --
Real estate and mortgages (other than to participants)........ -- --
Loans to participants:
Mortgages................................................... -- --
Other....................................................... $ 4,552 $ 1,108
Other......................................................... 524,593 311,766
-------- --------
Total investments........................................... 529,145 312,874
Buildings and other property used in plan operations............ -- --
Other assets.................................................... -- --
-------- --------
Total assets.................................................. 529,145 312,874
LIABILITIES:
Payables........................................................ -- --
Acquisition indebtedness........................................ -- --
Other liabilities............................................... -- --
-------- --------
Total liabilities............................................... -- --
-------- --------
Net assets...................................................... 529,145 312,874
INCOME:
Contributions received or receivable in cash from:
Employer(s)................................................... -- --
Employees..................................................... -- --
Other......................................................... -- --
-------- --------
Total....................................................... -- --
Noncash contributions........................................... 184,869 162,798
Earnings from investments....................................... -- --
Net realized gain (loss) on sale or exchange of assets.......... -- --
Other income.................................................... 68,195 33,002
-------- --------
Total income.................................................. 253,064 195,800
EXPENSES:
Distribution of benefits and payments to provide benefits:
Directly to participants or their beneficiaries............... -- --
Other......................................................... -- --
-------- --------
Total distribution of benefits and payments to provide benefits 36,793 28,443
Administrative expense.......................................... -- --
Other expenses.................................................. -- --
-------- --------
Total expenses................................................ 36,793 28,443
-------- --------
Net income (loss)........................................... $216,271 $167,357
</TABLE>
17
<PAGE>
WORONOCO SAVINGS BANK
401(K) PLAN
Contribution and Investment Form
--------------------------------
Name of Plan participant: ________________________________
Social Security Number: ________________________________
1. INSTRUCTIONS. In connection with the proposed Conversion, the Woronoco
------------
Savings Bank 401(k) Plan ("Plan") has been amended to permit participants to
direct their current account balances into a new fund: the Employer Stock Fund.
The percentage of a Participant's Account transferred at the direction of the
Participant into the Employer Stock Fund will be used to purchase shares of
common stock of Woronoco Bancorp, Inc. (the "Common Stock").
To direct a transfer of all or a part of the funds credited to your accounts
to the Employer Stock Fund, you should complete and file this form with the
Human Resources Department, no later than 10 days prior to the expiration date
of the Offering (_____________, 1999.) A representative for the Plan
Administrator will retain a copy of this form and return a copy to you. If you
need any assistance in completing this form, please contact _____________ at
______________. If you do not complete and return this form to the Plan
Administrator by ____________, the funds credited to your accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Plan if no investment
direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
1%) of my accounts in the Employer Stock Fund:
<TABLE>
<S> <C> <C>
a. Money Market Account _______%
b. Equity Account _______%
c. Bond Account _______%
d. Asset Allocation Account _______%
e. Index 500 Account _______%
f. Enhanced Index Account _______%
g. Small Cap Equity Account _______%
h. International Equity Account _______%
</TABLE>
NOTE: The total percentage of directed investments, above, may not exceed 100%
at my account balance.
3. PURCHASER INFORMATION. The ability of participants in the Plan to
purchase Common Stock in the Conversion and to direct their current account
balances into the Employer Stock Fund is based upon the participant's status as
an Eligible Account Holder or Supplemental Eligible Account Holder. Please
indicate your status.
a. [_] Eligible Account Holder - Check here if you were a depositor with
$50.00 or more on deposit with Woronoco Savings Bank, July 31, 1997.
b. [_] Supplemental Eligible Account Holder - Check here if you were a
depositor with $50.00 or more on deposit with Woronoco Savings Bank
as of June 30, 1998, but are not an Eligible Account Holder.
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Contribution and
Investment Form shall be subject to all of the terms and conditions of the Plan.
I acknowledge that I have received a copy of the Prospectus and the Prospectus
Supplement.
- ------------------------------- -----------------
Signature of Participant Date
<PAGE>
- ---------------------------------
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
- ------------------------------- -----------------
By:______________ Date
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE NOT
DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK. THE
COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
WORONOCO BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR WORONOCO SAVINGS BANK)
__________ SHARES OF COMMON STOCK
Woronoco Bancorp, Inc. (the "Company"), a Delaware corporation, is offering
for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, $0.01 par value (the "Common Stock"), to be issued upon the conversion of
Woronoco Savings Bank, Westfield, Massachusetts (the "Bank") from a
Massachusetts chartered mutual savings bank to a Massachusetts chartered stock
savings bank and the issuance of the Bank's outstanding capital stock to the
Company pursuant to a plan of conversion (the "Plan of Conversion"). The
remaining __________ shares of the Common Stock have been subscribed for in
subscription and community offerings (the "Subscription and Direct Community
Offerings") by the Bank's holders of deposit accounts with the Bank with a
balance of $50 or more as of July 31, 1997 ("Eligible Account Holders"), by
holders of deposit accounts with a balance of $50 or more as of June 30, 1998
("Supplemental Eligible Account Holders"), by the Woronoco Savings Bank Employee
Stock Ownership Plan, a tax-qualified employee benefit plan, and related trust
(the "ESOP"), by trustees, corporators, directors, officers and employees of the
Bank and the Company who are not entitled to a higher priority subscription
right, and then by certain members of the general public. See "The Conversion -
General." Contained herein is the Prospectus in the form used in the
Subscription and Direct Community Offerings. The purchase price for all shares
purchased in the Syndicated Community Offering will be the same as the price
paid by subscribers in the Subscription and Direct Community Offerings (the
"Purchase Price"). The Purchase Price of $10.00 per share is the amount to be
paid for each share at the time a purchase order is submitted. See the cover
page of the Prospectus and the table below for information as to the method by
which the range within which the number of shares offered may vary and the
method of subscribing for shares of the Common Stock. For a discussion of
certain factors that should be considered by each prospective investor, see
"Risk Factors" on pages ___ through ___.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1999, unless extended by the Bank and the Company
with the approval of the Commissioner of the Massachusetts Division of Banks and
the Federal Deposit Insurance Corporation, if necessary. Such extensions may
not go beyond August 26, 2000. If an extension of time has been granted, all
subscribers will be notified of such extension, and of their rights to confirm
their subscriptions, or to modify or rescind their subscriptions and have their
funds returned promptly with interest, and of the time period within which the
subscriber must notify the Bank of his intention to confirm, modify or rescind
his subscription. If an affirmative response to any resolicitation is not
received by the Bank and the
<PAGE>
Company from subscribers, such orders will be rescinded and all funds will be
returned promptly with interest. The minimum number of shares which may be
purchased is 25 shares. Except for the ESOP, which may purchase up to 8% of the
total number of shares of Common Stock issued in the Conversion, no person,
together with associates of and persons acting in concert with such person, may
purchase in the Direct Community Offering and the Syndicated Community Offering
more than the total number of shares offered that could be purchased for
$200,000 at the Purchase Price; provided, however, that shares of Common Stock
purchased in the Community Offering by any persons, together with associates of
and persons acting in concert with such persons, will be aggregated with
purchases in the Syndicated Community Offering and be subject to an overall
maximum purchase limitation of 1.0% of the shares offered. See "The Conversion -
Subscription Offering" and "Subscription Rights," "Syndicated Community
Offering" and "Limitations on Common Stock Purchases." The Company reserves the
right, in its absolute discretion, to accept or reject, in whole or in part, any
or all subscriptions in the Syndicated Community Offering.
The Company and the Bank have engaged Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") to assist them in the sale of the Common Stock in the
Syndicated Community Offering. It is anticipated that Sandler O'Neill will use
the services of other registered broker-dealers ("Selected Dealers") and that
fees to Sandler O'Neill and such Selected Dealers will be an amount not to
exceed 5% of the aggregate Purchase Price of the shares sold in the Syndicated
Community Offering. Neither Sandler O'Neill nor any Selected Dealer shall have
any obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
The Company has applied to have its Common Stock listed on the American
Stock Exchange under the symbol "______." Prior to this Offering, there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop, or that the
Common Stock will trade at or above the Purchase Price. The absence or
discontinuance of a market may have an adverse impact on both the price and
liquidity of the stock.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGES ___ THROUGH ___.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE MASSACHUSETTS DIVISION OF BANKS, THE FEDERAL DEPOSIT
INSURANCE CORPORATION , THE MUTUAL SAVINGS CENTRAL FUND OR ANY STATE SECURITIES
COMMISSION, OR ANY OTHER AGENCY, NOR HAS SUCH COMMISSION, OFFICE, CORPORATION OR
ANY STATE SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE
2
<PAGE>
DEPOSIT INSURANCE FUND OF THE MUTUAL SAVINGS CENTRAL FUND OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Direct
Syndicated and Other Syndicated Community
Community Fees and Community and Syndicated
Offering Price Expenses Offering Community
Offerings
=============================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- ---------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- ---------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- ---------------------------------------------------------------------------------------------
Total Minimum $ $ $ $
- ---------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- ---------------------------------------------------------------------------------------------
Total Maximum $ $ $ $
- ---------------------------------------------------------------------------------------------
Total Maximum, As Adjusted $ $ $ $
=============================================================================================
</TABLE>
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1999.
3
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
Woronoco Bancorp, Inc.
(Proposed Holding Company for
Woronoco Savings Bank)
Up to 5,554,500 Shares of Common Stock
(Anticipated Maximum, as Adjusted)
This offering is made as part of the plan of conversion of Woronoco Savings
Bank, Westfield, Massachusetts, from a mutual to a stock savings bank. In this
conversion, the Bank will become a wholly-owned subsidiary of Woronoco Bancorp,
Inc., a Delaware corporation. No shares will be sold if the minimum number of
shares are not sold or if the necessary approvals from banking regulatory
authorities and the corporators of the Bank are not received.
There is currently no public market for the common stock. The Company has
received conditional approval for the common stock to be listed on the American
Stock Exchange, under the symbol "_____", upon completion of the conversion.
The shares of common stock are being offered in a Subscription Offering to
persons who have specified priorities of subscription rights based on their
relationship with the Bank. In order to purchase shares pursuant to a
subscription right, you must submit a properly completed stock order and
certification form, together with payment for the shares, to the Bank prior to
the expiration date, 12:00 noon, Eastern time, on _______________, 1999, unless
extended.
To the extent sufficient shares to complete the conversion are not sold in
the Subscription Offering, the remaining shares will be offered for sale in a
Community Offering and, if necessary, a Syndicated Community Offering or other
offering. The Community Offering may be commenced prior to the completion of
the Subscription Offering.
<TABLE>
<CAPTION> Maximum,
Minimum as adjusted
3,570,000 5,554,500
Per Share Shares Shares
-------------- ---------------- ---------------
<S> <C> <C> <C>
Public offering price....................... $10.00 $35,700,000 $55,545,000
Estimated underwriting commissions
and other expenses....................... $1,261,000 $1,488,000
Estimated proceeds to Company............... $34,439,000 $54,057,000
</TABLE>
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page __.
These shares of common stock have not been approved or disapproved by the
Securities and Exchange Commission, the Massachusetts Division of Banks, the
Federal Deposit Insurance Corporation, the Mutual Savings Central Fund or any
other federal or state agency, nor has such commission, division, corporation or
other agency passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is unlawful.
The shares of common stock are not savings accounts or deposits and are not
insured or guaranteed by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund, the Deposit Insurance Fund, the Savings Association Insurance
Fund or any other government agency nor are they insured or guaranteed by the
Bank or the Company. The Common Stock is subject to investment risk, including
the possible loss of principal invested.
Sandler O'Neill & Partners, L.P. has agreed to assist the Company in
selling the shares, but does not guarantee that at least the minimum number of
shares will be sold.
------------------------------------
Sandler O'Neill & Partners, L.P.
------------------------------------
The date of this Prospectus is __________, 1999.
<PAGE>
INSERT MAP PAGE HERE
2
<PAGE>
SUMMARY
. This summary highlights selected information in this Prospectus but does
not contain all of the information that you need to know before making an
informed investment decision. To understand the stock offering fully, you
should read carefully this entire Prospectus, including the consolidated
financial statements and the notes to the consolidated financial statements
of Woronoco Savings Bank.
. References in this document to the "Bank" refer to Woronoco Savings Bank,
and references to the "Company" refer to Woronoco Bancorp, Inc. References
in this document to "we," "us" and "our" refer to the Bank. In certain
circumstances, where appropriate, "we" "us" or "our" refer collectively to
the Bank and the Company.
Woronoco Bancorp, Inc. ..... Woronoco Bancorp, Inc. was recently formed to
become the holding company of the Bank upon
completion of the Bank's conversion to stock
form. To date, the Company has not engaged in any
business.
The Company's office is located at 31 Court
Street, Westfield, Massachusetts 01085, and its
telephone number is (413) 568-9141. The Bank's
executive office has the same address and phone
number.
Woronoco Savings Bank ...... The Bank is a Massachusetts mutual savings bank.
At August 31, 1998, the Bank had total assets of
$366.2 million, total deposits of $273.6 million
and total surplus of $33.4 million.
We operate 11 banking offices in Hampden and
Hampshire Counties in western Massachusetts. We
historically have operated as a community-
oriented banking institution primarily offering
one- to four-family residential mortgage loans
and consumer loans and a variety of retail
deposit products.
The Conversion ............. We have adopted a Plan of Conversion, as amended
(the "Plan"), which is subject to requirements of
the Commissioner of the Massachusetts Division of
Banks (the "Commissioner") and the Federal
Deposit Insurance Corporation ("FDIC"). The
conversion, which is referred to as the
"Conversion," is governed by the Plan and has
three major components:
(1) The Bank converting to stock form;
(2) The Company acquiring all of the outstanding
capital stock of the Bank; and
(3) The Company selling shares of its common
stock.
Currently, corporators of the Bank possess all
voting rights in the Bank, including the election
of members to the Bank's Board of Trustees. Upon
Conversion, corporators will cease to exist and
will no longer be entitled to vote at meetings of
the Bank. The Company, as sole stockholder of the
Bank, will possess all voting rights of the Bank.
Voting rights of the Company will be vested in
the holders of the Company's common stock.
3
<PAGE>
Woronoco Savings Charitable
Foundation .................. We intend to establish a charitable foundation,
the Woronoco Savings Charitable Foundation, or
the "Foundation." The Company intends to
contribute to the Foundation shares of its
common stock equal to 8% of the common stock
sold in the Conversion. The authority for the
affairs of the Foundation will be vested in its
Board of Directors. The Board of Directors will
consist of persons who are existing trustees,
directors or officers of the Company or the
Bank. All shares held by the Foundation are
expected to be voted on a pro rata basis in
accordance with all other shares of outstanding
common stock.
Terms of the Offering ........ The Company is offering shares of common stock
at a fixed price of $10.00 per share in the
Subscription Offering pursuant to subscription
rights in the following order of priority:
(1) Eligible Account Holders in the Bank as of
July 31, 1997;
(2) Supplemental Eligible Account Holders in
the Bank as of June 30, 1998 who are not
entitled to a first priority subscription
right;
(3) the Woronoco Savings Bank Employee Stock
Ownership Plan (the "ESOP"); and
(4) Trustees, corporators, directors, officers
and employees of the Bank and the Company
who are not entitled to a higher priority
subscription right. See "The Conversion --
Subscription Offering and Subscription
Rights" for the complete qualifications of
each of the Subscription priorities.
Shares of common stock not subscribed for in the
Subscription Offering will be offered to certain
members of the general public in a Community
Offering and, if necessary, a Syndicated
Community Offering or other offering.
Expiration Date of
Subscription Offering ....... Subscription rights will expire if not
exercised. All orders to purchase common stock
in the Subscription Offering must be physically
received at one of our banking offices by 12:00
noon, Eastern time, on ________, 1999, unless
extended, which is the "Expiration Date."
Nontransferability of
Subscription Rights ......... The subscription rights are not transferable.
Certificates representing shares of common stock
purchased in the Subscription Offering must be
registered in the name of the Eligible Account
Holder or the Supplemental Eligible Account
Holder, as the case may be. Joint stock
registration will be allowed only if the
qualifying deposit account is in the name of
both parties.
Number of Shares Offered ..... The Company is offering between a minimum of
3,570,000 shares and a maximum of 4,830,000
shares of common stock, or up to an adjusted
maximum of 5,554,500 shares if the maximum
number of shares is increased.
The number of shares offered is based upon an
independent appraisal prepared by Keller & Co.,
Inc. ("Keller") dated as of October 23, 1998,
which estimates that the aggregate pro forma
market value of the common stock to be sold in
the Conversion ranges from $35.7 million to
$48.3 million. (This range is referred to as the
"Estimated Price Range".) Keller is an
independent appraisal
4
<PAGE>
firm experienced in appraisals of savings
institutions. Establishing the Foundation in
connection with the Conversion results in a
lower aggregate estimated pro forma market value
than if the Conversion were completed without
the Foundation.
Keller will update the appraisal before the
completion of the Conversion. The final
aggregate estimated pro forma market value of
the common stock to be sold in the Conversion
will be determined at the close of the
Subscription Offering, or if all shares are not
sold in the Subscription Offering, the close of
the Community Offering or other subsequent
offering. The estimated aggregate pro forma
market value may change due to changes in market
and general financial and economic conditions.
For its services, Keller will receive a fee of
$31,000.
If the aggregate estimated pro forma market
value of the common stock to be sold in the
Conversion is increased, then the maximum number
of shares to be sold may also be increased up to
the adjusted maximum.
How Do I Order Stock? ........ If you are entitled to a subscription right,
you may order shares in the Subscription
Offering by delivering to us a properly executed
stock order and certification form along with
full payment for the shares ordered. Your stock
order and certification form must be received by
us on or before the Expiration Date, which is
_________, 1999. Once we receive your
subscription order it cannot be revoked or
modified without our consent. Please make sure
that you review the Prospectus carefully prior
to submitting an order. All stock order and
certification forms must be accompanied or
preceded by a Prospectus. To ensure that each
purchaser receives a Prospectus at least 48
hours prior to the Expiration Date, in
accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"), we
will not mail a Prospectus any later than five
days before the Expiration Date or hand deliver
a Prospectus any later than two days before the
Expiration Date. We are not obligated to accept
subscription orders submitted without an
original stock order and certification form.
If you want to order shares offered in the
Community Offering, you must submit a properly
executed stock order and certification form
before the expiration date to be set for the
Community Offering.
Form of Payment for Shares ... Payment for subscriptions may be made:
(1) in cash (if delivered in person at any
full-service banking office of the Bank);
(2) by check, bank draft or money order; or
(3) by authorization of withdrawal from deposit
accounts maintained at the Bank.
Number of Shares that may
be Ordered ................. Minimum: 25 shares ($250)
Maximum:
. No Eligible Account Holder, Supplemental
Eligible Account Holder or trustee,
corporator, director, officer or employee
may, in their respective
5
<PAGE>
capacities, purchase in the Subscription
Offering more than $200,000 of common stock.
. No person, together with associates or
persons acting in concert with such person,
may purchase in the Direct Community Offering
more than $200,000 of common stock.
. No person, together with associates or
persons acting in concert with such person,
may purchase in the aggregate more than 1% of
the common stock sold in the Conversion,
exclusive of any increase in the maximum of
the Estimated Price Range. However, an 8%
limit is applicable to purchases in the
Conversion by tax-qualified employee benefit
plans, such as the ESOP.
Use of Proceeds ............. The Company will use 50% of the net proceeds
from the sale of the common stock to purchase all
of the Bank's common stock issued in the
Conversion. The Company will use the rest of the
net proceeds for general business activities,
including the formation and capitalization of a
wholly-owned subsidiary of the Company, organized
under Massachusetts law, (the "ESOP Loan
Subsidiary"), which subsidiary intends to loan
funds to the ESOP to enable the ESOP to purchase
up to 8% of the common stock issued in the
Conversion, including shares issued to the
Foundation. The Company will initially invest the
remaining net proceeds in short- to intermediate-
term investment-grade securities. The Bank will
use the net proceeds that it receives from the
sale of its common stock to the Company for
general business purposes, including investment
in loans and, to a lesser extent, investment-
grade securities and the possible repayment of
Federal Home Loan Bank ("FHLB") of Boston
borrowings.
Dividend Policy ............. Upon conversion, the Board of Directors of the
Company will have the authority to declare
dividends on the Common Stock, subject to
statutory and regulatory requirements. However,
no decisions have been made at this time
concerning the payment of dividends.
Benefits of the Conversion to
Management ................. One of the advantages anticipated from the
Conversion will be the ability to attract and
retain quality personnel through the use of stock
related benefit programs. We intend to establish
the ESOP, which will purchase common stock equal
to 8% of the shares issued in the Conversion,
including shares issued to the Foundation. The
ESOP will be a tax qualified retirement benefit
for all eligible employees. It is anticipated
that the common stock purchased by the ESOP in
the Conversion will be allocated as required
under Internal Revenue Code standards to eligible
employees over an approximate 12 year period.
A second advantage anticipated from the
Conversion is that, after the Conversion, the
Company intends to adopt a stock-based incentive
plan for the benefit of directors, officers and
employees. If the stock-based incentive plan is
adopted within one year after the Conversion, it
will be required to be approved by stockholders
at a meeting which may not be held earlier than
six months after the Conversion, and any awards
or options granted under the plan would have to
vest at least on a pro rata basis over a five
year period.
6
<PAGE>
The following table presents information
regarding the aggregate of the shares of common
stock, at the maximum of the Estimated Price
Range, which would be acquired by the ESOP and
allocated over an anticipated 12 year period to
all eligible employees and the aggregate of all
shares available for award and issuance upon the
adoption of the stock-based incentive plan:
<TABLE>
<CAPTION>
Percentage of Shares
Estimated Issued, Including Shares
Value of Shares(1) Issued to the Foundation
-------------------- --------------------------
<S> <C> <C>
Employee Stock Ownership Plan ...... $4,173,120 8.0%
Stock-Based Incentive Plan:
Stock Awards(2) .................. 2,086,560 4.0
Stock Options(3) ................. -- 10.0
---------- ----
Total .......................... $6,259,680 22.0%
========== ====
</TABLE>
----------------------
(1) Assumes that shares are valued at $10.00 per share.
(2) Common stock awarded under the stock-based
incentive plan will be awarded at no cost to the
recipients.
(3) Stock options will be granted with an exercise
price equal to the fair market value of the common
stock on the day of grant. Recipients of stock
options realize value only in the event of an
increase in the price of the common stock of the
Company following the date of grant of the stock
options.
Additionally, some of our employees will receive
employment agreements or change in control
agreements which could provide those employees with
cash payments upon their termination of employment
under certain circumstances including following a
change in control of the Company or the Bank. The
stock-based incentive plan may also provide
participants with benefits upon a change in
control.
Voting Control of Trustees,
Directors and Officers ... Our trustees, directors and executive officers
intend to purchase an aggregate of approximately
0.98% of the shares of common stock sold in the
Conversion assuming that shares are sold at the
maximum of the Estimated Price Range. If the ESOP
is implemented and the stock-based incentive plan
and all stock awards and stock options available
under the stock-based incentive plan are granted
and all such options exercised, then our trustees,
directors, officers and employees, in the
aggregate, could vote shares of common stock equal
to 22.1% of the shares of common stock being issued
in the Conversion, on a fully diluted basis,
including shares issued to the Foundation.
No Board Recommendations .. Our Boards make no recommendation to you regarding
whether you should purchase the common stock. An
investment in the common stock must be made
pursuant to an evaluation of your best interests
and financial capabilities.
Conversion Center ......... If you have any questions regarding the Conversion,
please call the Conversion Center at (413) ___-___.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
The selected consolidated financial and other data of the Bank set
forth below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Bank and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At
August
31, At December 31,
---------- ----------------------------------------------------
1998(1) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets ........................... $366,218 $341,909 $316,708 $275,405 $266,325 $236,174
Cash and cash equivalents .............. 12,923 11,686 10,469 12,320 9,627 21,513
Loans, net ............................. 265,564 261,723 234,135 200,189 186,781 172,133
Debt securities (2):
Available-for-sale .................. -- -- 250 6,205 -- --
Held-to-maturity/held-for-investment -- -- -- -- 7,461 12,125
Mortgage-backed securities, net (2):
Available-for-sale .................. 52,796 39,913 47,531 35,561 -- --
Held-to-maturity/held-for-investment -- -- -- -- 42,756 13,223
Equity securities(2):
Available-for-sale .................. 18,686 15,727 13,845 12,271 11,425 --
Held-for-investment ................. -- -- -- -- -- 9,826
Deposits ............................... 273,567 262,679 248,982 231,689 218,856 207,081
FHLB advances .......................... 54,792 41,726 35,441 14,472 22,000 5,000
Total surplus .......................... 33,377 33,332 29,074 26,221 22,261 20,733
Real estate owned, net ................. 335 381 423 641 955 1,126
Nonperforming assets and
troubled debt restructurings ........ 1,197 1,540 675 3,154 3,476 4,348
</TABLE>
<TABLE>
<CAPTION>
For the Eight
Months Ended
August 31, For the Year Ended December 31,
--------------------- ------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
---------- --------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest income .............. $16,650 $15,567 $23,658 $21,734 $19,869 $16,980 $16,132
Interest expense ................... 8,829 8,087 12,500 11,022 9,823 7,035 6,537
------- ------- ------- ------- ------- ------- -------
Net interest income ............. 7,821 7,480 11,158 10,712 10,046 9,945 9,595
Provision for loan losses .......... 160 120 180 180 210 300 508
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses ..... 7,661 7,360 10,978 10,532 9,836 9,645 9,087
Noninterest income ................. 2,548 2,355 3,324 1,896 1,592 949 1,482
Noninterest expense ................ 6,677 6,628 9,743 8,372 7,693 7,139 5,996
------- ------- ------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of change in
accounting for income taxes ....... 3,532 3,087 4,559 4,056 3,735 3,455 4,573
Income taxes ....................... 1,223 986 1,541 1,582 1,400 1,263 1,809
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of
change in accounting for income
taxes ............................. 2,309 2,101 3,018 2,474 2,335 2,192 2,764
Cumulative effect of change in
accounting for income taxes........ -- -- -- -- -- -- 822
------- ------- ------- ------- ------- ------- -------
Net income ...................... $ 2,309 $ 2,101 $ 3,018 $ 2,474 $ 2,335 $ 2,192 $ 3,586
======= ======= ======= ======= ======= ======= =======
</TABLE>
(See footnotes on next page)
8
<PAGE>
<TABLE>
<CAPTION>
For the Eight
Months Ended
August 31, For the Year Ended December 31,
------------------- ----------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
--------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Ratios and Other Data (3):
Performance Ratios:
Average yield on interest-earning assets.. 7.45% 7.64% 7.62% 7.80% 7.75% 7.11% 7.60%
Average rate paid on interest-bearing
liabilities ............................. 4.28 4.28 4.35 4.26 4.11 3.16 3.27
Average interest rate spread (4) ......... 3.17 3.36 3.27 3.54 3.64 3.95 4.33
Net interest margin (5) .................. 3.50 3.67 3.59 3.84 3.92 4.16 4.52
Ratio of interest-earning assets to
interest-bearing liabilities ........... 108.38 107.73 107.96 107.70 107.35 107.37 106.12
Net interest income after provision for
loan losses to noninterest expense...... 114.74 111.04 112.67 125.80 127.87 135.10 151.55
Noninterest expense as a percent of
average assets ......................... 2.83 3.08 2.96 2.84 2.85 2.85 2.67
Return on average assets ................. 0.98 0.98 0.92 0.84 0.86 0.87 1.60
Return on average surplus ................ 9.95 10.37 9.67 9.10 9.58 10.05 18.35
Ratio of average surplus to average
assets .................................. 9.82 9.41 9.50 9.23 9.01 8.70 8.71
Efficiency ratio (6)...................... 71.85 72.42 73.04 70.61 69.56 65.69 56.05
Regulatory Capital Ratios: (7)
Leverage capital ......................... 9.11 9.33 9.08 8.94 9.28 8.53 8.94
Total risk-based capital ................. 13.49 13.99 15.14 15.67 15.95 15.90 17.13
Asset Quality Ratios:
Nonperforming loans and troubled debt
restructurings as a percent of total
loans (8) .............................. 0.32 0.51 0.44 0.11 1.24 1.34 1.85
Nonperforming assets and troubled debt
restructurings as a percent of total
assets (9) ............................. 0.33 0.49 0.45 0.21 1.15 1.31 1.84
Allowance for loan losses as a percent
of total loans (10) .................... 0.77 0.77 0.74 0.81 0.91 0.88 0.96
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings (10)(8) ................. 239.10 150.93 168.42 758.33 73.14 65.73 51.74
Net loans charged-off to average
interest-earning loans ................. 0.03% 0.05% 0.06% 0.05% 0.01% 0.17% 0.20%
Banking offices at end of period (11) ....... 11 9 9 8 8 7 5
</TABLE>
- ----------------------------
(1) The data presented for the eight months ended August 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 eight months ended
August 31, 1998, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1998.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994, and reclassified securities having a market value of $42.3
million from its held-to-maturity portfolio to its available-for-sale
portfolio in November 1995 pursuant to a Financial Accounting Standards
Board ("FASB") interpretation of SFAS No. 115. Prior to the adoption of
SFAS No. 115, securities were carried at amortized cost, as adjusted for
amortization of premiums and accretion of discounts over the remaining
terms of the securities from the dates of purchase.
(3) 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 indicated periods and annualized where
appropriate.
(4) The average 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.
(5) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(6) Does not include unrealized gains on investment securities. If the ratio
included unrealized gains on investment securities, then the efficiency
ratio would be 63.41%, 61.81%, 63.49%, 66.40%, 66.10%, 65.53% and 54.13%
for the eight months ended August 31, 1998 and 1997 and for the year ended
December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(7) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision -- Federal
Regulations -- Capital Requirements." See "Regulatory Capital Compliance"
for the Bank's pro forma capital levels as a result of the offerings.
(8) Nonperforming loans and troubled debt restructurings consist of all loans
90 days or more past due and other loans which have been identified by the
Bank as presenting uncertainty with respect to the collectibility of
interest or principal. It is the policy of the Bank to cease accruing
interest on all such loans. See "Business of the Bank--Delinquent Loans,
Classified Assets and Real Estate Owned."
(9) Nonperforming assets consist of nonperforming loans and real estate owned,
net ("REO").
(10) Total loans includes loans less unadvanced loan funds, plus deferred loan
costs (fees), net. The allowance for loan losses at August 31, 1998 and
1997 and December 31, 1997, 1996 , 1995, 1994 and 1993 was $2.1 million,
$1.9 million, $2.0 million, $1.9 million, $1.8 million, $1.7 million and
$1.7 million, respectively.
(11) Includes ten full-service banking offices and one banking office located in
a Westfield, Massachusetts high school which office offers only retail
deposit products. See "Business of the Bank--Properties."
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RISK FACTORS
The following risk factors, in addition to the other information
discussed elsewhere in this Prospectus, should be considered by you in deciding
whether to purchase our common stock.
Sensitivity to Changes in Interest Rates
Our profitability, like that of most financial institutions, is
dependent to a large extent upon our net interest income. Net interest income is
the difference between interest income on interest-earning assets, such as loans
and investments, and interest expense on interest-bearing liabilities, such as
deposits and borrowings. Accordingly, our results of operations and financial
condition are largely dependent on movements in market interest rates and our
ability to manage our assets in response to such movements.
At August 31, 1998, our total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing in the same time period by $19.0 million. This represents a cumulative
one-year interest sensitivity gap, as a percentage of total assets, of negative
3.00%. Such a negative interest rate gap indicates that, in a rapidly rising
interest rate environment, the cost of our interest-bearing liabilities will
generally increase at a rate faster than the yield on interest-earning assets,
thereby adversely affecting our net interest income. Increases in interest rates
also could adversely affect the type (fixed-rate or adjustable-rate) and amount
of loans originated by us and the average life of loans and securities. This
could adversely impact the yields earned on our loan and securities portfolios.
Net interest income may also be adversely affected in a declining interest rate
environment if proceeds from prepayments of loans cannot be reinvested at a
comparable spread, and in periods where yields on long- and short-term
securities are similar. We attempt to manage interest rate risk by: (1)
emphasizing the origination of shorter-term adjustable-rate loans, such as home
equity loans and lines of credit as well as emphasizing the origination of
multi-family and commercial real estate loans; (2) emphasizing the origination
of retail checking accounts and offering deposit products with a variety of
interest rates; (3) preparing and monitoring static gap and asset/liability
funding matrix reports; and (4) utilizing off-balance sheet hedging
transactions, such as interest rate swaps, caps and floors (these transactions
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the Bank's consolidated balance sheets). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Management of Interest Rate Risk and Market Risk Analysis."
Increases in market interest rates would result in an increase in the
interest rates on our adjustable-rate loans, thereby causing higher loan payment
amounts by our borrowers which, in turn, may result in elevated delinquencies on
such loans. Increases in the level of interest rates may also adversely affect
the value of our investment and mortgage-backed securities and other
interest-earning assets and, in turn, our results of operations or surplus. At
August 31, 1998, our securities investments had an estimated fair value of $71.5
million, which was $187,000 greater than their amortized cost. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- -Management of Interest Rate Risk and Market Risk Analysis," "Business of the
Bank -- Lending Activities -- One- to Four-Family Lending" and "-- Investment
Activities."
Potential Low Return on Equity Following the Conversion Which May Negatively
Influence Market Price and Liquidity
At August 31, 1998, our ratio of surplus to total assets was 9.11%. Our
equity position will be significantly increased as a result of the Conversion.
On a pro forma basis as of August 31, 1998, assuming the sale of common stock at
the midpoint of the Estimated Price Range resulting in gross proceeds of $42.0
million, our consolidated ratio of equity to assets would approximate 17.34%.
Our ability to invest this new capital in interest-earning assets, such as loans
and securities, which bear rates of return comparable to our current loans and
securities investments, will be significantly affected by available market rates
of interest, loan demand and industry competition. We currently anticipate that
it will take time to prudently deploy such capital. As a result, our return on
equity initially is expected to be at or below our historical return on equity
and may be below peer group institutions after the Conversion. No assurances can
be made as to when or if we will achieve returns on equity that are comparable
to industry peers or
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industry averages. Additionally, the implementation of stock-based benefit plans
will increase our future compensation expense, which will adversely affect our
net income and return on equity.
Year 2000 Compliance
As the year 2000 approaches, an important business issue has emerged
regarding how existing computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits. If not corrected, many
computer applications and systems could fail or create erroneous results by or
at the Year 2000. While we maintain an internal computer system for certain
operating functions, the substantial majority of our data processing is
out-sourced to a third party vendor. We have implemented a plan designated to
ensure that all software and hardware used in connection with our business will
manage and manipulate data involving the transition with data from 1999 to 2000
without functional or data abnormality and without inaccurate results related to
such data. However, we recognize that our ability to be Year 2000 compliant is
dependent upon the cooperation of our outside vendors and, in particular, our
outside third party data processor. There can be no assurances that our plan or
the performance by any of our suppliers and vendors will be effective to remedy
all potential problems.
We have budgeted approximately $235,000 in connection with the costs
associated with achieving Year 2000 compliance. As of October 31, 1998, we had
expended approximately $30,000 of the budgeted amount. Material costs, if any,
that may arise from the failure to achieve Year 2000 compliance by either our
third party data processing vendor or our significant suppliers and other
vendors is not currently determinable. To the extent that our systems are not
fully Year 2000 compliant, any potential systems interruptions or the cost
necessary to remedy such problems could have a materially adverse effect on our
business, financial condition, results of operations, cash flows or business
prospects. If our progress towards becoming Year 2000 compliant is inadequate,
then regulatory action may be undertaken. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance."
Highly Competitive Industry
Our primary market area, which includes Hampden and Hampshire Counties,
Massachusetts, is a highly competitive market area for financial services. We
face significant competition in both attracting deposits and in originating
loans. We face direct competition from a significant number of financial service
providers operating in our market area, many with a state-wide or regional
presence, and, in some cases, a national presence. This competition arises from
commercial banks, other savings banks, co-operative banks, mortgage brokers,
mortgage banking companies, mutual and money market funds and other providers of
financial services. Many of these entities are significantly larger than us and,
therefore, have greater financial and marketing resources than ours. In
addition, we have experienced significant competition from credit unions within
our primary market area, some of which are significant in asset size. Federal
and state credit unions have a significant competitive advantage over banks and
savings institutions as they do not pay income taxes. This advantage, which is
unique to credit unions, places competitive pressure on our loan and deposit
pricing policies, which directly affects our profitability. The competitive
environment raises the possibility of increasing our cost of funds and lowering
the yields that we may achieve on our loans. See "Business of the Bank -- Market
Area" and "-- Competition."
Weakness of Regional and Local Economy
Economic conditions at the local and national levels, as well as
government policies and regulations concerning, among other things, monetary and
fiscal affairs, significantly affect the operations of financial institutions
such as ours. The New England region of the United States, including our primary
market area, experienced a significant economic decline beginning approximately
in 1988. This decline adversely affected employment levels, the real estate
markets and the financial services industry in our market area. Over the past
decade, our primary market area has generally experienced higher unemployment
rates and lower income levels than those experienced by the Commonwealth of
Massachusetts as a whole. As a result of the late 1980s decline in the regional
economy, delinquencies increased and the underlying values of properties located
in our primary market area declined from the values experienced in the
mid-1980s. The effects of the economic downturn were especially pronounced in
the
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commercial real estate and condominium markets, where prices declined
substantially in many cases. The declining rental market and decrease in market
values of properties in turn adversely affected the ability of some real estate
developers and borrowers to repay or refinance their commercial real estate and
construction loans. Additionally, numerous failures of financial institutions
operating in the New England region resulted in the placement of commercial and
residential properties into the hands of federal liquidators, contributing to
the oversupply of properties available-for-sale and also contributed to a
further decline of real estate prices. The economic conditions affecting our
primary market area also resulted in reduced loan demand and increased
competition for the existing lower level of loan demand.
During the past few years, there has been improvement in the economies
and real estate markets of many New England areas, particularly in and around
our primary market area, and the market values of residential and commercial
properties in those areas have stabilized and improved relative to those levels
experienced in the late 1980s and early 1990s. A slowdown in the recovery of our
primary market area or downturn in the local and regional economy or real estate
market could adversely affect our future financial condition and results of
operations.
Increased Lending Risk Associated with Consumer, Multi-family and Commercial
Real Estate and Commercial Business Lending
Our portfolio of consumer, multi-family and commercial real estate, and
commercial business loans aggregated $126.8 million, or 47.2% of our total loan
portfolio as of August 31, 1998. These types of loans are generally considered
to involve a higher degree of risk compared to first mortgage loans on one- to
four-family real properties. See "Business of the Bank--Lending Activities."
Although our level of commercial real estate and commercial business lending has
historically been relatively modest in comparison to our one- to four-family and
consumer lending, we plan to increase our emphasis on commercial real estate and
commercial business lending in the future. In this regard, we plan to hire an
additional experienced commercial loan officer who, along with our Vice
President of Lending, will have the primary responsibility of increasing our
commercial real estate and commercial business loan volume.
Consumer Loans. At August 31, 1998, our consumer loan portfolio
totalled $78.3 million, or 29.1%, of total loans. These consumer loans primarily
consist of home equity loans and home equity lines of credit, which although
secured by one- to four-family real estate, generally are secured by a second
lien rather than a first mortgage on such property. Consumer loans generally are
dependent on the borrower's continuing financial stability and, therefore, are
more likely to be adversely affected by unemployment, divorce, illness or
personal bankruptcy.
Multi-family and Commercial Real Estate Loans. Our multi-family and
commercial real estate loans aggregated $43.9 million, or 16.3%, of total loans,
at August 31, 1998. Multi-family and commercial real estate loans generally are
considered to have a higher degree of risk and involve larger loan amounts than
one- to four-family mortgage loans. In addition, multi-family and commercial
real estate loans often are dependent on the successful operation and management
of the properties and, therefore, repayment of such loans may be subject to a
greater number of factors, including adverse conditions in the real estate
market or the economy, to a greater extent than one- to four-family loans.
Commercial Loans. At August 31, 1998, our portfolio of commercial
business loans totalled $4.6 million, or 1.7% of total loans. Substantially all
of our commercial business loans are secured by collateral, such as equipment,
leases, inventory and accounts receivable. Accordingly, the value of the
collateral securing the commercial business loans may not be as easy to
ascertain as compared to real property. Commercial business loans are often
substantially dependent upon the success of the borrower's business.
Accordingly, commercial business loans involve a greater degree of risk than a
one- to four-family mortgage loan and other types or mortgage loans.
As a consequence of our planned increased emphasis on and increased
investment in commercial real estate and commercial business loans, we may
determine it necessary to increase the level of provision for loan losses over
that provided in past years. Such additional or increased provisions for loan
losses would adversely affect our net income. We believe that the current
allowance reserve was fully adequate at August 31, 1998. Any increased
provisions are intended to increase the reserve commensurate with increases in
portfolio risk.
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Establishment of the Charitable Foundation
The Company intends to contribute to the Foundation shares of common
stock equal to 8% of the shares sold in the Conversion. Such contribution to the
Foundation is subject to the approval of our corporators at a special meeting of
corporators (the "Special Meeting"). If approved by corporators, the
contribution to the Foundation will dilute the voting and ownership interests of
stockholders and will have an adverse impact on our operating results for the
year ending December 31, 1999, possibly resulting in an operating loss for that
year.
Dilution of Stockholders' Interests. At the maximum of the Estimated
Price Range, the contribution to the Foundation would be 386,400 shares, with a
value of $3.9 million based on the public offering price of $10.00 per share
(the "Purchase Price"). Upon completion of the Conversion, based on the maximum
of the Estimated Price Range and issuance of shares to the Foundation, we will
have 5,216,400 shares issued and outstanding, of which the Foundation will own
386,400 shares, or 7.4%. As a result, if you purchase shares in the Conversion,
then you will have your ownership and voting interests in the Company diluted by
7.4%.
Negative Impact on Earnings. The Company will recognize an expense in
the amount of the contribution to the Foundation in the quarter in which it
occurs, which we expect to be the first quarter of 1999. Such expense will
reduce earnings and have a material adverse impact on our earnings for the year.
The amount of the contribution will range from $2.9 million to $4.4 million,
depending on the amount of common stock sold in the Conversion. The contribution
expense will be partially offset by a tax deduction for the contribution. We
have been advised by our independent accountants that the contribution to the
Foundation will be deductible for federal income tax purposes, subject to a
limitation based on 10% of our annual taxable income. Assuming a contribution of
$3.9 million in common stock, based on the maximum of the Estimated Price Range,
we estimate a net tax effected expense of $2.4 million. If the Foundation had
been established at December 31, 1997, we would have reported net income of
$584,000 for 1997 rather than reporting net income of $3.0 million. In addition
to the contribution to the Foundation, we may in the future continue to make
ordinary charitable contributions within our community.
Possible Nondeductibility of the Contribution. While we have been
advised that the contribution will be deductible as a charitable contribution,
there is no assurance or guarantee that this will be the case. Assuming the
contribution is tax deductible, we estimate that substantially all of the
contribution to the Foundation should be deductible for federal tax purposes
over the permissible six-year period. However, no assurance can be made that we
will have sufficient pre-tax income over the five-year period following the year
in which the contribution is initially made to fully utilize the carryover
related to the excess contribution. Furthermore, although we have received an
opinion of our independent accountants that we will be entitled to the deduction
for the contribution to the Foundation, there can be no assurance that the IRS
will recognize the Foundation as a tax exempt organization or that the deduction
will be permitted. In such event, there would be no tax benefit related to the
Foundation.
Potential Anti-Takeover Effect. If approved by our corporators, upon
completion of the Conversion, the Foundation will own 7.4% of the total shares
of common stock of the Company outstanding. However, pursuant to the terms of
the contribution as mandated by the FDIC, the shares of common stock held by the
Foundation must be voted in the same ratio as all other shares of our common
stock on all proposals considered by our stockholders. In the event, however,
that the FDIC were to waive this voting restriction and not impose other
restrictions and requirements with respect to the Foundation, the Foundation's
Board of Directors would exercise sole voting power over such shares. See "The
Conversion -- Establishment of the Charitable Foundation -- Regulatory
Conditions Imposed on the Foundation." If the Foundation's shares are combined
with shares purchased directly by our officers, trustees and directors, shares
held by proposed stock-based benefit plans, if approved by stockholders, and
shares held in the ESOP, the total of such shares could exceed 20% of
outstanding common stock. This could allow management to defeat stockholder
proposals requiring an 80% approval. Consequently, if the voting restriction
were waived, this potential voting control might preclude takeover attempts that
some stockholders may deem to be in their best interest, and might tend to
perpetuate existing management.
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We will not have any agreements or understandings regarding the
exercise of either direct or indirect control over our management or policies.
Any such agreements or understandings could discourage takeover attempts
especially if they relate to voting, acquisition or disposition of our common
stock. Nevertheless, as the Foundation sells its shares of common stock over
time, its ownership interest and voting power in the Company are expected to
decrease.
Potential Challenges. Establishment and funding a charitable foundation
as part of a conversion is innovative and has been done in only a limited number
of instances. Therefore, the Foundation may be subject to potential challenges
even though our Boards have carefully considered the various factors involved in
establishing the Foundation. See "The Conversion-Establishment of the
Charitable Foundation-Purpose of the Foundation." If anyone were to institute
an action seeking to prevent us from establishing the Foundation, such action
could result in a delay of the Conversion. In addition, such objecting persons
could also ultimately be successful in obtaining the elimination of the
Foundation or other equitable relief or money damages against us. If we are
forced to eliminate the Foundation, we may be required to resolicit subscribers
in the Offerings.
Approval of Corporators. Establishment of the Foundation is subject to
the approval of two-thirds of our corporators present and voting at the Special
Meeting and, if required by the FDIC, by a majority of all corporators and a
majority of all "independent corporators," as determined by the FDIC. The
Foundation will be considered separately from approval of the Plan of
Conversion. If our corporators approve the Plan of Conversion, but not the
establishment of the Foundation, we intend to complete the Conversion without
establishing the Foundation. Failure to approve the Foundation may materially
increase the aggregate pro forma market value of the common stock to be sold in
the Conversion since the estimate of such amount takes into account the dilutive
impact of the issuance of shares to the Foundation. If the aggregate pro forma
market value of the common stock without the Foundation is either greater than
$55.6 million or less than $35.7 million, we will have to establish a new
Estimated Price Range and commence a resolicitation of subscribers. Subscribers
would then be permitted to continue their orders, in which case they will need
to affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or else their subscription orders will be cancelled and
their money promptly returned to them with interest at our passbook rate of
interest. If a resolicitation occurs, subscribers will also be permitted to
increase, decrease, or cancel their subscriptions. Any change in the Estimated
Price Range must be approved by the Commissioner and, if necessary, the FDIC.
See "The Conversion-Stock Pricing." A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45 days
unless further extended by the Commissioner and the FDIC for periods of up to 90
days. Such extensions may not go beyond August 26, 2000.
Regulatory Oversight and Legislation
The Bank is subject to extensive regulation, supervision and
examination by the Massachusetts Division of Banks (the "Division"), as its
chartering authority, and by the FDIC as insurer of its deposits up to
applicable limits. The Bank also is a member of the Federal Home Loan Bank
System and is subject to certain limited regulations promulgated by the FHLB. As
the holding company of the Bank, the Company will be subject to regulation and
oversight by the Office of Thrift Supervision (the "OTS") and the Division. Such
regulation and supervision govern the activities in which an institution and its
holding company may engage and are intended primarily for the protection of
depositors and borrowers and, with respect to regulation and supervision by the
FDIC, the deposit fund. Regulatory authorities have broad discretion in their
supervisory and enforcement activities and may impose restrictions on the
operations and management of an institution. 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 the Massachusetts deceptive acts
and practices law. These laws permit private individual and class action law
suits and provide for the recovery of attorneys fees in certain instances. Any
change in the interpretation or application to the Bank of such laws,
regulations and oversight and enforcement powers, whether by the Division, the
FDIC, other state or federal authorities, Congress or the Massachusetts
legislature, could have a significant impact on our financial condition and
results of operations. See "Regulation and Supervision."
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Stock-Based Benefits to Management and Directors, Employment Contracts and
Change in Control Payments
Stock-Based Incentive Plan. We intend to adopt a stock-based incentive
plan which will provide for the granting of options to purchase common stock
("Stock Options"), awards of common stock ("Stock Awards"), and other related
rights to our eligible officers, employees and directors. While we currently
anticipate granting Stock Options and Stock Awards under a single plan, we may
establish separate plans to provide for such awards. In the event that the plan
is adopted within one year after Conversion, FDIC regulations require the plan
to be approved by stockholders at a meeting of stockholders which may not be
held earlier than six months after completion of the Conversion. It is
anticipated that the stock-based incentive plan will provide for the granting of
options to purchase shares of common stock equal to 10% of the shares of common
stock issued in the Conversion, including shares issued to the Foundation
(521,640 shares based on the maximum of the Estimated Price Range) and the
granting of Stock Awards in an amount equal to 4% of the shares of common issued
in the Conversion, including shares issued to the Foundation (208,656 shares
based on the maximum of the Estimated Price Range).
The stock-based incentive plan will acquire an amount of shares equal
to 4% of the shares of common stock issued in the Conversion, including shares
issued to the Foundation, either through open market purchases or the issuance
of authorized but unissued shares of common stock. If the Stock Awards are
funded by the issuance of authorized but unissued shares, the voting interests
of existing stockholders at that time will be diluted by 3.8%. The exercise of
the Stock Options may also be satisfied by the issuance of authorized but
unissued shares. If all of the Stock Options were exercised using authorized but
unissued common stock and the Stock Awards granted under the stock-based
incentive plan were funded with authorized but unissued shares, the voting
interests of existing stockholders at that time would be diluted by 12.3%.
Employment Contracts and Change in Control Provisions. Upon Conversion,
we intend to enter into employment and change in control agreements with certain
employees and adopt an employee severance compensation plan. The agreements and
plan are expected to provide benefits and cash payments to employees if there is
a change in control and a subsequent termination of their employment. The
provisions in such agreements and plan would provide the recipient with a cash
payment in the event of the recipient's involuntary or, in certain
circumstances, voluntary termination of employment after a change in control. In
addition to any payments which may be made under the stock-based incentive plan
upon a change in control, these agreements and plan may have the effect of
increasing the cost of acquiring the Company. This could discourage future
attempts to take us over. Based on current salaries, cash payments to be paid
pursuant to the agreements and plan in the event of a change in control and
termination of employment would be approximately $4.8 million. However, the
actual amount to be paid in the event of a change in control cannot be estimated
at this time because the actual amount is based on the average compensation of
the employee and other factors existing at the time of the change in control.
See "Restrictions on Acquisition of the Company and the Bank -- Restrictions in
the Company's Certificate of Incorporation and Bylaws," "Management of the
Bank -- Employment Agreements," "-- Change in Control Agreements," "-- Employee
Severance Compensation Plan" and "-- Other Benefit Plans."
Anti-Takeover Provisions Which May Discourage Takeover Attempts
Provisions in the Company's and the Bank's Governing Instruments.
Certain provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock Charter
and Bylaws, as well as certain federal regulations, assist us in maintaining our
status as an independent publicly owned corporation. These provisions provide
for, among other things, supermajority voting on certain matters, staggered
boards of directors, non-cumulative voting for directors, limits on the calling
of special meetings, limits on voting shares in excess of 10% of outstanding
shares, and certain uniform price provisions for certain business combinations.
The Bank's Stock Charter also prohibits, for three years, the acquisition or
offer to acquire, directly or indirectly, the beneficial ownership of more than
10% of its equity securities. Any person violating this restriction may not vote
the securities in excess of 10%. These provisions in the governing instruments
may discourage potential proxy contests and other potential takeover attempts,
particularly those which have not been negotiated with the Board of Directors
and, thus, generally may serve to perpetuate existing management. For a more
detailed discussion of these provisions, see "Restrictions on Acquisition of the
Company and the Bank."
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Voting Control of Officers and Directors. Our trustees, directors and
officers expect to purchase an aggregate of approximately 0.98% of the shares of
common stock sold in the Conversion, assuming that shares are sold at the
maximum of the Estimated Price Range. If the ESOP is implemented and the
stock-based incentive plan and all Stock Awards and Stock Options available
under the stock-based incentive plan are granted and all such options are
exercised, then the Bank's and Company's directors, officers and employees, in
the aggregate, could vote shares of common stock equal to 22.1% of the shares
issued in the Conversion, including shares issued to the Foundation. In
addition, the Foundation will be funded with a contribution equal to 8% of the
common stock sold in the Conversion. If a waiver of the voting restriction
imposed on such common stock is obtained from the FDIC, and the FDIC does not
impose other restrictions, the Foundation shares may be voted as determined by
the directors of the Foundation who also will initially be directors or officers
of the Company or the Bank. Management's potential voting control could,
together with additional stockholder support, defeat stockholder proposals
requiring 80% approval of stockholders. As a result, this potential voting
control may preclude takeover attempts that some stockholders determine to be in
their best interest and may tend to perpetuate existing management. See
"Restrictions on Acquisition of the Company and the Bank--Restrictions in the
Company's Certificate of Incorporation and Bylaws."
Absence of Market For Common Stock
We have never issued capital stock. We have received conditional
approval to have the common stock listed on the American Stock Exchange (the
"AMEX") under the symbol "___" upon completion of the Conversion. However, we
cannot assure that an active and liquid trading market for the common stock will
develop or, once developed, will continue. Also, we cannot assure that
purchasers of the common stock will be able to sell their shares at a profit.
The absence or discontinuance of a market for the common stock would have an
adverse impact on both the price and liquidity of the common stock. See "Market
for the Common Stock."
Possible Increase in Estimated Price Range and Number of Shares Sold
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is increased, it is expected that the Company will sell up to 5,554,500
shares of common stock at the Purchase Price for an aggregate purchase price of
up to $55.5 million. An increase in the number of shares sold will decrease a
stockholder's pro forma net earnings per share and stockholders' equity per
share and will increase our pro forma consolidated stockholders' equity and net
earnings. Such an increase will also increase the offering price as a percentage
of pro forma stockholders' equity per share and net earnings per share.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
We have received an opinion of Keller that, pursuant to Keller's
valuation, subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and those trustees, corporators, directors, officers
and employees of the Bank and the Company receiving subscription rights have no
value. However, such valuation is not binding on the IRS. If the subscription
rights granted are deemed to have an ascertainable value, receipt of such rights
could result in a taxable gain to those who receive and/or exercise the
subscription rights in an amount equal to such value. Additionally, we could
recognize a gain for tax purposes on such distribution. Whether subscription
rights are considered to have ascertainable value is an inherently factual
determination. See "The Conversion--Effects of Conversion" and "-- Tax Aspects."
Potential Delays of Consummation of the Conversion
Orders submitted in the Offerings are irrevocable. We expect to
complete the Conversion within the time periods indicated in this Prospectus.
Nevertheless, it is possible that several factors, including, but not limited
to, a delay in receiving regulatory approval of the final updated appraisal
prepared by Keller, a delay in processing orders in the event the Offerings are
oversubscribed or other actions taken in connection with the Conversion could
significantly delay the completion of the Conversion. Subscribers will have no
access to subscription funds and/or shares of common
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<PAGE>
stock until the Conversion is completed or terminated. In the event the
Conversion is terminated, subscribers will be refunded their subscription funds,
together with interest at a rate equal to our interest rate paid on passbook
accounts, or will have their withdrawal authorization terminated. See "The
Conversion."
Additionally, while many savings institutions have established and
funded charitable foundations as part of conversions in the last two years, the
establishment and funding of a charitable foundation as part of a conversion of
a Massachusetts-chartered mutual institution to stock form is innovative and
has, to the Bank's knowledge, only been done on one other occasion in the
Commonwealth of Massachusetts. As such, the Foundation may be subject to
potential challenges notwithstanding that the Board of Directors of the Company
and the Board of Trustees of the Bank have carefully considered the various
factors involved in the establishment of the Foundation in reaching their
determination to establish the Foundation as part of the Conversion. See "The
Conversion--Establishment of the Charitable Foundation--Purpose of the
Foundation." If challenges were to be instituted seeking to require us to
eliminate establishment of the Foundation in connection with the Conversion, no
assurances can be made that the resolution of such challenges would not result
in a delay in the consummation of the Conversion or that any objecting persons
would not ultimately be successful in obtaining such removal or other relief
against us. Additionally, if we are forced to eliminate the Foundation, the
Company may be required to resolicit subscribers in the Offerings.
WORONOCO BANCORP, INC.
Woronoco Bancorp, Inc. is a Delaware corporation recently organized by
the Bank for the purpose of acquiring all of the capital stock of the Bank to be
issued in the Conversion. The Company expects to receive approval from the
Office of Thrift Supervision ("OTS") to become a savings and loan holding
company and, upon completion of the Conversion, will be subject to regulation by
the OTS. See "The Conversion--General" and "Regulation and Supervision--Holding
Company Regulation." Upon consummation of the Conversion, the Company will have
no significant assets other than all of the shares of the Bank's capital stock
acquired in the Conversion and an amount equal to 50% of the net proceeds of the
Conversion, including the loan to the ESOP Loan Subsidiary, and will have no
significant liabilities. The Company intends to use a portion of the net
proceeds it retains to form and capitalize the ESOP Loan Subsidiary which will
loan funds to the ESOP to purchase 8% of the stock issued in connection with the
Conversion, including shares issued to the Foundation. Based on certain
regulatory and market conditions, the Company and the Bank may, however,
alternatively choose to fund the ESOP's stock purchases through a loan by a
third party financial institution. The remaining net proceeds will be used for
general business activities, including the funding of the Stock-Based Incentive
Plan. Initially, net proceeds are expected to be invested by the Company in
short- to intermediate-term investment-grade securities. See "Use of Proceeds."
The management of the Company is set forth under "Management of the Company."
Initially, the Company will neither own nor lease any property, but will instead
use the premises, equipment and furniture of the Bank. At the present time, the
Company does not intend to employ any persons other than certain officers who
are currently officers of the Bank but will utilize the support staff of the
Bank from time to time. Additional employees will be hired as appropriate to the
extent the Company expands its business in the future.
Management believes that the holding company structure will provide
flexibility to diversify its business activities through existing or newly
formed subsidiaries (which subsidiaries could be financial institutions), or
through acquisitions of or mergers with other financial institutions and
financial services related companies. Although there are no current
arrangements, understandings or agreements regarding any such opportunities, the
Company will be in a position after the Conversion, subject to regulatory
limitations and the Company's financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. The initial activities
of the Company are anticipated to be funded by the proceeds to be retained by
the Company, income thereon and through dividends from the Bank.
The Company's executive office is located at the administrative offices
of the Bank, 31 Court Street, Westfield, Massachusetts 01085. Its telephone
number is (413) 568-9141.
17
<PAGE>
WORONOCO SAVINGS BANK
The Bank was organized in 1871 as a Massachusetts-chartered mutual
savings bank. The Bank's deposit accounts are insured to the maximum allowable
amount by the Bank Insurance Fund ("BIF") of the FDIC and the Depositors
Insurance Fund ("DIF") of the Mutual Savings Central Fund, the Bank's excess
insurer. The Bank currently maintains 11 banking offices and one stand-alone
automatic teller machine ("ATM") located in the communities of Westfield,
Southwick, Feeding Hills, South Hadley, Springfield and West Springfield,
Massachusetts. At August 31, 1998, the Bank had total assets of $366.2 million,
total deposits of $273.6 million, surplus of $33.4 million and had a leverage
capital ratio of 9.08% and a total risk-based capital ratio of 13.01%. The Bank
is subject to comprehensive examination, supervision and regulation by the
Commissioner and the FDIC. See "Regulation and Supervision."
The Bank is a community-oriented savings institution whose principal
business consists of accepting retail deposits from the general public in its
primary deposit market area, consisting of those areas surrounding its banking
offices, and investing those deposits together with funds generated from
operations and borrowings primarily in first mortgage loans secured by one- to
four-family residences and consumer loans, primarily home equity loans and lines
of credit, and to a lesser extent, multi-family and commercial real estate
loans, construction loans, commercial business loans and other types of consumer
loans, primarily automobile and personal loans. The Bank also invests in
mortgage-backed securities, equity securities and other investments permitted by
applicable laws and regulations. Although the Bank originates loans throughout
western Massachusetts and northern Connecticut, the Bank's primary market area
for lending consists of Hampden and Hampshire Counties, Massachusetts. See
"Business of the Bank."
At August 31, 1998, the Bank's total loan portfolio was $268.7 million,
or 73.4% of total assets, of which $137.8 million were one- to four-family
residential mortgage loans, $22.8 million were multi-family real estate loans,
$21.1 million were commercial real estate loans, $4.2 million were construction
and development loans, $78.3 million were consumer loans, consisting primarily
of home equity loans and lines of credit, and $4.6 million were commercial
business loans. The Bank currently originates one- to four-family mortgage
loans, generally secured by properties located in the Bank's primary market
area, primarily for investment, selling or securitizing some longer-term
fixed-rate loans on a servicing retained basis and retaining for its portfolio
all adjustable-rate mortgage ("ARM") loans and shorter-term fixed-rate mortgage
loans. At August 31, 1998, the Bank was servicing $45.5 million of loans for
others which servicing rights were derived from loans sold by the Bank. See
"Business of the Bank."
The Bank's securities investment activities primarily consist of
investments in: (i) mortgage-backed securities, generally consisting of those
guaranteed or issued by governmental-sponsored agencies such as the Federal
National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and, to a lesser extent, the Government National
Mortgage Association ("Ginnie Mae"); and (ii) investment-grade equity
securities. At August 31, 1998, the Bank's securities portfolio totalled $71.5
million, or 19.5% of total assets, all of which was categorized as
available-for-sale. See "Business of the Bank--Investment Activities."
At August 31, 1998, the Bank's deposit accounts totalled $273.6
million, or 82.2% of total liabilities, of which $132.3 million, or 48.4%, were
comprised of saving accounts, retail checking/negotiable order of withdrawal
("NOW") accounts, money market accounts and demand accounts (collectively, "core
deposits"). In addition to core deposits, the Bank had $141.2 million of
certificate accounts, or 51.6% of total deposits, of which $101.9 million were
certificates of deposit with maturities of less than one year. Of the $141.2
million of certificate accounts, $24.7 million were certificates of deposit with
balances of $100,000 or more ("jumbo deposits"). The Bank also utilizes advances
from the FHLB-Boston as a source of funds. At August 31, 1998, such advances
totalled $54.8 million, or 16.5% of total liabilities. See "Business of the
Bank--Sources of Funds."
The Bank's executive office is located at 31 Court Street, Westfield,
Massachusetts 01085. Its telephone number is (413) 568-9141.
18
<PAGE>
WORONOCO SAVINGS CHARITABLE FOUNDATION
In furtherance of the Bank's commitment to its local community, the
Bank's Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Woronoco Savings Charitable Foundation, which
will be incorporated under Delaware law as a non-stock corporation. The
Foundation will be funded with shares of Common Stock contributed by the
Company, as further described below. The Company and the Bank believe that the
funding of the Foundation with Common Stock of the Company is a means of
establishing a common bond between the Bank and its community and thereby
enables the communities in which the Bank maintains a banking office to share in
the potential growth and success of the Company over the long term. While the
Bank has made charitable contributions in the past and has an existing
charitable foundation, the Bank has not made contributions to charitable
organizations of the magnitude of the contributions that will be made as a
result of the establishment and funding of the Foundation in the Conversion. By
further enhancing the Bank's visibility and reputation in its local community,
the Bank believes that the Foundation will enhance the long-term value of the
Bank's community banking franchise. See "The Conversion--Establishment of the
Charitable Foundation--Structure of the Foundation."
The members of the Foundation will be the Board of Directors of the
Foundation. The authority for the affairs of the Foundation will be vested in
the Board of Directors of the Foundation, which initially will be comprised of
existing Directors or officers of the Company or the Bank, who will receive no
fees for serving on the Foundation's Board of Directors. The Directors of the
Foundation will be responsible for establishing the policies of the Foundation
with respect to grants or donations by the Foundation, consistent with the
purposes for which the Foundation was established. Although no formal policy
governing Foundation grants exists at this time, the Foundation's Board of
Directors will adopt such a policy upon establishment of the Foundation. It is
anticipated that the Foundation will make grants and donations to nonprofit
organizations and community groups within the communities in which the Bank
maintains a banking office. The Directors of the Foundation will also be
responsible for directing the activities of the Foundation, including the
management of the Common Stock held by the Foundation. However, establishment of
the Foundation is subject to certain regulatory conditions, including a
requirement that the Common Stock of the Company held by the Foundation be voted
in the same ratio as all other shares of the Company's Common Stock on all
proposals considered by stockholders of the Company. See "The
Conversion--Establishment of the Charitable Foundation."
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 8% of the Common Stock sold in the Offerings,
or 285,600, 336,000, 386,400, and 444,360 shares at the minimum, midpoint,
maximum and 15% above the maximum, respectively, of the Estimated Price Range.
Such contribution, once made, will not be recoverable by the Company or the
Bank. Assuming the sale of shares at the maximum of the Estimated Price Range
and the issuance of shares to the Foundation, the Company will have 5,216,400
shares issued and outstanding, of which the Foundation will own 386,400 shares,
or 7.4%. Due to the issuance of additional shares of Common Stock to the
Foundation, persons purchasing shares in the Conversion will have their
ownership and voting interests in the Company diluted by 7.4%. See "Pro Forma
Data." The establishment of the Foundation was taken into account in determining
the estimated pro forma market value of the Bank. In the event the Conversion
did not include the Foundation, Keller has estimated that the pro forma market
value of the Bank would be $48.0 million at the midpoint of the Estimated Price
Range rather than $45.4 million. See "Pro Forma Data."
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, which will be
offset in part by a corresponding tax benefit, during the quarter in which the
contribution is made, which is expected to be the first quarter of 1999. Such
expense will reduce earnings and have a material impact on the Company's
earnings for the fiscal year in which it is made. While management cannot
predict earnings for 1999, it expects that the establishment and funding of the
Foundation will have an adverse impact on the Company's earnings for the year in
which it is made. Assuming a contribution of $3.9 million in Common Stock in
1999, based on the maximum of the Estimated Price Range and assuming a tax rate
of 37%, the Company estimates a net tax effected expense of $2.4 million. If the
Foundation had been established at December 31, 1997, the Bank would have
reported a net gain of $584,000 for the year ended December 31, 1997, rather
than reporting net income of $3.0. For further discussion of the Foundation and
its impact on purchasers in the Conversion, see "Risk
19
<PAGE>
Factors--Establishment of the Charitable Foundation," "Pro Forma Data" and "The
Conversion--Establishment of the Charitable Foundation."
The establishment and funding of a charitable foundation as part of a
conversion of a mutual savings institution to stock form is innovative and has
only been done in a limited number of instances. As such, the establishment of
the Foundation in connection with the Conversion and the Commissioner's approval
and FDIC's non-objection to the Plan of Conversion may be subject to potential
challenges which could result in delays in the Conversion. See "Risk
Factors--Establishment of the Charitable Foundation--Potential Anti-Takeover
Effect."
20
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At August 31, 1998, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of August 31, 1998, on an historical and pro forma
basis assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of the Stock Awards
expected to be acquired by the Stock-Based Incentive Plan are deducted from pro
forma regulatory capital.
<TABLE>
<CAPTION>
Pro Forma at August 31, 1998 Based Upon the Sale at $10.00 Per Share
-------------------------------------------------------------------------
3,570,000 Shares 4,200,000 Shares 4,830,000 Shares 5,554,500 Shares
(Minimum (Midpoint (Maximum (15% Above
of the of the of the Maximum of the
Historical at Estimated Estimated Estimated Estimated
August 31, 1998 Price Range) Price Range) Price Range) Price Range) (1)
------------------ ---------------- ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------- --------- ------ --------- ------ -------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital (3) ..... $33,377 9.11% $45,971 12.14% $48,268 12.67% $50,565 13.19% $53,206 13.78%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Leverage Capital:
Capital Level (4) .. $33,260 9.08% $45,853 12.10% $48,150 12.63% $50,447 13.16% $53,090 13.75%
Requirement (5) .... 14,649 4.00 15,152 4.00 15,244 4.00 15,336 4.00 15,442 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ............. $18,611 5.08% $30,701 8.10% $32,906 8.63% $35,111 9.16% $37,648 9.75%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital:
Capital Level (4)(6) $35,056 13.01% $47,649 17.10% $49,946 17.82% $52,243 18.52% $54,886 19.33%
Requirement ........ 21,551 8.00 22,292 8.00 22,427 8.00 22,562 8.00 22,717 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess ............. $13,505 5.01% $25,357 9.10% $27,519 9.82% $29,681 10.52% $32,169 11.33%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</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 Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial or economic conditions following the commencement of the
Subscription and Direct Community Offerings.
(2) Leverage capital levels are shown as a percentage of average tangible
assets. Risk-based capital levels are calculated on the basis of a
percentage of risk-weighted assets.
(3) GAAP is defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock. These levels also assume funding
by the Bank of the Stock Awards equal to 4% of the Common Stock issued,
including shares issued to the Foundation, and repayment of the loan by the
ESOP Loan Subsidiary to enable the ESOP to purchase 8% of the Common Stock
issued, including shares issued to the Foundation. See "Management of the
Bank--Other Benefit Plans" for a discussion of the Stock-Based Incentive
Plan and ESOP.
(5) The current leverage capital requirement for FDIC-insured banks is 3% of
total adjusted assets for FDIC-insured banks that receive the highest
supervisory rating for safety and soundness and that are not experiencing
or anticipating significant growth. The current leverage capital ratio
applicable to all other FDIC-insured banks is 4% to 5%. See "Regulation and
Supervision--Federal Regulations--Capital Requirements." The Company will
not be subject to regulatory capital requirements.
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of August 31,
1998.
21
<PAGE>
USE OF PROCEEDS
Although net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed, it is anticipated that net
proceeds from the sale of the Common Stock will be between $34.4 million to
$46.9 million (or $54.1 million if the Estimated Price Range is increased by
15%). See "Pro Forma Data" and "The Conversion--Stock Pricing" as to the
assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the net proceeds of the Offerings until the consummation of the
Conversion.
The Company will purchase all of the outstanding capital stock of the
Bank to be issued upon Conversion in exchange for 50% of the net proceeds of the
Offerings. Based on net proceeds of $34.4 million to $46.9 million, the Company
expects to utilize between $17.2 million and $23.4 million of net proceeds to
purchase the common stock of the Bank. Such portion of net proceeds received by
the Bank from the Company will be added to the Bank's general funds which the
Bank currently intends to utilize for general business activities, including
investment in loans and, to a lesser extent, investment-grade securities and the
possible repayment of FHLB borrowings. To the extent that the Stock-Based
Incentive Plan which the Company or the Bank intend to adopt subsequent to the
Conversion is not funded with authorized but unissued common stock of the
Company, the Company or Bank may use net proceeds from the Conversion to fund
the purchase of stock to be awarded under such program. See "Stock-Based
Benefits to Management and Directors, Employment Contracts and Change in Control
Payments" and "Management of the Bank--Other Benefit Plans--Stock-Based
Incentive Plan." The Bank has not yet determined the approximate amount of net
proceeds to be used for any of the purposes mentioned above.
The Company intends to use a portion of the net proceeds it retains
(i.e., 50% of the net proceeds, which based on net proceeds of $34.4 million to
$46.9 million will be between $17.2 million and $23.4 million) to capitalize the
ESOP Loan Subsidiary which intends to loan funds to the ESOP to enable the ESOP
to purchase 8% of the Common Stock issued in the Conversion, including shares
issued to the Foundation. Based upon the sale of 3,570,000, 4,200,000, 4,830,000
and 5,554,500 shares at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Price Range, and the issuance of shares to the Foundation, the
amount of the loan to the ESOP would be $3.1 million, $3.6 million, $4.2 million
and $4.8 million, respectively, with a term of 12 years at the prevailing prime
rate of interest, which currently is 8.0%. The Company and Bank may
alternatively choose to fund the ESOP's stock purchases through a loan by a
third party financial institution. See "Management of the Bank--Other Benefit
Plans--Employment Stock Ownership Plan." The remaining net proceeds retained by
the Company will initially be invested in short- to intermediate-term
investment-grade securities.
The net proceeds retained by the Company may also be used to support
the future expansion of operations through the acquisition of savings
associations and commercial banks or their assets, including those located
within the Bank's market area, or diversification into other banking related
businesses. The Company and the Bank have no current arrangements,
understandings or agreements regarding any such transactions. The Company, upon
the Conversion, will be a unitary savings and loan holding company, which under
existing laws would not be restricted as to the types of business activities in
which it may engage. See "Regulation and Supervision--Holding Company
Regulation" for a description of certain regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the
Company will have the authority to adopt stock repurchase plans, subject to
statutory and regulatory requirements. Unless previously approved, the Company,
pursuant to applicable regulations, may not repurchase any Common Stock in the
first year after conversion. If approval is obtained to repurchase common stock
during the first year after conversion, then such repurchase may not be greater
than 5% of the capital stock issued. Further, the Company may not repurchase any
of its Common Stock if the repurchases would cause the Bank to become
"undercapitalized" within the meaning of the FDIC prompt corrective action
regulation. The Company has no current intention of implementing a stock
repurchase program and any determination to do so in the future will depend on
the financial condition of the Company, market conditions and satisfaction of
any applicable laws or regulations. See "Regulation and Supervision--Prompt
Corrective Regulatory Action."
Based upon facts and circumstances following the Conversion and subject
to applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but not
be limited to: (i) market and economic factors such as the price at which the
stock is trading in the
22
<PAGE>
market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the opportunity to improve the Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. Following the Conversion, the Board of Directors
intends to consider a policy of paying cash dividends on the Common Stock.
However, no decision has been made as to the amount or timing of such dividends,
if any. Declarations of dividends by the Board of Directors, if any, will depend
upon a number of factors, including the amount of net proceeds retained by the
Company in the Conversion, investment opportunities available to the Company or
the Bank, capital requirements, regulatory limitations, the Company's and the
Bank's financial condition and results of operations, tax considerations and
general economic conditions. No assurances can be given, however, that any
dividends will be paid or, if commenced, will continue to be paid.
A Massachusetts savings bank may only pay dividends on its capital
stock if such payment would not impair the Bank's capital stock and surplus
account. Additionally, the Bank will not be permitted to pay dividends to the
Company on its capital stock if its stockholders' equity would be reduced below
the amount required for the liquidation account. See "The Conversion--
Liquidation Rights."
Unlike the Bank, the Company is not subject to the restrictions imposed
by the Massachusetts Banking Law on the payment of dividends to its
stockholders, although the source of such dividends will be, in part, dependent
upon dividends from the Bank in addition to the net proceeds retained by the
Company and earnings thereon. The Company is subject, however, to the
requirements of Delaware law, which generally limit dividends to an amount equal
to the excess of the net assets of the Company (the amount by which total assets
exceed total liabilities) over its statutory capital, or if there is no such
excess, to its net profits for the current and/or immediately preceding fiscal
year.
MARKET FOR THE COMMON STOCK
The Company and the Bank have not previously issued capital stock and,
consequently, there is no established market for the Common Stock. The Company
has received conditional approval to have its Common Stock listed on the AMEX
under the symbol "____" upon completion of the Conversion. Such approval is
subject to various conditions, including completion of the Conversion and the
satisfaction of applicable listing criteria. There can be no assurance that the
Common Stock will be able to meet the applicable listing criteria in order to
maintain its listing on the AMEX or that an active and liquid trading market
will develop or, if developed, will be maintained. A public market having the
desirable characteristics of depth, liquidity and orderliness, however, depends
upon the presence in the marketplace of both willing buyers and sellers of
Common Stock at any given time, which is not within the control of the Company.
No assurance can be given that an investor will be able to resell the Common
Stock at or above the purchase price of the Common Stock after the Conversion.
23
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at August 31, 1998, and the pro forma consolidated capitalization of the Company
after giving effect to the Conversion, including the issuance of shares to the
Foundation, based upon the sale of the number of shares indicated in the table
and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per Share
----------------------------------------------------------------
5,554,500
3,570,000 4,200,000 4,830,000 Shares
Shares Shares Shares (15% above
(Minimum of (Midpoint of (Maximum of Maximum of
Bank Estimated Estimated Estimated Estimated
Historical Price Range) Price Range) Price Range) Price Range)(1)
------------ ------------- ------------- -------------- ------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) .......................... $ 273,567 $ 273,567 $ 273,567 $ 273,567 $ 273,567
FHLB advances ........................ 54,792 54,792 54,792 54,792 54,792
--------- --------- --------- --------- ---------
Total deposits and borrowed funds .... $ 328,359 $ 328,359 $ 328,359 $ 328,359 $ 328,359
========= ========= ========= ========= =========
Stockholders' equity:
Preferred Stock, $.01 par value,
2,000,000 shares authorized;
none to be issued................. $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value,
16,000,000 shares authorized; shares
to be issued as reflected......... -- 39 45 52 60
Additional paid-in capital(3)....... -- 34,400 40,621 46,842 53,997
Surplus(4) ......................... 33,259 33,259 33,259 33,259 33,259
Less:
Expense of contribution to
Foundation, net of taxes(5)......... -- (1,799) (2,117) (2,434) (2,800)
Plus:
Shares issued to Foundation......... -- 2,856 3,360 3,864 4,444
Accumulated other comprehensive
income............................ 118 118 118 118 118
Less:
Common Stock acquired by the ESOP(6) -- (3,084) (3,629) (4,173) (4,799)
Common Stock acquired by the
Stock-Based Incentive Plan(7)..... -- (1,542) (1,814) (2,087) (2,400)
--------- --------- --------- --------- ---------
Total stockholders' equity ........... $ 33,377 $ 64,247 $ 69,843 $ 75,441 $ 81,879
========= ========= ========= ========= =========
</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 Price 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 and Direct Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00
per share. No effect has been given to the issuance of additional shares of
Common Stock pursuant to the Company's Stock-Based Incentive Plan intended
to be adopted by the Company and presented for approval of stockholders at
a meeting of stockholders following the Conversion. The Stock-Based
Incentive Plan would provide the grant of stock options to purchase an
amount of Common Stock equal to 10% of the shares of Common Stock issued in
the Conversion, including shares issued to the Foundation. See "Management
of the Bank - Other Benefit Plans - Stock-Based Incentive Plan."
(4) The surplus of the Bank will be substantially restricted after the
Conversion. See "The Conversion - Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 37% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable income,
subject to the ability of the Company to carry forward any unused portion
of the deduction for five years following the year in which the
contribution is made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP
and the funds used to acquire the ESOP shares will be borrowed from the
ESOP Loan Subsidiary. The Common Stock acquired by the ESOP is reflected as
a reduction of stockholders' equity. See "Management of the Bank - Other
Benefit Plans - Employee Stock Ownership Plan" and "- Other Benefit Plans -
Stock-Based Incentive Plan."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the Foundation
is purchased by the Stock-Based Incentive Plan through open market
purchases. The Common Stock purchased by the Stock-Based Incentive Plan is
reflected as a reduction of stockholder's equity. See "Risk Factors -
Stock-Based Benefits to Management and Directors, Employment Contracts and
Change in Control Payments," Footnote 3 to the tables under "Pro Forma
Data" and "Management of the Bank - Other Benefit Plans - Stock-Based
Incentive Plans."
24
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $34.4 million and $46.8 million based upon the
following assumptions: (i) $487,000 will be sold to executive officers,
directors and employees of the Bank and Company, the ESOP will purchase 8% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, and the remaining shares will be sold in the
Subscription and Direct Community Offerings; (ii) Sandler O'Neill will receive a
fee equal to 1.25% of the aggregate Purchase Price of the shares sold in the
Subscription Offering and Direct Community Offering, except that no fee will be
paid with respect to shares purchased by the Employee Plans, including the ESOP,
officers, employees, trustees, directors of the Bank and Company and their
associates; (iii) the Company will issue to the Foundation an amount of Common
Stock equal to 8% of the Common Stock sold in the Conversion from authorized but
unissued shares; and (iv) Conversion expenses, excluding the marketing fees paid
to Sandler O'Neill, will be approximately $860,000. Actual Conversion expenses
may vary from those estimated.
Pro forma consolidated net income of the Company for the eight months
ended August 31, 1998 and for the year ended December 31, 1997 have been
calculated as if the Common Stock had been sold at the beginning of the
respective periods and the net proceeds had been invested at 4.50% and 5.35%,
respectively, (the one year U.S. Treasury bill rate as of August 31, 1998 and
December 31, 1997, respectively). The tables do not reflect the effect of
withdrawals from deposit accounts for the purchase of Common Stock. The pro
forma after-tax yields for the Company and the Bank are assumed to be 2.84% and
3.37% for the eight months ended August 31, 1998 and the year ended December 31,
1997, respectively (based on an assumed tax rate of 37%). Historical and pro
forma per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of Common Stock, as adjusted to
give effect to the purchase of shares by the ESOP and the effect of the issuance
of shares to the Foundation. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company will retain 50% of the net
Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and the
consolidated pro forma data of the Company at or for the eight months ended
August 31, 1998 and the year ended December 31, 1997, based on the assumptions
set forth above and in the table and should not be used as a basis for
projections of market value of the Common Stock following the Conversion. The
tables below give effect to stock which may be reserved for grant under the
Stock-Based Incentive Plan, which is expected to be adopted by the Company
following the Conversion. See Footnote 3 to the tables and "Management of the
Bank--Other Benefit Plans." No effect has been given in the tables to the
possible issuance of additional shares of Common Stock upon the exercise of
Stock Options to be granted under the Stock-Based Incentive Plan, nor does book
value give any effect to the liquidation account to be established for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
or, in the event of liquidation of the Bank, to the tax effect of the bad debt
reserve and other factors. See Footnote 5 to the tables below, "The Conversion--
Liquidation Rights" and "Management of the Bank--Other Benefit Plans." The
following tables assume that the Foundation is approved as part of the
Conversion and therefore give effect to the issuance of authorized but unissued
shares of the Company's Common Stock to the Foundation concurrently with the
completion of the Conversion. The Valuation Range takes into account the
dilutive impact of the issuance of shares to the Foundation.
25
<PAGE>
<TABLE>
<CAPTION>
At or For the Eight Months Ended August 31, 1998
-------------------------------------------------------------------------
3,570,000 4,200,000 4,830,000 5,554,500
Shares Sold at Shares Sold at Shares Sold at Shares Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
(Minimum (Midpoint (Maximum (15% above
of of of Maximum of
Estimated Estimated Estimated Estimated
Price Range) Price Range) Price Range) Price Range) (7)
----------------- ----------------- ----------------- -----------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................. $35,700 $42,000 $48,300 $55,545
Plus: Shares issued to the Foundation
(equal to 8% of stock issued in
Conversion)........................... 2,856 3,360 3,864 4,444
------- ------- ------- -------
Pro forma market capitalization................ $38,556 $45,360 $52,164 $59,989
======= ======= ======= =======
Gross proceeds................................. $35,700 $42,000 $48,300 $55,545
Less: Offering expenses and
commissions......................... (1,261) (1,334) (1,406) (1,488)
-------- -------- -------- --------
Estimated net proceeds......................... 34,439 40,666 46,894 54,057
Less: Common Stock purchased
by ESOP............................. (3,084) (3,629) (4,173) (4,799)
Common Stock purchased by
Stock Based Incentive Plan.......... (1,542) (1,814) (2,087) (2,400)
-------- -------- -------- --------
Estimated net proceeds, as adjusted......... $29,813 $35,223 $40,634 $46,858
======= ======= ======= =======
Net income (1):
Historical.................................. $2,309 $2,309 $2,309 $2,309
Pro forma income on net proceeds,
as adjusted............................... 563 666 768 886
Less: Pro forma ESOP adjustment (2)......... (212) (249) (286) (329)
Pro forma Stock Based Incentive Plan
adjustment (3)...................... (130) (152) (175) (202)
------- ------- ------- -------
Pro forma net income.................. $2,530 $2,574 $2,616 $2,664
====== ====== ====== ======
Per share net income (1):
Historical.................................. $0.65 $0.55 $0.48 $0.42
Pro forma income on net proceeds,
as adjusted............................... 0.16 0.16 0.16 0.16
Less: Pro forma ESOP adjustment (2)......... (0.06) (0.06) (0.06) (0.06)
Pro forma Stock Based Incentive Plan
adjustment (3)...................... (0.04) (0.04) (0.04) (0.04)
------ ------ ------ ------
Pro forma net income per share........ $0.71 $0.61 $0.54 $0.48
===== ===== ===== =====
Stockholders' equity:
Historical.................................. $33,377 $33,377 $33,377 $33,377
Estimated net proceeds...................... 34,439 40,666 46,894 54,057
Plus: Tax benefit of Foundation.......... 1,057 1,243 1,430 1,644
Less: Common Stock acquired
by ESOP (2)...................... (3,084) (3,629) (4,173) (4,799)
Less: Common Stock acquired by Stock
Based Incentive Plan(3).......... (1,542) (1,814) (2,087) (2,400)
------- ------- ------- -------
Pro forma stockholders' equity (3)(4)(5).. $64,247 $69,843 $75,441 $81,879
======= ======= ======= =======
Stockholders' equity per share (3)(6):
Historical.................................. $8.66 $7.36 $6.40 $5.56
Estimated net proceeds...................... 8.93 8.97 8.99 9.01
Plus: Tax benefit of Foundation.......... 0.27 0.27 0.27 0.27
Less: Common Stock acquired
by ESOP (2)...................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Based Incentive Plan(3).... (0.40) (0.40) (0.40) (0.40)
------ ------ ------ ------
Pro forma stockholders' equity
per share(3)(4)(5)...................... $16.66 $15.40 $14.46 $13.64
====== ====== ====== ======
Offering price as a percentage of pro forma
stockholders' equity per share.............. 60.02% 64.94% 69.16% 73.31%
Offering price to pro forma net
earnings per share (8)...................... 9.39x 10.93x 12.35x 13.89x
</TABLE>
(See footnotes on next page)
26
<PAGE>
- -----------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in 1999 as a result of the establishment of the Foundation. In that event,
the Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $1.8 million, $2.1
million, $2.4 million and $2.8 million at the minimum, midpoint, maximum
and maximum as adjusted, of the Estimated Price Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
ESOP Loan Subsidiary, a wholly owned subsidiary of the Company and the pro
forma ESOP amortized expenses are presented net of taxes using an effective
combined federal and state income tax rate of 32%. See "Use of Proceeds."
The ESOP Loan Subsidiary will be formed and capitalized by the Company in
connection with the consummation of the Conversion. The amount to be
borrowed is reflected as a reduction of stockholders' equity. The Bank
intends to make annual contributions to the ESOP in an amount at least
equal to the principal and interest requirement of the debt. The Bank's
total annual payment of the ESOP debt is based upon 12 equal annual
installments of principal, with an assumed interest rate at 8.0%. The pro
forma net earnings assumes: (i) that the Bank's contribution to the ESOP is
equivalent to the debt service requirement for the eight months ended
August 31, 1998, and was made at the end of the period; (ii) that 17,137,
20,161, 23,185, and 26,663 shares at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively, were committed to be released
during the eight months ended August 31, 1998 at an average fair value of
$10.00 per share in accordance with SOP 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net earnings per share calculations. See "Management of the Bank--Other
Benefit Plans--Employee Stock Ownership Plan."
(3) Gives effect to the Stock Awards available for grant under the Stock-Based
Incentive Plan expected to be adopted by the Company following the
Conversion and presented for approval at a meeting of stockholders. For
purposes of this table, the pro forma Stock-Based Incentive Plan amortized
expenses are presented net of taxes using an effective combined federal and
state income tax rate of 37%. If the Stock-Based Incentive Plan is approved
by stockholders, the Stock-Based Incentive Plan intends to acquire an
amount of Common Stock equal to 4% of the shares of Common Stock issued in
connection with the Conversion, including shares issued to the Foundation,
or 154,224, 181,440, 208,656 and 239,954 shares of Common Stock at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
Range, respectively, either through open market purchases, if permissible,
or from authorized but unissued shares of Common Stock or treasury stock of
the Company, if any. In calculating the pro forma effect of the Stock-Based
Incentive Plan, it is assumed that the shares were acquired by the Stock-
Based Incentive Plan at the beginning of the period presented in open
market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock-
Based Incentive Plan instead of open market purchases would dilute the
voting interests of existing stockholders by approximately 3.8% and pro
forma net earnings per share would be $0.69, $0.60, $0.53 and $0.47 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively and pro forma stockholders' equity per share would be $16.41,
$15.19, $14.29 and $13.51 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively. There can be no assurance that the
stockholder approval of the Stock-Based Incentive Plan will be obtained, or
that the actual purchase price of the shares will be equal to the Purchase
Price. See "Management of the Bank--Other Benefit Plans--Stock-Based
Incentive Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock upon the exercise of options to be granted under the Stock-Based
Incentive Plan. An amount equal to 10% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation,
or 385,560, 453,600, 521,640 and 599,886 shares at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock-Based Incentive Plan. The issuance of
Common Stock pursuant to the exercise of options under the Stock-Based
Incentive Plan will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.64, $0.55, $0.49 and $0.43 respectively, and the pro forma
stockholders' equity per share would be $15.15, $14.00, $13.15 and $12.41,
respectively. See "Risk Factors--Stock-Based Benefits to Management and
Directors Employment Contracts and Change in Control Payments" and
"Management of the Bank--Other Benefit Plans--Stock-Based Incentive Plan."
(5) The surplus of the Bank will continue to be substantially restricted after
the Conversion. See "Dividend Policy," "The Conversion--Liquidation
Rights."
(6) Stockholders' equity per share data is based upon 3,855,600, 4,536,000,
5,216,400 and 5,998,900 shares outstanding representing shares sold in the
conversion and shares contributed to the Foundation.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price 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 and Direct Community Offerings.
(8) Based on pro forma net earnings for the eight months ended August 31, 1998
that have been annualized.
27
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-------------------------------------------------------------------------
3,570,000 4,200,000 4,830,000 5,554,500
Shares Sold at Shares Sold at Shares Sold at Shares Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
(Minimum (Midpoint (Maximum (15% above
of of of Maximum of
Estimated Estimated Estimated Estimated
Price Range) Price Range) Price Range) Price Range) (7)
----------------- ----------------- ----------------- -----------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................. $35,700 $42,000 $48,300 $55,545
Plus: Shares issued to the Foundation
(equal to 8% of stock issued in
Conversion)........................... 2,856 3,360 3,864 4,444
------- ------- ------- -------
Pro forma market capitalization................ $38,556 $45,360 $52,164 $59,989
======= ======= ======= =======
Gross proceeds................................. $35,700 $42,000 $48,300 $55,545
Less: Offering expenses and commissions..... (1,261) (1,334) (1,406) (1,488)
------- ------- ------- -------
Estimated net proceeds......................... 34,439 40,666 46,894 54,057
Less: Common Stock purchased by ESOP........ (3,084) (3,629) (4,173) (4,799)
Common Stock purchased by Stock Based
Incentive Plan...................... (1,542) (1,814) (2,087) (2,400)
------- ------- ------- -------
Estimated net proceeds, as adjusted......... $29,813 $35,223 $40,634 $46,858
======= ======= ======= =======
Net income (1):
Historical.................................. $ 3,018 $ 3,018 $ 3,018 $ 3,018
Pro forma income on net proceeds, as
adjusted.................................. 1,005 1,087 1,370 1,579
Less: Pro forma ESOP adjustment (2)......... (317) (373) (429) (494)
Pro forma Stock Based Incentive Plan
adjustment (3)...................... (194) (229) (263) (302)
------- ------- ------- -------
Pro forma net income.................. $ 3,512 $ 3,603 $ 3,696 $ 3,801
======= ======= ======= =======
Per share net income (1):
Historical.................................. $0.84 $ 0.72 $ 0.62 $ 0.54
Pro forma income on net proceeds, as
adjusted.................................. 0.28 0.28 0.28 0.28
Less: Pro forma ESOP adjustment (2)......... (0.09) (0.09) (0.09) (0.09)
Pro forma Stock Based Incentive Plan
adjustment (3)...................... (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Pro forma net income per share........ $ 0.98 $ 0.86 $ 0.76 $ 0.68
======= ======= ======= =======
Stockholders' equity:
Historical.................................. $33,332 $33,332 $33,332 $33,332
Estimated net proceeds...................... 34,439 40,666 46,894 54,057
Plus: Tax benefit of Foundation.......... 1,057 1,243 1,430 1,644
Less: Common Stock acquired by ESOP (2).. (3,084) (3,629) (4,173) (4,799)
Less: Common Stock acquired by Stock
Based Incentive Plan (3)......... (1,542) (1,814) (2,087) (2,400)
------- ------- ------- -------
Pro forma stockholders' equity (3)(4)(5).. $64,202 $69,798 $75,396 $81,834
======= ======= ======= =======
Stockholders' equity per share (3)(6):
Historical.................................. $ 8.65 $ 7.35 $ 6.39 $ 5.56
Estimated net proceeds...................... 8.93 8.97 8.99 9.01
Plus: Tax benefit of Foundation.......... 0.27 0.27 0.27 0.27
Less: Common Stock acquired by ESOP (2).. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by Stock
Based Incentive Plan (3)......... (0.40) (0.40) (0.40) (0.40)
------- ------- ------- -------
Pro forma stockholders' equity per
share (3)(4)(5)......................... $ 16.65 $ 15.39 $ 14.45 $ 13.64
======= ======= ======= =======
Offering price as a percentage of pro forma
stockholders' equity per share.............. 60.06% 64.98% 69.20% 73.31%
Offering price to pro forma net earnings per
share....................................... 10.20x 11.63x 13.16x 14.71x
</TABLE>
(See footnotes on next page)
28
<PAGE>
- ------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in 1999 as a result of the establishment of the Foundation. In that event,
the Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $1.8 million, $2.1
million, $2.4 million and $2.8 million at the minimum, midpoint, maximum
and maximum as adjusted, of the Estimated Price Range, respectively.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
ESOP Loan Subsidiary, a wholly owned subsidiary of the Company and the pro
forma ESOP amortized expenses are presented net of taxes using an effective
combined federal and state income tax rate of 32%. See "Use of Proceeds."
The ESOP Loan Subsidiary will be formed and capitalized by the Company in
connection with the consummation of the Conversion. The amount to be
borrowed is reflected as a reduction of stockholders' equity. The Bank
intends to make annual contributions to the ESOP in an amount at least
equal to the principal and interest requirement of the debt. The Bank's
total annual payment of the ESOP debt is based upon 12 equal annual
installments of principal, with an assumed interest rate at 8.0%. The pro
forma net earnings assumes: (i) that the Bank's contribution to the ESOP is
equivalent to the debt service requirement for the year ended December 31,
1997, and was made at the end of the period; (ii) that 25,704, 30,240,
34,776, and 39,993 shares at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, were committed to be released
during the year ended December 31, 1997 at an average fair value of $10.00
per share in accordance with SOP 93-6; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the
net earnings per share calculations. See "Management of the Bank--Other
Benefit Plans--Employee Stock Ownership Plan."
(3) Gives effect to the Stock Awards available for grant under the Stock-Based
Incentive Plan expected to be adopted by the Company following the
Conversion and presented for approval at a meeting of stockholders. For
purposes of this table, the pro forma Stock-Based Incentive Plan amortized
expenses are presented net of taxes using an effective combined federal and
state income tax rate of 37%. If the Stock-Based Incentive Plan is approved
by stockholders, the Stock-Based Incentive Plan intends to acquire an
amount of Common Stock equal to 4% of the shares of Common Stock issued in
connection with the Conversion, including shares issued to the Foundation,
or 154,224, 181,440, 208,656 and 239,954 shares of Common Stock at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
Range, respectively, either through open market purchases, if permissible,
or from authorized but unissued shares of Common Stock or treasury stock of
the Company, if any. In calculating the pro forma effect of the Stock-Based
Incentive Plan, it is assumed that the shares were acquired by the Stock-
Based Incentive Plan at the beginning of the period presented in open
market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock-
Based Incentive Plan instead of open market purchases would dilute the
voting interests of existing stockholders by approximately 4.0% and pro
forma net earnings per share would be $0.96, $0.84, $0.75 and $0.67 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively and pro forma stockholders' equity per share would be $16.40,
$15.18, $14.28 and $13.50 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively. There can be no assurance that the
stockholder approval of the Stock-Based Incentive Plan will be obtained, or
that the actual purchase price of the shares will be equal to the Purchase
Price. See "Management of the Bank--Other Benefit Plans--Stock-Based
Incentive Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock upon the exercise of options to be granted under the Stock-Based
Incentive Plan. An amount equal to 10% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation,
or 385,560, 453,600, 521,640 and 599,886 shares at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range,
respectively, will be reserved for future issuance upon the exercise of
options to be granted under the Stock-Based Incentive Plan. The issuance of
Common Stock pursuant to the exercise of options under the Stock-Based
Incentive Plan will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.89, $0.77, $0.69 and $0.62 respectively, and the pro forma
stockholders' equity per share would be $15.14, $13.99, $13.14 and $12.40,
respectively. See "Risk Factors--Stock-Based Benefits to Management and
Directors, Employment Contracts and Change in Control Payments" and
"Management of the Bank--Other Benefit Plans--Stock-Based Incentive Plan."
(5) The surplus of the Bank will continue to be substantially restricted after
the Conversion. See "Dividend Policy," "The Conversion--Liquidation
Rights."
(6) Stockholders' equity per share data is based upon 3,855,600, 4,536,000,
5,216,400 and 5,998,900 shares outstanding representing shares sold in the
conversion and shares contributed to the Foundation.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price 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 and Direct Community Offerings.
29
<PAGE>
COMPARISON OF VALUATION AND
PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of
the Conversion, Keller has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $48.0 million, at the
midpoint, which is approximately $2.6 million greater than the pro forma
aggregate market capitalization of the Company if the Foundation is included,
and would result in approximately a $6.0 million, or 14.3%, increase in the
amount of Common Stock offered for sale in the Conversion. The pro forma price
to book ratio would be substantially the same under both the current appraisal
and the estimate of the value of the Company without the Foundation. Further,
assuming the midpoint of the Estimated Price Range, pro forma stockholders'
equity per share and pro forma earnings per share would also be substantially
the same with the Foundation as without the Foundation. In this regard, pro
forma stockholders' equity and pro forma net income per share would be $15.46
and $0.58 respectively, at the midpoint of the estimate assuming no Foundation,
and $15.40 and $0.61, respectively, with the Foundation. In addition, the pro
forma price to book ratio and the pro forma price to earnings ratios are 64.67%
and 11.45x, respectively, at the midpoint of the estimate assuming no
Foundation, and 64.94% and 10.93x, respectively, with the Foundation. There is
no assurance that in the event the Foundation was not formed that the appraisal
prepared at that time would have concluded that the pro forma market value of
the Company would be the same as that estimated herein. Any appraisal prepared
at that time would be based on the facts and circumstances existing at that
time, including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Estimated Price Range, assuming the Conversion was
completed at August 31, 1998, using the assumptions set forth in the "Pro Forma
Data."
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum At the Midpoint At the Maximum as Adjusted
---------------------- ---------------------- ---------------------- ----------------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount...... $35,700 $40,800 $42,000 $48,000 $48,300 $55,200 $55,545 $63,480
Pro forma market
capitalization............... $38,556 $40,800 $45,360 $48,000 $52,164 $55,200 $59,989 $63,480
Total assets................... $397,155 $400,868 $402,753 $407,121 $408,351 $413,374 $414,789 $420,565
Total liabilities.............. $332,903 $332,903 $332,903 $332,903 $332,903 $332,903 $332,903 $332,903
Pro forma stockholders'
equity....................... $64,247 $67,965 $69,843 $74,218 $75,441 $80,471 $81,879 $87,662
Pro forma consolidated net
earnings..................... $2,530 $2,539 $2,574 $2,584 $2,616 $2,628 $2,664 $2,680
Pro forma stockholders' equity
per share.................... $16.66 $16.66 $15.40 $15.46 $14.46 $14.58 $13.64 $13.81
Pro forma consolidated net
earnings per share........... $0.71 $0.67 $0.61 $0.58 $0.54 $0.52 $0.48 $0.46
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro forma
stockholders' equity per
share...................... 60.02% 60.03% 64.94% 64.67% 69.16% 68.60% 73.31% 72.41%
Offering price to pro forma
net earnings per share..... 9.39x 9.90x 10.93x 11.45x 12.35x 12.94x 13.89x 14.60x
Offering price to assets..... 9.71% 10.18% 11.26% 11.79% 12.77% 13.35% 14.46% 15.09%
Pro Forma Financial Ratios:
Return on assets (annualized) 0.93% 0.95% 0.93% 0.95% 0.93% 0.95% 0.93% 0.96%
Return on stockholders'
equity (annualized)........ 5.77% 5.60% 5.38% 5.22% 5.04% 4.90% 4.72% 4.59%
Stockholders' equity
to total assets............ 16.18% 16.95% 17.34% 18.23% 18.48% 19.47% 19.74% 20.84%
</TABLE>
30
<PAGE>
WORONOCO SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years in the three year period ended December 31, 1997 have been audited by Wolf
& Company, P.C., independent certified public accountants, whose report thereon
appears elsewhere in this Prospectus. With respect to information for the eight
months ended August 31, 1998 and 1997, which is unaudited, in the opinion of
management, all adjustments necessary for a fair presentation of such interim
periods have been included and are of a normal recurring nature. Results for the
eight months ended August 31, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. These statements
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the
Eight Months Ended
August 31, For the Year Ended December 31,
------------------- ----------------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans .......................... $14,140 $12,936 $19,682 $17,732 $15,856
Interest and dividends on investment securities:
Non taxable interest .............................. 1,664 1,985 2,894 2,883 2,826
Dividends ......................................... 704 690 929 928 862
Interest on federal funds sold ...................... 52 4 36 115 217
Other interest income ............................... 90 33 117 76 108
------- ------- ------- ------- -------
Total interest and dividend income ................ 16,650 15,567 23,658 21,734 19,869
------- ------- ------- ------- -------
Interest expense:
Interest on deposits (Notes 6 and 9) .............. 6,876 6,579 10,159 9,413 8,701
Interest on advances (Note 9) ..................... 1,953 1,508 2,341 1,609 1,122
------- ------- ------- ------- -------
Total interest expense ......................... 8,829 8,087 12,500 11,022 9,823
------- ------- ------- ------- -------
Net interest income ................................. 7,821 7,480 11,158 10,712 10,046
Provision for loan losses (Note 3) .................. 160 120 180 180 210
------- ------- ------- ------- -------
Net interest income after provision for loan losses . 7,661 7,360 10,978 10,532 9,836
------- ------- ------- ------- -------
Other income:
Customer service fees ............................. 1,040 914 1,412 1,129 973
Gain on sales and disposition of securities,
net (Note 2) ................................... 1,218 1,441 1,895 751 578
Gain on sales of property ......................... -- -- 17 -- --
Gain on sales of loans, net ....................... 290 -- -- 16 41
------- ------- ------- ------- -------
Total other income ............................. 2,548 2,355 3,324 1,896 1,592
------- ------- ------- ------- -------
Other expenses:
Salaries and net employee benefits (Note 11) ...... 3,355 3,177 4,724 4,303 4,003
Occupancy and equipment (Notes 5 and 9) ........... 936 844 1,302 1,130 1,045
Other real estate owned (Note 4) .................. 42 66 110 211 189
Marketing ......................................... 444 409 610 540 383
Professional services ............................. 318 239 360 395 343
Data processing ................................... 430 383 595 524 431
Deposit insurance ................................. 24 23 31 2 259
Contributions ..................................... 107 600 613 81 150
Other general and administrative .................. 1,021 887 1,398 1,186 890
------- ------- ------- ------- -------
Total other expenses ........................... 6,677 6,628 9,743 8,372 7,693
------- ------- ------- ------- -------
Income before income taxes .......................... 3,532 3,087 4,559 4,056 3,735
Provision for income taxes (Note 8) ................. 1,223 986 1,541 1,582 1,400
------- ------- ------- ------- -------
Net income ..................................... $ 2,309 $ 2,101 $ 3,018 $ 2,474 $ 2,335
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Consolidated Financial and Other Data of the Bank" and the Bank's
Consolidated Financial Statements and notes thereto, each appearing elsewhere in
the Prospectus. In addition to historical information, the following
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward-looking statements as a result of certain factors,
including those discussed in "Risk Factors" contained elsewhere in this
Prospectus.
General
The Company has only recently been formed and, accordingly, has no
results of operations. The Bank's results of operations are dependent primarily
on net interest income, which is the difference between the interest income
earned on the Bank's interest-earning assets, such as loans and investments, and
the interest expense on its interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates non-interest income such as service charges
and other fees. The Bank's noninterest expenses primarily consist of employee
compensation and benefits, occupancy and equipment expense, marketing expenses,
data processing, professional services and other general and administrative
expenses. The Bank's results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory agencies. The Bank
exceeded all of its regulatory capital requirements at August 31, 1998. See
"Regulatory Capital Compliance" for a discussion of the historical and pro forma
capital of the Bank and capital requirements. See also "Regulation and
Supervision--Federal Regulation--Capital Requirements."
Forward-Looking Statements
This Prospectus contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company. These forward-looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company and the subsidiaries include, but are not limited to, changes in
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. The Company does not undertake -- and
specifically disclaims any obligation -- to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
Management Strategy
The Bank operates as a community-oriented savings bank, offering
traditional deposit and loan products to its customers. In recent years, the
Bank's strategy has been to maintain profitability while managing its capital
position and limiting its credit and interest rate risk exposure. To accomplish
these objectives, the Bank has sought to:
. Emphasize providing superior service and competitive rates in
order to increase deposits, including commercial accounts
. Control credit risk by emphasizing the origination of single-
family, owner-occupied residential mortgage loans and consumer
loans, consisting primarily of home equity loans and lines of
credit
. Invest funds in excess of loan demand primarily in mortgage-
backed and investment grade equity securities
. Control interest rate risk by utilizing off-balance sheet
hedging transactions such as interest rate swaps, caps and
floors
32
<PAGE>
. Originate high quality, multi-family and commercial real
estate and commercial business loans which increase the yields
earned on its overall loan portfolio, without incurring
unnecessary risk
. Expand its lending and deposit base through the establishment
of full-service banking offices located inside
supermarket/grocery stores
Beginning in 1994, the Bank began opening full-service banking offices
in supermarket/grocery stores operated by the regionally based Big Y Foods, Inc.
Since 1994, the Bank has established three such banking offices and is planning
to open a fourth banking office at a Big Y supermarket located in Amherst,
Massachusetts. The Bank expects that such banking office will become operational
during the first quarter of 1999. The Bank will continue to seek attractive
opportunities to expand its branching activities through supermarket facilities
as such opportunities arise.
The Bank intends to continue its current operating strategy in an
effort to enhance its long-term profitability while maintaining a reasonable
level of interest rate risk. The Bank also intends to enhance its current
operating strategy by expanding the products and services that it offers, as
necessary, in order to improve its market share in its primary market area. In
this regard, the Bank has begun to offer new consumer and commercial deposit
products and various other customer improvement services and intends to expand
its trust services and invest in technological enhancements, such as PC banking,
in order to better serve its customers in the future. In addition, and
consistent with its plan to increase its loan portfolio, the Bank intends to
hire additional loan originators, a commercial loan officer and an additional
credit analyst to assist the loan department.
Management of Interest Rate Risk and Market Risk Analysis
The principal objective of the Bank's interest rate risk management is
to evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Trustees' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank monitors its interest
rate risk as such risk relates to its operating strategies. The Bank maintains
an Asset/Liability Management Committee (the "ALCO"), responsible for reviewing
its asset/liability policies and interest rate risk position, which meets on a
quarterly basis and reports trends and interest rate risk position to the Board
of Trustees on a quarterly basis. The extent of the movement of interest rates
is an uncertainty that could have a negative impact on the earnings of the Bank.
See "Risk Factors--Sensitivity to Changes in Interest Rates."
In recent years, the Bank has utilized the following strategies to
manage interest rate risk: (1) emphasizing the origination of shorter-term
adjustable-rate loans, such as home equity loans and lines of credit as well as
emphasizing the origination of multi-family and commercial real estate loans;
(2) emphasizing the origination of retail checking accounts and offering deposit
products with a variety of interest rates; (3) preparing and monitoring static
gap and asset/liability funding matrix reports; and (4) utilizing off-balance
sheet hedging transactions, such as interest rate swaps, caps and floors.
The Bank periodically 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 interest rate swap, cap and
floor agreements. Interest rate swap agreements generally involve the exchange
of fixed and floating-rate interest payment obligations without the exchange of
the underlying principal, or notional, amounts. These transactions are accounted
for using the accrual method. Net interest income resulting from the
differential between exchanging floating and fixed-rate payments is recorded on
a current basis. Interest rate cap and floor agreements generally involve the
payment of a premium in return for cash receipts if interest rates rise above or
fall below a specified interest rate level. Payments are based on a notional
principal amount. Swaps are generally negotiated for periods of one to five
years. Caps and floors generally are not readily available for time periods
longer than five years. The Bank's stated objective regarding the utilization of
interest rate swaps, caps and floors is to reduce risk associated with adverse
rate volatility while enabling the Bank to benefit from favorable interest rate
movements. The Bank's policies provide that a rate swap is in essence a "cross
hedge" and may only be undertaken if the potential correlation of the swap is
reasonable. The Bank's policies also provide that the costs of caps and floors
must be analyzed as they pertain to the spread, asset yield or liability cost
being protected. Such costs must
33
<PAGE>
be viewed in light of the Bank's overall profitability. The Bank's policies
further provide that swap arrangements and the purchase of caps and floors shall
only be negotiated with firms which meet the Bank's investment criteria. All
counter-parties to swap, cap and floor arrangements must be pre-approved by the
Bank's Board of Trustees. At August 31, 1998, the notional principal amounts of
the Bank's outstanding interest rate cap and floor agreements were $10 million
each. Under the terms of the cap agreements, the Bank paid premiums totalling
$80,000 which is included in other assets and being amortized over three years
which are the terms of the agreements. Amortization for the eight months ended
August 31, 1998 totaled $8,000 and is recorded as an interest expense on
advances. The agreements provide that, if the London Interbank Offered Rate
("LIBOR") increases above 6%, the Bank receives cash payments on a quarterly
basis. There were no cash payments received at August 31, 1998. Under the terms
of the floor agreement, the Bank paid a premium of $134,000 during 1996 which is
included in other assets and is being amortized over five years which is the
term of the agreement. Amortization for the eight months ended August 31, 1998
totalled $24,000, and is recorded as an interest expense on advances. The
agreement provides that if the LIBOR falls below 5.75%, the Bank receives cash
payments on a quarterly basis. Cash payments received during the eight months
ended August 31, 1998 totalled $2,000 and is recorded as a credit to interest on
advances. At August 31, 1998, the Bank was not a party to any swap arrangements.
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 said 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 August 31, 1998, the Bank's 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 3.00%. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising interest rates, an institution with a
negative gap position would be in a worse position to invest in higher yielding
assets which, consequently, may result in the cost of its interest-bearing
liabilities increasing at a rate faster than its yield on interest-earning
assets than if it had a positive gap. Conversely, during a period of falling
interest rates, an institution with a negative gap would tend to have its
interest-bearing liabilities repricing downward at a faster rate than its
interest-earning assets as compared to an institution with a positive gap which,
consequently, may tend to positively affect the growth of its net interest
income.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at August 31, 1998, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown (the "Gap Table"). 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 earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
August 31, 1998, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a one-year period and
subsequent selected time intervals. For loans on residential properties,
adjustable-rate loans, and fixed-rate loans, actual repricing and maturity dates
were used. Mortgage-backed securities were assumed to prepay at rates between
16.14% and 19.45% annually. The stratification of savings deposits (including
NOW, savings and money market accounts) is based on management's philosophy of
repricing core deposits in response to changes in the general interest rate
environment. Prepayment rates can have a significant impact on the Bank's
estimated gap. While the Bank believes such assumptions to be reasonable, there
can be no assurance that assumed prepayment rates will approximate actual future
loan prepayment activity. See "Business of the Bank--Lending Activities,"
"--Investment Activities" and "--Sources of Funds."
34
<PAGE>
<TABLE>
<CAPTION>
At August 31, 1998
-------------------------------------------------------
More than More than More than
1 Year 1 Year to 2 Years to 3 Years to
or less 2 Years 3 Years 4 Years
--------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets(1):
Mortgage-backed securities ........ $ 17,068 $ 6,766 $ 5,653 $ 4,138
Equity securities ................. 101 -- -- --
FHLB stock ........................ 2,984 -- -- --
Loans, net ........................ 147,245 37,794 18,708 21,209
Other ............................. 1,932 -- -- --
--------- -------- -------- --------
Total interest-earning assets ..... $ 169,338 $ 44,560 $ 24,361 $ 25,347
========= ======== ======== ========
Interest-bearing liabilities:
Savings accounts .................. $ 6,624 $ -- $ -- $ --
Money market accounts ............. 24,904 -- -- --
NOW accounts ...................... -- -- -- --
Certificates of deposit ........... 105,216 31,343 4,635 17
FHLB advances ..................... 43,579 706 204 152
--------- -------- -------- --------
Total interest-bearing
liabilities ................. $ 188,323 $ 32,049 $ 4,839 $ 169
========= ======== ======== ========
Interest sensitivity gap(2) ....... $ (10,993) $ 12,511 $ 19,522 $ 25,178
========= ======== ======== ========
Cumulative interest sensitivity gap $ (10,993) $ 1,518 $ 21,040 $ 46,218
========= ======== ======== ========
Cumulative interest sensitivity gap
as a percentage of total assets... (3.00)% 0.41% 5.75% 12.62%
Cumulative interest sensitivity gap
as a percentage of total interest-
earning assets ................... (3.22)% 0.44% 6.16% 13.52%
Cumulative net interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities ...................... 93.90% 100.71% 109.69% 121.26%
<CAPTION>
At August 31, 1998
-------------------------------------------------------
More than
4 Years to More than Total Fair
5 Years 5 Years Amount Value(3)
--------- --------- ---------- ----------
(Dollars in thousands)
Interest-earning assets(1):
Mortgage-backed securities ........ $ 4,137 $ 14,057 $ 51,819 $ 52,796
Equity securities ................. -- 19,374 19,475 18,686
FHLB stock ........................ -- -- 2,984 2,984
Loans, net ........................ 21,208 19,400 265,564 267,157
Other ............................. -- -- 1,932 1,932
--------- --------- --------- ---------
Total interest-earning assets ..... $ 25,345 $ 52,831 $ 341,774 $ 343,555
========= ========= ========= =========
Interest-bearing liabilities:
Savings accounts .................. $ -- $ 59,850 $ 66,474 $ 68,474
Money market accounts ............. -- -- 24,904 24,904
NOW accounts ...................... -- 29,305 29,305 29,305
Certificates of deposit ........... 16 -- 141,227 141,990
FHLB advances ..................... 151 10,000 54,792 59,956
--------- --------- --------- ---------
Total interest-bearing
liabilities.................. $ 167 $ 99,155 $ 316,702 $ 324,629
========= ========= ========= =========
Interest sensitivity gap(2) ....... $ 25,178 $ (46,324) $ 25,072
========= ========= =========
Cumulative interest sensitivity gap $ 71,396 $ 25,072
========= =========
Cumulative interest sensitivity gap
as a percentage of total assets... 19.50% 6.85%
Cumulative interest sensitivity gap
as a percentage of total
interest-earning assets .......... 20.89% 7.34%
Cumulative net interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities ...................... 132.82% 107.92%
</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) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
(3) Fair value of securities, including mortgage-backed securities, is based on
quoted market prices, where available. If quoted market prices are not
available, fair value is based on quoted market prices of comparable
instruments. Fair value of loans is, depending on the type of loan, based
on carrying values or estimates based on discounted cash flow analyses.
Fair value of deposit liabilities are either based on carrying amounts or
estimates based on a discounted cash flow calculation. Fair values for FHLB
advances are estimated using a discounted cash flow analysis that applies
interest rates concurrently being offered on advances of aggregated
expected monthly maturities on FHLB advances.
35
<PAGE>
Certain shortcomings are inherent in the method of analysis presented
in the Gap Table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
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 depends on the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
36
<PAGE>
Average Balance Sheet. The following table sets forth certain
information relating to the Bank at August 31, 1998 and for the eight months
ended August 31, 1998 and 1997, and for the years ended December 31, 1997, 1996
and 1995. The average yields and costs are derived by dividing income or expense
by the average balance 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. Loan interest
and yield data does not include any accrued interest from nonaccruing loans.
<TABLE>
<CAPTION>
For the Eight Months Ended August 31,
At August 31, ------------------------------------------------------------------------
1998 1998 1997
--------------------- ---------------------------------- -------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate
-------- ------- -------- -------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:(1)
Investments:
Loans, net(2) ........... $265,564 7.85% $271,480 $ 14,140 7.81% $242,998 $ 12,936 7.99%
Mortgage-backed
securities ............. 52,796 6.77 37,579 1,664 6.64 45,325 1,985 6.57
Equity securities ....... 18,686 4.10 19,046 574 4.52 13,473 503 5.60
FHLB stock .............. 2,984 6.30 2,826 130 6.90 2,261 106 7.03
Other ................... 1,932 4.69 4,109 142 5.18 1,410 37 3.94
-------- -------- -------- ----------- --------
Total interest-earning
assets .............. 341,962 7.41 335,040 16,650 7.45 305,467 15,567 7.64
----- -------- ----- -------- -----
Noninterest earning
assets ................. 24,256 19,407 17,639
-------- -------- -----------
Total assets ......... $366,218 $354,447 $ 323,106
======== ======== ===========
Liabilities and surplus:
Interest-bearing liabilities:
Deposits:
Money market accounts ... $ 24,904 3.54 $ 23,457 533 3.41 $ 18,008 272 2.27
Savings accounts (3) .... 67,310 2.28 66,375 1,003 2.27 64,208 1,110 2.59
NOW accounts ............ 29,305 1.02 27.241 189 1.04 24,542 165 1.01
Certificates of deposit . 141,227 5.56 139,881 5,151 5.52 137.626 5,032 5.48
-------- -------- -------- ----------- -------
Total interest-
bearing deposits..... 262,746 4.02 256,954 6,876 4.01 244,384 6,579 4.04
FHLB advances ............ 54,792 5.42 52,181 1,953 5.61 39,176 1,508 5.77
-------- -------- -------- ----------- -------
Total interest-bearing
liabilities.......... 317,538 4.26 309,135 8,829 4.28 283,560 8,087 4.28
----- -------- ----- ------- -----
Demand deposits .......... 11,657 9,763 7,399
Other noninterest-bearing
liabilities ............. 3,646 745 1,753
-------- -------- -----------
Total liabilities..... 332,841 319,643 292,712
Total surplus ............ 33,377 34,804 30,394
-------- -------- -----------
Total liabilities and
surplus ............. $366,218 $354,447 $ 323,106
======== ======== ===========
Net interest-earning
assets .................. $ 24,424 $ 25,905 $ 21,907
======== ======== ===========
Net interest
income/interest rate
spread(4) ............... 3.15% $ 7,821 3.17% $ 7,480 3.36%
===== ======== ===== ======== =====
Net interest margin as a
percentage of
interest-earning
assets(5)................ 3.50% 3.67%
===== =====
Ratio of interest ...........
earning assets to
interest-bearing liabilities. 107.69% 108.38% 107.73%
====== ====== ======
</TABLE>
- -----------------
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan origination fees, unadvanced loan funds,
allowance for loan losses and includes nonaccruing loans. The Bank records
interest income on nonaccruing loans on a cash basis.
(3) Savings accounts include mortgagors' escrow deposits.
(4) Net 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 net interest income divided by average
interest-earning assets.
37
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- ----------------------------- --------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------- -------- -------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets(1):
Investments:
Loans, net(2) .......... $247,911 $ 19,682 7.94 $215,613 $ 17,732 8.22 $191,903 $ 15,856 8.26%
Debt securities ........ -- -- -- 2,373 140 5.90 6,622 398 6.01
Mortgage-backed
securities ............ 44,094 2,894 6.56 43,123 2,743 6.36 39,322 2,428 6.17
Equity securities ...... 13,707 785 5.73 12,392 801 6.46 12,146 735 6.05
FHLB stock ............... 2,308 144 6.24 2,009 127 6.32 1,568 127 8.10
Other .................... 2,568 153 5.96 3,111 191 6.19 4,757 325 6.83
-------- -------- -------- -------- -------- --------
Total interest-earning
assets ................ 310,588 23,658 7.62 278,621 21,734 7.80 256,318 19,869 7.75
-------- ------ -------- ------ -------- ------
Noninterest-earning assets.. 18,050 15,938 14,028
-------- -------- --------
Total assets............ $328,638 $294,559 $270,346
======== ======== ========
Liabilities and surplus:
Interest-bearing
liabilities:
Deposits:
Money market accounts .. $ 19,238 407 2.12 $16,825 441 2.62 $17,754 499 2.81
Savings accounts(3) .... 64,285 1,759 2.74 65,042 1,684 2.59 67,221 1,707 2.54
NOW accounts ........... 24,941 253 1.01 22,831 243 1.06 20,920 272 1.30
Certificates of deposit. 139,119 7,740 5.56 127,068 7,045 5.54 115,933 6,223 5.37
-------- -------- -------- ------- -------- -------
Total interest-bearing
deposits ............ 247,583 10,159 4.10 231,766 9,413 4.06 221,828 8,701 3.92
FHLB advances ........... 40,099 2,341 5.84 26,941 1,609 5.97 16,948 1,122 6.62
-------- -------- -------- ------- -------- -------
Total interest-bearing
liabilities ......... 287,682 12,500 4.35 258,707 11,022 4.26 238,776 9,823 4.11
-------- ------ ------- ----- ------- -----
Demand deposits.......... 7,939 6,933 5,703
-------- -------- --------
Other noninterest-bearing
liabilities ............ 1,799 1,744 1,501
-------- -------- --------
Total liabilities .... 297,420 267,384 245,980
Surplus ................. 31,218 27,175 24,366
-------- -------- --------
Total liabilities and
surplus ............. $328,638 $294,559 $270,346
======== ======== ========
Net interest-earning
assets ................. $22,906 $19,914 $17,542
======== ======== ========
Net interest
income/interest rate
spread(4) .............. $11,158 3.27% $10,712 3.54% $10,046 3.64%
======= ===== ======= ===== ======= =====
Net interest margin as
a percentage Of
interest-earning
assets(5)............... 3.59% 3.84% 3.92%
===== ===== =====
Ratio of interest-earning
assets to
interest-bearing
liabilities............. 107.96% 107.70% 107.35%
====== ====== ======
</TABLE>
- --------------------
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan origination fees, unadvanced loan funds,
allowance for loan losses and includes nonaccruing loans. The Bank records
interest income on nonaccruing loans on a cash basis.
(3) Savings accounts include mortgagors' escrow deposits.
(4) Net 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 net interest income divided by average
interest-earning assets.
38
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank'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>
Eight Months Ended Year Ended Year Ended
August 31, 1998 December 31, 1997 December 31, 1996
Compared to Compared to Compared to
Eight Months Ended Year Ended Year Ended
August 31, 1997 December 31, 1996 December 31, 1995
------------------------ -------------------------- -------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Due to Due to
------------------ ----------------- ----------------
Volume Rate Net Volume Rate Net Volume Rate Net
-------- -------- ------ -------- ------- ------- ------- ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net ................. $1,476 $ (272) $1,204 $2,537 $ (587) $ 1,950 $1,950 $ (74) $ 1,876
Debt securities ............ -- -- -- (70) (70) (140) (251) (7) (258)
Mortgage-backed securities . (343) 22 (321) 63 88 151 240 75 315
Equity securities .......... 133 (62) 71 227 (243) (16) 15 51 66
FHLB stock ................. 26 (2) 24 19 (2) 17 -- -- --
Other ...................... 90 15 105 (32) (6) (38) (104) (30) (134)
------ ------ ------ ------ ------ ------ ------ ----- -------
Total interest-earning
assets 1,382 (299) 1,083 2,744 (820) 1,924 1,850 15 1,865
------ ------ ------ ------ ------ ------ ------ ----- -------
Interest-bearing liabilities:
Deposits:
Money market accounts .... 98 163 261 97 (131) (34) (25) (33) (58)
Savings accounts(1) ...... 40 (147) (107) (19) 94 75 (58) 35 (23)
NOW accounts ............. 19 5 24 20 (10) 10 29 (58) (29)
Certificates of deposit .. 83 36 119 670 25 695 612 210 822
------ ------ ------ ------ ------ ------ ------ ----- -------
Total deposits ......... 240 57 297 768 (22) 746 558 154 712
FHLB advances .............. 485 (40) 445 767 (35) 732 584 (97) 487
------ ------ ------ ------ ------ ------ ------ ----- -------
Total interest-bearing
liabilities ........... 725 17 742 1,535 (57) 1,478 1,142 57 1,199
------ ------ ------ ------ ------ ------ ------ ----- -------
Increase (decrease) in net
interest income .......... $657 $(316) $341 $1,261 $(763) $446 $708 $(42) $666
====== ====== ====== ====== ====== ====== ====== ===== =======
</TABLE>
- ---------------
(1) Includes interest on mortgagors' escrow deposits.
Comparison of Financial Condition at August 31, 1998 and December 31, 1997
Total assets increased by $24.3 million, or 7.1%, to $366.2 million at
August 31, 1998, from $341.9 million at December 31, 1997. The growth in assets
is primary attributable to a $12.9 million increase in mortgage-backed
securities available-for-sale, a $3.0 million increase in equity securities
available-for-sale, a $3.8 million increase in net loans and a $1.4 million
increase in banking premises and equipment. Asset growth was funded primarily
through FHLB borrowings and deposit inflows. Mortgage-backed securities
increased by $12.9 million, or 32.3%, to $52.8 million at August 31, 1998, from
$39.9 million at December 31, 1997. The net increase in mortgage-backed
securities was due to the securitization of $19.1 million of fixed rate one- to
four-family mortgage loans and an increase in the unrealized gain of $322,000,
less the normal amortization of the mortgage-backed securities portfolio
totalling $6.5 million. Equity securities at August 31, 1998 totalled $18.7
million, an increase of $3.0 million, or 18.8%, compared to $15.7 million at
December 31, 1997 attributable to net purchases of $6.9 million and a decrease
in the unrealized gain of $3.9 million. Net loans increased by $3.8 million, or
1.5%, to $265.6 million at August 31, 1998, from $261.7 million at December 31,
1997, primarily due to increased originations of one- to four-family mortgage
loans and home equity loans and lines of credit. These originations were
partially offset by the $19.1 million in fixed
39
<PAGE>
rate loans that were securitized and are now classified as mortgage-backed
securities. The relatively low interest rate environment during 1998 increased
one- to four-family refinance activity, primarily 15- and 30-year fixed-rate
mortgage products. Premises and equipment increased by $1.4 million, or 22.8%,
due to the construction of an addition to the Bank's main office, which will
provide additional office space for the Bank's administrative operations, and
the renovation of a branch office. The construction on the main office is due to
be completed in early 1999.
Total deposits at August 31, 1998 were $273.6 million, an increase of
$10.9 million, or 4.1%, compared to $262.7 million at December 31, 1997. The
increase was primarily due to an increase of $12.9 million, or 10.8%, in core
deposit accounts, to $132.3 million at August 31, 1998, from $119.4 million at
December 31, 1997. This increase in deposits consists of $3.4 million in demand,
$3.4 million in NOW, $2.7 million in money market, and $3.4 million in savings
accounts and is also due in part to an active promotion to gain new checking
account customers and the opening of a new banking office in 1997 which had $2.8
million of deposits at August 31, 1998. Certificates of deposit decreased $2.0
million, or 1.4%, to $141.2 million at August 31, 1998, from $143.2 million at
December 31, 1997. The decrease in certificates of deposit was primarily
attributable to the maturing of previously offered certificate "specials" that
the Bank did not actively seek to retain. To some extent, the increase in core
deposits and decrease in certificate accounts is reflective of depositors'
general unwillingness to commit funds to longer time periods given the current
low interest rate environment. Borrowed funds increased $13.1 million, or 31.3%,
to $54.8 million at August 31, 1998 from $41.7 million at December 31, 1997 as
management utilized borrowings to fund a portion of the Bank's asset growth.
Total surplus increased $45,000, or 0.1%, to $33.4 million at August
31, 1998, from $33.3 million at December 31, 1997, primarily the result of net
income of $2.3 million during the eight months ended August 31, 1998 which was
offset by a $2.3 million decrease in the after-tax net unrealized gain on
available-for-sale securities during the same period. The $2.3 million decrease
in the after-tax net unrealized gain on available-for-sale securities, along
with the increase in assets, caused a decrease in the Bank's ratio of equity
capital to total assets to 9.11% at August 31, 1998, from 9.75% at December 31,
1997.
Comparison of Financial Condition at December 31, 1997 and December 31, 1996
Total assets at December 31, 1997 were $341.9 million as compared to
total assets of $316.7 million at December 31, 1996, an increase of $25.2
million, or 8.0%, primarily by a $27.6 million growth in the loan portfolio.
Asset growth was funded primarily through the inflow of deposits and borrowed
funds. Deposits increased $13.7 million, or 5.5%, to $262.7 million at December
31, 1997, from $249.0 million at December 31, 1996. The Bank's securities
portfolio decreased by $6.0 million, or 9.7%, to $55.6 million at December 31,
1997, from $61.6 million at December 31, 1996. The decrease in the securities
portfolio was comprised of a $7.6 million decrease in mortgage-backed securities
due primarily to normal amortization offset by a $1.6 million increase in debt
and equity securities. The increase in debt and equity securities was
attributable to net purchases of both common and preferred stocks of $1.0
million, and an increase in the unrealized gain of $1.4 million on such
portfolio. This increase was partially offset by a transfer of equity securities
totalling $549,000 to establish The Woronoco Foundation, Inc., a charitable
foundation.
Total loans increased by $27.8 million, or 11.7%, to $264.6 million at
December 31, 1997, as compared to $236.8 million at December 31, 1996. In
particular, one- to four-family loans increased by $1.5 million, or 1.1%,
commercial real estate loans increased by $2.1 million, or 10.5%, multi-family
loans increased by $1.2 million, or 6.8%, construction and development loans
increased by $1.7 million, or 155%, and consumer loans, primarily home equity
loans and lines of credit, increased by $20.8 million, or 37.1%, to $76.8
million at December 31, 1997, from $56.0 million at December 31, 1996. The
increase in consumer loans was in part attributable to a telemarketing effort
through the services of a third party to increase the amount of home equity
loans and lines of credit which loans contributed $18.6 million toward the $20.8
million increase in consumer loans. Cash and cash equivalents was $11.7 million
at December 31, 1997, an increase of $1.2 million, or 11.6%, as compared to
$10.5 million at December 31, 1996. The increase in cash and cash equivalents
was a result of the timing of operating and investing cash flows.
40
<PAGE>
The increase in deposit growth was attributable to the combined effect
of net deposit inflows of $3.5 million and interest paid on deposits of $10.2
million during the period. The Bank's core deposit accounts increased $8.8
million, or 8.0%, from $110.6 million at December 31, 1996, to $119.4 million at
December 31, 1997. This increase was primarily attributable to a $5.6 million
increase in money market accounts due to the Bank offering competitive money
market rates, effective cross-selling of the money market product and the
opening of a new banking office. Certificates of deposit increased by $4.9
million, or 3.5%, during the period to $143.2 million, representing 54.5% of
total deposits at December 31, 1997. The increase in certificates reflects the
effect of the promotion of higher rate certificate products that were offered at
our three supermarket branch locations during the latter half of 1997.
Total surplus was $33.3 million at December 31, 1997, or 9.7% of total
assets, an increase of $4.3 million, or 14.6%, as compared to $29.1 million at
December 31, 1996. The increase in surplus is attributable to net income of $3.0
million during the period and a $1.2 million increase in the component of net
unrealized gain on the Bank's available-for-sale securities portfolio, net of
taxes, as required by SFAS No. 115.
Comparison of Operating Results for the Eight Months Ended August 31, 1998 and
August 31, 1997
General. Net income for the eight months ended August 31, 1998
increased by $208,000, or 9.9%, to $2.3 million at August 31, 1998, from $2.1
million for the eight months ended August 31, 1997. The increase was due to an
increase in net interest income which, despite a decrease in the average
interest rate spread to 3.17% from 3.36%, increased by $341,000 due to an
increase in the average balance of net interest-earning assets. There was also
an increase in noninterest income due to the gain on the securitization of $19.1
million of one- to four-family mortgage loans. These increases were partially
offset by a $49,000 increase in noninterest expense, and a 24.0% increase in
income taxes to $1.2 million from $986,000.
Interest Income. Interest income amounted to $16.7 million for the
eight months ended August 31, 1998, representing an increase of $1.1 million, or
7.0%, from the same period in 1997. The increase was the result of the combined
effect of a $29.6 million increase in average interest-earning assets and a 19
basis point decrease in the yield on interest-earning assets. The decrease in
the average interest rate on interest-earning assets was primarily due to the
lower interest rate environment during the eight month period ended August 31,
1998 which created lower yielding assets on all new loans originated or
refinanced. Interest income on mortgage-backed securities decreased $321,000 for
the eight months ended August 31, 1998, as compared to the same period in 1997.
This decrease was primarily due to a decrease in the average balance of
mortgage-backed securities of $7.7 million, which resulted from the normal
amortization of the mortgage-backed securities portfolio. Dividend income on
equity securities increased $71,000, or 14.1%, due to a $5.6 million increase in
the average balance to $19.0 million for the eight months ended August 31, 1998,
from $13.5 million for the eight month period ended August 31, 1997, which was
partially offset by a 108 basis point decrease in the average yield on the
equity securities portfolio for the same time periods.
The increase in interest income on loans can be attributed to growth in
the average balance of loans outstanding. Average consumer loans increased $11.2
million, or 16.7%, to $78.0 million for the eight months ended August 31, 1998,
as compared to $67.1 million for the same period in 1997. The increase in
consumer loans was primarily attributable to an increase in home equity loans
and lines of credit, which increased $5.7 million, or 9.8%, to $64.1 million for
the eight months ended August 31, 1998, from $58.4 million for the eight month
period ended August 31, 1997. In addition, the Bank's one- to four-family loan
portfolio also increased by $3.2 million, or 2.3%, to $137.8 million for the
eight months ended August 31, 1998, through an increased market presence and
refinance activity, primarily in fixed-rate mortgage products. Further
contributing to the increase in interest income for the period was a 70.0%
decrease in non-accrual loans, to $280,000, for the eight months ended August
31, 1998, as compared to $1.0 million for the same period in 1997. Although
interest income on loans increased during the period, the average yield
decreased by 18 basis points, to 7.81% for the eight months ended August 31,
1997, as compared to 7.99% for the same period in 1997.
Interest Expense. Interest expense for the eight months ended August
31, 1998 was $8.8 million, compared to $8.1 million for the eight months ended
August 31, 1997, an increase of $742,000, or 9.2%. This increase reflects
41
<PAGE>
both a $12.6 million increase in the average balance of interest-bearing
deposits in the 1998 period compared to the 1997 period, offset by a three basis
point decrease in the average rate paid on such liabilities over the same period
due to a lower interest rate environment. The increase in average interest-
bearing deposits was primarily attributable to an increase in the average
balance of certificates of deposit to $139.9 million for the eight months ended
August 31, 1998 from $137.6 million for the eight months ended August 31, 1997.
The higher average balance and higher rate certificates promoted in our
supermarket branch locations during the second half of 1997 resulted in an
increase of $119,000 in interest expense on certificates of deposit. Interest
expense decreased $107,000 on savings accounts to $1.0 million for the eight
months ended August 31, 1998 from the same period a year earlier. This decrease
was attributable to a decrease in the average cost to 2.27% from 2.59% and an
increase in the average balance of these accounts to $66.4 million for the eight
months ended August 31, 1998, from $64.2 million during the comparable period in
1997.
Interest expense on borrowed funds increased $445,000, or 29.5%, in the
eight months ended August 31, 1998 to $2.0 million from $1.5 million for the
same period in 1997 due to a $13.0 million increase in the average balance of
such funds to $52.2 million, of which, which was partially offset by a 16 basis
point reduction in the average rate paid on borrowed funds to 5.61% for the
eight months ended August 31, 1998. The increase in borrowed funds in 1998
reflects management's decision to increase its utilization of borrowings to fund
asset growth in periods when such borrowings are cost effective as a source of
funds.
Provision for Loan Losses. The Bank's provision for loan losses
increased by $40,000 , or 33.3%, to $160,000 for the eight months ended August
31, 1998 from $120,000 for the eight months ended August 31, 1997. The increase
in the provision was due primarily to the growth of the Bank's loan portfolio.
The increased provision also reflects management's strategy to continue to
emphasize the origination of commercial real estate and commercial business
loans. Such loans generally bear a greater degree of risk compared to one- to
four-family mortgage loans. At August 31, 1998, the Bank's allowance for loan
losses as a percentage of total non-performing loans and troubled debt
restructurings was 239%, compared to 151% at August 31, 1997, due to the
increase in the provision and a decrease in non-accruing loans to $280,000 at
August 31, 1998 from $1.0 million at August 31, 1997. At August 31, 1998, the
Bank's allowance for loan losses as a percentage of total loans, net, was 0.77%.
Management of the Bank assesses the adequacy of the allowance for loan losses
based on known and inherent risks in the loan portfolio and upon management's
continuing analysis of the factors underlying the quality of the loan portfolio.
While management believes that, based on information currently available, the
Bank's allowance for loan losses is sufficient to cover losses inherent in its
loan portfolio at this time, no assurances can be given that the Bank's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Bank or that future adjustments to the allowance for loan losses
will not be necessary if economic and other conditions differ substantially from
the economic and other conditions used by management to determine the current
level of the allowance for loan losses. Management may in the future increase
its level of allowance for loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial real
estate, multi-family, commercial, construction and development or consumer
lending as a percentage of its total loan portfolio. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to provide additions to the allowance based upon judgments
different from management. See "Risk Factors - Increased Lending Risks
Associated with Consumer, Multi-Family and Commercial Real Estate and Commercial
Lending" and "Business of the Bank - Delinquent Loans, Classified Assets and
Real Estate Owned Assets" and "- Allowance for Loan Losses."
Noninterest Income. Noninterest income is composed of fee income for
bank services and profits from the sale of assets. Total noninterest income for
the eight months ended August 31, 1998 increased $193,000, or 8.2%, to $2.5
million from $2.4 million for the eight months ended August 31, 1997. The
primary reasons for the increase were net gains of $290,000 on the
securitization of 30 year fixed-rate mortgage loans and $1.0 million of fee
income during the eight months ended August 31, 1998 compared to no net gains on
the sale of loans and $914,000 of fee income in the comparable period for 1997.
The increases in these items of noninterest income were partially offset by a
decrease in security gains to $1.2 million for the eight months ended August 31,
1998 from $1.4 million for the comparable period in 1997.
42
<PAGE>
Noninterest Expense. Noninterest expense increased by $49,000, or 0.7%,
to $6.7 million for the eight months ended August 31, 1998 from $6.6 million for
the eight months ended August 31, 1997. Compensation and employee benefit
expense increased $178,000 to $3.4 million for the eight months ended August 31,
1998 from $3.2 million for the same period in 1997 primarily due to the opening
of a full-service banking office during 1998. Other significant changes in the
Bank's noninterest expenses include a $359,000 net decrease in other noninterest
expenses. During 1997, the Bank established a private charitable foundation to
provide grants to charitable organizations. The foundation was funded by a
donation from the Bank of equity securities with a fair value of $549,000 at the
date of transfer, the total amount of which is included in other noninterest
expenses. The Bank expects that compensation and benefits expense may increase
after the Conversion, primarily as a result of the adoption of various employee
benefit plans and compensation adjustments contemplated in connection with the
Conversion. In this regard, the proposed ESOP, which intends to purchase 8% of
the Common Stock issued in connection with the Offering, including shares issued
to the Foundation, and the Stock Programs which, if implemented, would purchase
an amount of Common Stock equal to 14% of the Common Stock issued in connection
with the Offering, including shares issued to the Foundation, may result in
increased compensation and benefits expense as the amortization of the ESOP loan
and amortization of the Stock Program awards will be reflected as compensation
expense. See "Management of the Bank - Other Benefit Plans - Employee Stock
Ownership Plan." In addition, the Bank expects noninterest expenses to increase
in future periods as a result of its renovation of its headquarters and its main
banking office and the opening of a new banking office in late 1998.
Income Taxes. Total income tax expense was $1.2 million for the eight
months ended August 31, 1998, compared to $986,000 for the same period in 1997,
an increase of $237,000, or 24.0%. The effective tax rates were 34.6% and 31.9%
for the respective periods. The transfer of $549,000 of equity securities to a
charitable foundation in 1997 reduced the effective tax rate for that year only.
In addition, a securities corporation was formed in May 1997 to hold its
remaining equity securities. Because this subsidiary's income is taxed at a
lower rate than the Bank at the state level, both 1997 and 1998 state income
taxes were reduced.
Comparison of Operating Results for the Years Ended December 31, 1997 and
December 31, 1996
General. Net income increased $544,000, or 22.0%, to $3.0 million for
the year ended December 31, 1997 from $2.5 million for the year ended December
31, 1996. This increase was due to the increase in net interest income, which
increased by $446,000, or 4.2%, an increase in noninterest income of $1.4
million, or 75.3%, which primarily resulted from gains on the sale of securities
and a decrease in income tax expense of $41,000. Despite a decreasing interest
rate spread for the Bank during 1997, net interest income increased due to a
higher average balance of net interest-earning assets. An increase in
noninterest expense of $1.4 million partially offset the above positive changes.
Interest Income. Interest income increased $2.0 million to $23.7
million for the year ended December 31, 1997 compared to $21.7 million for the
year ended December 31, 1996. This increase reflects a $32.0 million increase in
total average interest-earning assets in 1997 compared to 1996 partially offset
by an 18 basis point decrease in the average yield on such assets over the same
period. Interest income on loans increased by $2.0 million to $19.7 million for
the year ended December 31, 1997 from $17.7 million for the same period in 1996,
due to a $32.3 million increase in the average balance of loans offset by a 28
basis point decrease in the average yield to 7.94%. The increase in the average
balance of loans was primarily due to an increase in the Bank's one- to
four-family mortgage loan and home equity loans and lines of credit portfolios.
The decrease in the average yield on interest-earning assets was due primarily
to a decrease in market interest rates and an increase in non-accruing loans and
troubled debt restructurings, to $1.2 million from $252,000, at December 31,
1997 and 1996, respectively. Interest and dividend income on the securities
portfolio decreased $5,000, or 0.1%, to $3.7 million for the year ended December
31, 1997.
Interest Expense. Total interest expense for the year ended December
31, 1997 was $12.5 million, compared to $11.0 million for the year ended
December 31, 1996, an increase of $1.5 million, or 13.4%. The increase in
interest expense was due to an increase in the average costs of deposits and
borrowings to 4.35% for 1997, from 4.26% for 1996. Interest on deposits
increased by $746,000, or 7.9%, to $10.2 million for 1997 compared to $9.4
million for 1996. This increase reflects a $15.8 million increase in the average
balance of interest-bearing deposits in 1997 compared to 1996 primarily due to
an increase in the average balance of higher yielding certificates of deposit,
which increased to $139.1
43
<PAGE>
million for the year ended December 31, 1997 from $127.1 million for 1996. The
increase in the average balance of certificates of deposit was primarily due to
certificates of deposit promotions at the Bank's three banking offices at
supermarkets and the opening of a new branch. These two increases resulted in
the interest expense on certificates of deposit accounts increasing by $695,000,
or 9.9%, to $7.7 million for the year ended December 31, 1997. These increases
were partially offset by a decrease in the average rate paid on all other core
deposits to 2.23% for 1997 from 2.26% for 1996.
The Bank incurred interest expense on borrowed funds for 1997 of $2.3
million as compared to $1.6 million for 1996 reflecting management's decision to
utilize borrowings to fund a portion of its asset growth. The average balance in
borrowed funds increased $13.2 million to $40.1 million at December 31, 1997
compared to $26.9 million at December 31, 1996. The increase in the average
balance in borrowed funds was partially offset by a decrease in the average rate
paid on such borrowings to 5.84% for 1997 compared to 5.97% for 1996.
Provision for Loan Losses. For 1997, the Bank's provision for loan
losses was $180,000, the same amount as was provided in 1996. Management
determined that an increase in the provision was unnecessary in light of its
review of the adequacy of the balance in the allowance for loan losses, the
quality of the loan portfolio, and the national and regional economies. At
December 31, 1997, the allowance for loan losses totalled 168% of total
nonperforming loans and troubled debt restructurings, a decrease from 758% at
December 31, 1996. Net charge-offs for the year ended December 31, 1997 were
$139,000 compared to $107,000 from the year ended December 31, 1996.
Noninterest Income. Total noninterest income increased $1.4 million, or
75.3%, to $3.3 million for 1997, from $1.9 million for 1996. Net gains on sales
of securities increased $1.1 million, or 152%, to $1.9 million for 1997 compared
to $751,000 for 1996. Service charges and fees increased $283,000, of which
$191,000 was due to an increase in certain NOW accounts which were introduced in
the latter part of 1996 and aggressively promoted during 1997. Additionally,
insufficient funds charges increased $146,000 due to the larger number of
checking accounts serviced by the Bank.
Noninterest Expense. Total noninterest expense increased by $1.4
million, or 16.4%, to $9.7 million for 1997 from $8.4 million for 1996.
Compensation and employee benefits expense increased $421,000 to $4.7 million
for 1997 from $4.3 million for 1996, primarily due to the added personnel costs
associated with the opening of a new banking office and the addition of several
new positions. Occupancy and equipment expense increased $172,000 primarily due
to an increase in depreciation, an increase in rent expense due to the new
banking office and an increase in real estate taxes due to the purchase of
property adjacent to the main office building which property was purchased in
anticipation of future growth and the need for greater storage capacity. Other
noninterest expense increased $744,000 to $2.0 million for 1997 from $1.3
million for 1996, primarily due to the transfer of stock with a market value of
$549,000 to fund the charitable foundation, and an increase in expenses
associated with checking accounts of $152,000 due to increased volume.
Income Taxes. Tax expense totalled $1.5 million for the year ended
December 31, 1997 compared to $1.6 million in 1996. The decrease was
attributable to the transfer of equity securities to establish the charitable
foundation which decreased taxes by $126,000 in 1997 and the formation of a
securities corporation in 1997 to hold equity securities, reducing the amount of
state tax paid on the equity income.
Comparison of Operating Results For the Years Ended December 31, 1996 and
December 31, 1995
General. Net income increased $139,000, or 6.0%, to $2.5 million for
the year ended December 31, 1996 from $2.3 million for the year ended December
31, 1995. The increase was primarily attributable to a $666,000 increase in net
interest income, a $304,000 increase in noninterest income, and a $30,000
decrease in the provision for loan losses offset by a $679,000 increase in
noninterest expenses and a $182,000 increase in income tax expense.
Interest Income. Total income from interest-earning assets increased by
$1.9 million, or 9.4%, to $21.7 million for 1996 compared to $19.9 million for
1995 due primarily to a $22.3 million increase in the average balance of
interest-earning assets combined with a 5 basis point increase in the average
yield on interest-earning assets. Interest and
44
<PAGE>
dividend income on the Bank's securities portfolio increased $123,000 to $3.8
million in 1996 compared to $3.7 million in 1995 due to the purchase of
mortgage-backed securities during 1996 and the relatively higher interest rate
environment. The yield on mortgage-backed securities increased to 6.36% in 1996
from 6.17% in 1995, while the yield on the Bank's debt and equity securities
increased to 6.37% from 6.02% for 1996 and 1995, respectively. Interest income
on loans increased by $1.9 million for the year ended December 31, 1996. Such
increase was primarily attributable to a $23.7 million increase in the average
balance of loans to $215.6 million for the year ended December 31, 1996 from
$191.9 million for the year ended December 31, 1995 offset by a slight decrease
in the average yield on loans, to 8.22% in 1996, from 8.26% in 1995. The
increase was due to the effects of higher interest rates on new loan
originations.
Interest Expense. Interest expense for the year ended December 31, 1996
was $11.0 million, compared to $9.8 million for the year ended December 31,
1995, an increase of $1.2 million, or 12.2%. The increase is primarily due to a
$10.0 million increase in the average balance of deposits outstanding and an
increase in the average cost of deposits to 4.06% for 1996, from 3.92% for 1995.
Such increases were offset by a $110,000, or 4.4%, decrease in the interest
expense on core deposit accounts from $2.5 million for 1995 to $2.4 million for
1996 primarily due to the Bank's decision to reduce the rate paid on NOW and
money market accounts during 1996. The average rate paid on core deposit
accounts for 1996 was 2.26% compared to 2.34% for 1995. In addition, the average
balance of such accounts decreased from $105.9 million for 1995 to $104.7
million for 1996. Despite the effect of the lower interest rate environment and
the decreased cost of core deposit accounts, interest expense increased
primarily due to higher rates paid on certificate of deposit accounts. The
average rate paid on certificates of deposit accounts increased from 5.37% for
the year ended December 31, 1995 to 5.54% for the year ended December 31, 1996
due primarily to the Bank's deposit pricing strategy whereby it offered
certificate of deposit promotions with attractive rates in an effort to extend
the maturity of its deposit accounts resulting in an increase in the average
balance of such accounts from $115.9 million for 1995 to $127.1 million for
1996. The increase in interest expense on certificates of deposit accounts of
$822,000 more than offset the decrease in interest expense on savings accounts.
Provision for Loan Losses. During 1996, the provision for loan losses
was reduced by $30,000, or 14.3%, to $180,000 from the prior year's level of
$210,000. The lower provision was based on management's evaluation of existing
real estate market conditions, improvement in the ratio of delinquent loans to
total loans from 0.53% to 0.28%, and the improved level of non-accruing loans as
well as a stabilization of general economic conditions in the Bank's primary
market area. In particular, non-performing loans and troubled debt
restructurings decreased by $2.5 million to 0.11% of total loans from 1.24% of
total loans at December 31, 1996 and December 31, 1995, respectively. At
December 31, 1996, the Bank's allowance for loan losses to total nonperforming
loans and troubled debt restructurings and to total loans was 75.8% and 0.81%,
respectively, as compared to 73.14% and 0.91%, respectively, at December 31,
1995.
Noninterest Income. Noninterest income increased by $304,000, or 19.1%,
to $1.9 million in 1996 from $1.6 million in 1995. The increase was primarily
attributable to the increase in net gains on securities of $173,000 to $751,000
in 1996 from $578,000 in 1995 and a $156,000 increase in service charges and
fees, approximately half of which is due to increased insufficient funds charges
due to a higher number of checking account customers.
Noninterest Expense. Total noninterest expense increased $679,000 in
1996 to $8.4 million, as compared to $7.7 million in 1995. The increase
primarily relates to compensation and employee benefits which increased by
$300,000, or 7.5%, to $4.3 million in 1996 from $4.0 million in 1995, primarily
the result of normal salary increases and an increase in the Bank's pension plan
related expenses.
Income Taxes. The provision for income taxes increased by $182,000, or
13.0%, to $1.6 million in 1996 from $1.4 million in 1995, primarily as a result
of the increase in the Bank's pre-tax income. The effective tax rate was 39.0%
for the year ended December 31, 1996 as compared to 37.5% for the prior year.
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Liquidity and Capital Resources
Liquidity and funding strategies are the responsibility of the ALCO.
The ALCO is responsible for establishing liquidity targets and implementing
strategies to meet desired goals. Liquidity is measured by the Bank's ability to
raise cash within 30 days at a reasonable cost and with a minimum of loss. The
Bank's primary sources of funds are deposits, principal and interest payments on
loans and investment securities and borrowings from the FHLB-Boston. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of
residential one-to four-family mortgage loans and consumer loans, primarily home
equity loans and lines of credit, and, to a lesser extent, multi-family and
commercial real estate loans, construction and development loans, commercial
business loans, other types of consumer loans and the investment in
mortgage-backed and equity securities. These activities are funded primarily by
principal and interest payments on loans, maturing of investment securities,
deposit growth and the utilization of FHLB advances. During the eight months
ended August 31, 1998 and the years ended December 31, 1997 and 1996, the Bank's
loan originations totalled $67.1 million, $79.1 million and $87.6 million,
respectively. For the eight months ended August 31, 1998 and the years ended
December 31, 1997 and 1996, the Bank's investments in mortgage-backed and equity
securities totalled $71.5 million, $55.6 million and $61.4 million,
respectively. The Bank experienced a net increase in total deposits of $10.9
million, $13.7 million and $17.3 million for the eight months ended August 31,
1998 and the years ended December 31, 1997 and 1996, respectively. Deposit flows
are affected by the overall level of interest rates, the interest rates and
products offered by the Bank and its local competitors and other factors. The
Bank closely monitors its liquidity position on a daily basis. In the event the
Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB advances. See "Business
of the Bank--Sources of Funds--Borrowed Funds." At August 31, 1998, the Bank had
$54.8 million of outstanding FHLB borrowings. Although the Bank's policies allow
for the use of brokered deposits, the Bank does not currently solicit brokered
deposits.
More recently, the Bank completed the securitization (converting whole
loans into mortgage-backed securities) of $19.1 million of 30 year fixed-rate
one- to four-family mortgage loans with Fannie Mae. The loans are serviced as
mortgage-backed securities for Fannie Mae. In addition to resulting in a
decrease in loans receivable and a related increase in mortgage-backed
securities, the securitization provides a liquidity related benefit to the Bank
in that it adds high quality collateral to the Bank's balance sheet which can be
pledged for borrowings in the secondary market and designates such loans as
"available-for-sale" so that the Bank could sell or collateralize such
securities.
Outstanding commitments for all loans totalled $8.4 million at August
31, 1998. Management of the Bank anticipates that it will have sufficient funds
available to meet its current loan commitments. Certificates of deposit which
are scheduled to mature in one year or less from August 31, 1998 totalled $101.9
million. The Bank relies primarily on competitive rates, customer service, and
long-standing relationships with customers to retain deposits. From time to
time, the Bank will also offer competitive special products to its customers to
increase retention and to attract new deposits. Based upon the Bank's experience
with deposit retention and current retention strategies, management believes
that, although it is not possible to predict future terms and conditions upon
renewal, a significant portion of such deposits will remain with the Bank.
At August 31, 1998, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $33.3 million, or 9.08% of
adjusted assets, which is above the required level of $14.6 million, or 4.00%,
and risk-based capital of $35.1 million, or 13.01% of adjusted assets, which is
above the required level of $21.6 million, or 8.00%. See "Regulatory Capital
Compliance."
The capital injection resulting from the Conversion will significantly
increase liquidity and capital resources. Over time, the initial level of
liquidity will be reduced as net proceeds are utilized for general corporate
purposes, including the funding of lending and security investment activities .
The additional capital may also assist the Bank in offering new programs and
expand services to its customers. See "Use of Proceeds." The Bank's financial
condition and the results of operations will be enhanced by the capital
injection, resulting in increased net earning assets and net
46
<PAGE>
income. However, due to the large increase in equity resulting from the capital
injection, return on equity will be adversely impacted immediately following the
Conversion. See "Risk Factors-- Potential Low Return on Equity Following the
Conversion Which May Negatively Influence Market Price and Liquidity."
Year 2000 Compliance
As the year 2000 approaches, an important business issue has emerged
regarding how existing computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits. If not corrected, many
computer applications and systems could fail or create erroneous results by or
at the Year 2000. While the Bank maintains an internal computer system for
certain operating functions, the substantial majority of the Bank's data
processing is out-sourced to a third party vendor. The Bank's Technology
Committee has been identifying potential problems associated with the Year 2000
issue and has implemented a Year 2000 Action Plan (the "Y2K Plan") designated to
ensure that all software and hardware used in connection with the Bank's
business will manage and manipulate data involved in the transition from 1999 to
2000 without functional or data abnormality and without inaccurate results
related to such data. The Bank has prepared a critical issues schedule with a
timeline and assigned responsibilities. In addition, the Bank recognizes that
its ability to be Year 2000 compliant is dependent upon the cooperation of its
vendors and, in particular, the outside third party data processor. The Bank is
requiring its computer systems and software vendors to represent that the
products provided are or will be Year 2000 compliant and has planned a program
of testing for compliance. The Bank has received representations from its
primary third party data processing vendor confirming completion of over 95% of
that vendor's internally developed programs. Remaining internal and external
programs are presently being converted to be Year 2000 compliant. The Bank began
testing the data center's completed programs in April of 1998 and is currently
engaged in additional testing of remaining programs. The Bank anticipates that
all of its vendors also will have resolved any Year 2000 problems in their
software by December 31, 1998. All Year 2000 issues for the Bank, including
testing, are expected to be addressed and any problems remedied by March 31,
1999. The Bank has also identified and contacted commercial borrowers that may
be vulnerable to the Year 2000 date change and has also provided brochures to
its customers to make them aware of the Year 2000 issue.
The Bank's operations may also be affected by the Year 2000 compliance
of its significant suppliers and other vendors, including those vendors that
provide non-information and technology systems. The Bank has begun the process
of requesting information related to the Year 2000 compliance of its significant
suppliers and other vendors. However, the Bank does not currently have complete
information concerning the compliance status of its significant suppliers and
other vendors. In the event that any of the Bank's significant suppliers or
other vendors do not successfully achieve Year 2000 compliance in a timely
manner, the Bank's business or operations could be adversely affected. The Bank
has prepared a contingency plan in the event that there are any system
interruptions. As part of the contingency plan, the Bank intends to engage
alternative suppliers or other vendors if its current significant suppliers or
vendors fail to meet Year 2000 operating requirements. There can be no
assurances, however, that such plan or the performances by any of the Bank's
suppliers and vendors will be effective to remedy all potential problems.
The Bank has budgeted approximately $235,000 in connection with the
costs associated with achieving Year 2000 compliance and, as of October 31,
1998, had expended approximately $30,000. Material costs, if any, that may arise
from the failure to achieve Year 2000 compliance by either the Bank's third
party data processing vendor or its significant suppliers and other vendors is
not currently determinable. To the extent that the Bank's systems are not fully
Year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a
materially adverse effect on the Bank's business, financial condition, results
of operations, cash flows or business prospects. In the event that the Bank's
progress towards becoming Year 2000 compliant is deemed inadequate, regulatory
action may be undertaken.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which generally require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of
47
<PAGE>
inflation is reflected in the increased cost of the Bank's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Bank are
monetary in nature. As a result, interest rates have a greater impact on the
Bank'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
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share."
This statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion 14, "Earnings per Share," and makes them comparable to international ESP
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129") which establishes
standards for disclosing information about an entity's capital structure. This
Statement continues the previous disclosure requirements found in APB Opinions
No. 10, "Omnibus Opinion -1996," and No. 15, "Earnings Per Share," and FASB
Statement No. 47, "Disclosure of Long-Term Obligations" and eliminates the
exemption of nonpublic entities from certain disclosure requirements of Opinion
15. Additionally, this Statement consolidates capital disclosure requirements
for ease of retrieval and greater visibility to nonpublic entities. This
Statement is effective for financial statements for periods ending after
December 15, 1997 and is not expected to have a material impact on the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"). This Statement establishes standards for
reporting and displaying comprehensive income and its components within the
financial statements. Comprehensive income is defined in FASB Concepts Statement
6 as the "change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners." The Statement is effective
for fiscal years beginning after December 15, 1997 and was adopted on January 1,
1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements. This Statement requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. This Statement supersedes FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This Statement
is effective for financial statements for periods beginning after December 15,
1997 and is not expected to have a material impact on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"), which
standardizes the disclosure requirements for pensions and other postretirement
benefits. This Statement supersedes FASB Statements No. 87, "Employers'
Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
No. 106, "Employers' Accounting for Postretirement Benefits other than
Pensions." This Statement is effective for fiscal years beginning after December
15, 1997 and is not expected to have a material impact on the Company.
48
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal years beginning
after June 15, 1999. This Statement standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, by requiring that an entity recognize those items as assets or
liabilities in the balance sheet and measure them at fair value. If certain
conditions are met, an entity may elect to designate a derivative as follows: a
hedge of the exposure to changes in the fair market value of a recognized asset
or liability, or of an unrecognized firm commitment that are attributable to a
particular risk. A hedge of the exposure to variability in the cash flows of a
recognized asset or liability, or of a forecasted transaction, that are
attributable to a particular risk. Or, a hedge of the foreign currency exposure
of an unrecognized firm commitment, an available-for-sale security, a forecasted
transaction, or a net investment in a foreign operation. This Statement
generally provides for matching the timing of a gain or loss recognition on the
hedging instrument with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or the
earnings effect of the hedged forecasted transaction. The Bank will adopt these
disclosure requirements during the year ended December 31, 2000.
In October 1998, FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held-for-Sale by a Mortgage Banking Enterprise." This Statement requires that,
after the securitization of mortgage loans held-for-sale, the resulting
mortgage-backed security be classified based upon management's intent to hold or
sell these securities under the provisions of SFAS No. 115. This Statement is
effective for the first fiscal quarter beginning after December 15, 1998. Early
adoption of this Statement is permitted and encouraged and it is not expected to
have a material impact on the Company.
BUSINESS OF THE COMPANY
The Company was organized in October 1998 by the Board of Directors of
the Bank for the purpose of becoming a holding company to own all of the
outstanding capital stock of the Bank. Upon consummation of the Conversion, it
is anticipated that the Bank will become a wholly-owned subsidiary of the
Company. Upon the consummation of the Conversion, the Company will be a savings
and loan holding company regulated by the OTS. See "Regulation and
Supervision--Holding Company Regulation."
The Company is currently not an operating company. Following the
Conversion, in addition to directing, planning and coordinating the business
activities of the Bank, the Company will initially invest net proceeds it
retains in short-to intermediate-term investment grade securities. In addition,
the Company intends to form and capitalize the ESOP Loan Subsidiary which
subsidiary will loan funds to enable the ESOP to purchase 8% of the Common Stock
issued in connection with the Conversion, including shares issued to the
Foundation; however, a third-party lender may be utilized to lend funds to the
ESOP. See "Use of Proceeds." In the future, the Company may acquire or organize
other operating subsidiaries, including other financial institutions and
financial services companies. There are presently no other agreements,
understandings or plans for an expansion of the Company's operations. Initially,
the Company will neither own nor lease any property from any third party, but
will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
certain officers of the Bank, who will not be separately provided cash
compensation by the Company. The Company may utilize the support staff of the
Bank from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Company expands its business in the future.
BUSINESS OF THE BANK
General
The Bank is a community-oriented Massachusetts-chartered savings bank
which was organized in 1871. The Bank's principal business consists of the
acceptance of retail deposits from the general public in the areas surrounding
its 11 banking offices and the investment of those deposits, together with funds
generated from operations and borrowings, primarily in mortgage loans secured by
one- to four-family residences and consumer loans, primarily home equity loans
and lines of credit, and to a lesser extent, multi-family and commercial real
estate loans, construction and
49
<PAGE>
development loans, commercial business loans and other types of consumer loans,
primarily automobile and personal loans. The Bank originates loans primarily for
investment and, to a significantly lesser extent, for sale in the secondary
market, generally retaining the servicing rights to all loans sold. The Bank
also invests in mortgage-backed securities, equity securities and other
investments permitted by applicable laws and regulations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Management Strategy." The Bank's revenues are derived principally from the
generation of interest and fees on loans originated and, to a lesser extent,
interest and dividends on investment securities. The Bank's primary sources of
funds are deposits, principal and interest payments on loans and investment
securities and advances from the FHLB-Boston.
Market Area
The Bank is headquartered in Westfield, Massachusetts. The Bank's
primary deposit gathering area is concentrated in the communities surrounding
its main office located in Westfield and its ten other banking offices located
in the communities of Southwick, Feeding Hills, South Hadley, Springfield,
Westfield and West Springfield, Massachusetts. The Bank's primary lending area
is significantly broader than its deposit gathering area and includes all of
Hampden and Hampshire Counties in western Massachusetts and parts of northern
Connecticut.
The city of Westfield is largely suburban and is located in the Pioneer
Valley near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike)
and 91. Interstate 90 is the major east-west highway that transverses
Massachusetts. Interstate 91 is the major north-south highway that runs directly
through the heart of New England. Westfield is located approximately 90 miles
west of Boston, Massachusetts, 70 miles southeast of Albany, New York and 30
miles north of Hartford, Connecticut. Westfield's estimated 1996 population was
approximately 38,194 and the estimated 1996 population for Hampden and Hampshire
Counties was 441,280 and 150,373, respectively. The economy in the Bank's
primary market area has benefitted from the presence of large employers such as
the University of Massachusetts, Baystate Medical Center, MassMutual Life
Insurance Company, Big Y Foods, Inc., Friendly Ice Cream Corporation, Old Colony
Envelope, Hamilton Standard, Pratt and Whitney and Strathmore Paper Company.
Other employment and economic activity is provided by financial institutions,
eight other colleges and universities of higher education, seven other hospitals
and a variety of wholesale and retail trade businesses.
New England had generally lagged behind the rest of the nation in
coming out of the recession of the late 1980s and early 1990s. During that time,
the market values of many one- to four-family residences declined throughout the
region. Loan demand diminished and competition for such loans increased.
However, over the past few years, the regional economy in the Bank's primary
market area, based on economic indicators such as unemployment rates,
residential and commercial real estate values and vacancy rates and household
income trends, has stabilized and strengthened to a level which, in some areas,
approaches the market values existing before the downturn in the late 1980s. As
of August 1998, the unemployment rate for the Bank's primary market area and
Massachusetts showed a significant decrease from prior years and was 3.3% and
2.8%, respectively, as compared to the national level of 4.5%. From 1990 to
1997, median household income in the Bank's primary market area also increased
by 11.3% to $35,447 compared to a 13.9% increase to $42,084 in Massachusetts and
a 29.6% increase to $36,961 nationally. The median household income is projected
to increase such that by the year 2002, median household income will be $38,865,
$45,253 and $42,042 in the Bank's primary market area, Massachusetts and the
United States, respectively. See also "Risk Factors--Weakness of Regional and
Local Economy."
Competition
The Bank faces significant competition both in generating loans and in
attracting deposits. The Bank's primary market area is highly competitive and
the Bank faces direct competition from a significant number of financial
institutions, many with a local, state-wide or regional presence and, in some
cases, a national presence. Many of these financial institutions are
significantly larger and have greater financial resources than the Bank. The
Bank's competition for loans comes principally from commercial banks, other
savings banks, co-operative banks, mortgage brokers, mortgage banking companies
and insurance companies. Its most direct competition for deposits has
historically come from savings, co-operative and commercial banks. In addition,
the Bank faces significant competition for deposits from non-bank institutions
such as brokerage firms and insurance companies in such instruments as
short-term money market funds, corporate and government securities funds, mutual
funds and annuities. Competition may also increase as a result
50
<PAGE>
of the lifting of restrictions on the interstate operations of financial
institutions. The Bank has also experienced significant competition from credit
unions which have a competitive advantage as they do not pay state or federal
income taxes. Such competitive advantage has placed increased pressure on the
Bank with respect to its loan and deposit pricing. See "Risk Factors--Highly
Competitive Industry."
Lending Activities
Loan Portfolio Composition. The types of loans that the Bank may
originate are subject to federal and state laws and regulations. Interest rates
charged by the Bank on loans are affected principally by the Bank's current
asset/liability strategy, the demand for such loans, the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are, in turn, affected by general and economic conditions, monetary
policies of the federal government, including the Federal Reserve Board ("FRB"),
legislative tax policies and governmental budgetary matters.
At August 31, 1998, the Bank's total loan portfolio was $268.7 million,
of which $137.8 million were one- to four-family residential mortgage loans, or
51.3% of total loans. At such date, the remainder of the loan portfolio
consisted of $22.8 million of multi-family loans, or 8.5% of total loans; $21.1
million of commercial real estate loans, or 7.9% of total loans; $4.2 million of
construction and development loans, or 1.5% of total loans; and $78.3 million of
consumer loans, or 29.1% of total loans consisting primarily of $64.1 million of
home equity loans and lines of credit, or 81.9% of consumer loans. Primarily all
loans in the Bank's portfolio, with the exception of home equity loans and lines
of credit, are located in the Bank's primary market area.
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<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and as a percentage of the respective portfolio at
the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
At August 31, 1998 1997 1996 1995
-------------------- -------------------- -------------------- --------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
---------- --------- --------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family..... $137,840 51.30% $139,811 52.84% $138,289 58.39% $127,811 62.73%
Multi-family............ 22,775 8.47 19,047 7.20 17,826 7.53 11,843 5.81
Commercial.............. 21,088 7.85 21,757 8.22 19,697 8.32 3,032 1.49
Construction and
development............ 4,150 1.54 2,868 1.08 1,124 0.47 18,580 9.12
-------- ------ -------- ------ -------- ------ -------- ------
Total real estate
loans................ 185,853 69.16 183,483 69.34 176,936 74.71 161,266 79.15
-------- ------ -------- ------ -------- ------ -------- ------
Consumer loans:
Home equity loans and
lines of credit....... 64,144 23.87 62,227 23.52 43,662 18.43 29,305 14.39
Automobile.............. 10,019 3.73 10,287 3.89 7,969 3.36 5,507 2.70
Other................... 4,116 1.53 4,291 1.62 4,397 1.86 4,286 2.10
-------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans.... 78,279 29.13 76,805 29.03 56,028 23.65 39,098 19.19
-------- ------ -------- ------ -------- ------ -------- ------
Commercial loans........... 4,588 1.71 4,319 1.63 3,879 1.64 3,382 1.66
-------- ------ -------- ------ -------- ------ -------- ------
Total loans............. 268,720 100.00% 264,607 100.00% 236,843 100.00% 203,746 100.00%
====== ====== ====== ======
Less:
Unadvanced loan funds(1) (1,987) (1,866) (1,395) (2,089)
Net deferred loan
origination
costs (fees).......... 892 934 598 370
Allowance for loan
losses................. (2,061) (1,952) (1,911) (1,838)
-------- -------- -------- --------
Loans, net........... $265,564 $261,723 $234,135 $200,189
======== ======== ======== ========
<CAPTION>
---------------------------------------
1994 1993
------------------- -------------------
Percent Percent
Amount of Total Amount of Total
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......... $140,614 74.11% $134,378 76.67%
Multi-family................. 8,823 4.65 2,780 1.59
Commercial................... 16,500 8.70 15,214 8.68
Construction and development. 1,037 0.55 1,511 0.86
-------- ------ -------- ------
Total real estate loans.... 166,974 88.01 153,883 87.80
-------- ------ -------- ------
Consumer loans:
Home equity loans and
lines of credit............ 13,404 7.06 12,799 7.30
Automobile................... 2,701 1.42 2,118 1.21
Other........................ 3,868 2.04 4,381 2.50
-------- ------ -------- ------
Total consumer loans......... 19,973 10.52 19,298 11.01
-------- ------ -------- ------
Commercial loans................ 2,795 1.47 2,090 1.19
-------- ------ -------- ------
Total loans.................. 189,742 100.00% 175,271 100.00%
====== ======
Less:
Unadvanced loan funds(1)..... (1,212) (1,456)
Net deferred loan origination
costs (fees)................ (92) (15)
Allowance for loan losses (1,657) (1,667)
-------- --------
Loans, net.................. $186,781 $172,133
======== ========
</TABLE>
- ------------------------------
(1) Includes committed but unadvanced loan amounts.
52
<PAGE>
Origination, Sale and Servicing of Loans. The Bank's mortgage lending
activities are conducted primarily by its salaried loan representatives
operating at its ten full service banking offices. All loans originated by the
Bank are underwritten by the Bank pursuant to the Bank's policies and
procedures. The Bank originates both adjustable-rate and fixed-rate mortgage
loans. The Bank's ability to originate fixed- or adjustable-rate loans is
dependent upon the relative customer demand for such loans, which is affected by
the current and expected future level of interest rates. Consistent with its
current business strategy, the Bank plans to hire at least two commissioned loan
officers in the future with the primary responsibility of originating one- to
four-family mortgage loans for the Bank.
The Bank is primarily a portfolio lender, originating substantially all
of its loans for investment. Recently, however, the Bank completed the
securitization of $19.1 million of 30-year fixed-rate one- to four-family
mortgage loans with Fannie Mae. Such loans are serviced as mortgage-backed
securities for Fannie Mae. The Bank intends to continue securitizing a portion
of its loans, mostly 30-year fixed-rate one- to four-family mortgage loans, in
the future. See "Investment Activities." Any loans originated for sale by the
Bank conform to the underwriting standards specified by Fannie Mae and Freddie
Mac. The Bank generally retains the servicing rights on any mortgage loans which
it sells or securitizes.
At August 31,1998, the Bank was servicing $45.5 million of loans for
others, consisting of conforming fixed-rate mortgage loans sold by the Bank.
Loan servicing includes collecting and remitting loan payments, accounting for
principal and interest, contacting delinquent mortgagors, supervising
foreclosures and property dispositions in the event of unremedied defaults,
making certain insurance and tax payments on behalf of the borrowers and
generally administering the loans. Substantially all of the loans currently
being serviced for others are loans which have been sold or securitized by the
Bank. The gross servicing fee income from loans sold is generally 25 basis
points of the total balance of the loan being serviced.
During the eight months ended August 31, 1998 and the years ended
December 31, 1997 and December 31, 1996, the Bank originated $31.5 million, $9.9
million and $15.6 million of fixed-rate one- to four-family loans, respectively,
of which $24.1 million, $5.1 million and $9.8 million, respectively, were
retained by the Bank. During these same periods, the Bank also originated $4.1
million, $8.6 million and $12.4 million of adjustable-rate one- to four-family
loans, respectively, all of which were retained by the Bank. The Bank
recognizes, at the time of sale, the cash gain or loss on the sale of loans
based on the difference between the net cash proceeds received and the carrying
value of the loans sold. The Bank has, from time-to-time, participated in loans,
primarily multi-family and commercial real estate loans and commercial business
loans and, at August 31, 1998, had $3.8 million in loan participation interests.
53
<PAGE>
The following table sets forth the Bank's loan originations, sales and
principal repayments for the periods indicated.
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31, For the Year Ended December 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
-------- --------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans, net, beginning of period ................ $261,723 $234,135 $234,135 $200,189 $186,781
-------- -------- -------- -------- --------
Loans originated:
Real estate ............................... 41,534 13,007 25,233 39,467 26,781
Consumer:
Home equity loans and lines of credit .. 16,799 31,469 40,976 35,352 37,351
Automobile ............................. 3,427 4,690 6,829 5,651 4,837
Other .................................. 2,196 1,945 2,980 3,325 3,487
Total consumer ..................... 22,422 38,104 50,785 44,328 45,675
-------- -------- -------- -------- --------
Commercial ................................ 3,097 1,777 3,131 3,853 2,495
-------- -------- -------- -------- --------
Total loans originated ............. 67,053 52,888 79,149 87,648 74,951
-------- -------- -------- -------- --------
Principal repayments, unadvanced funds and
other, net .................................... (44,071) (34,710) (51,141) (52,256) (48,300)
Sale/securitization of mortgage loans, principal
balance ....................................... (19,068) -- -- (815) (12,942)
Net loan charge-offs ........................... (51) (84) (139) (107) (29)
Transfers to REO ............................... (22) (61) (281) (524) (272)
-------- -------- -------- -------- --------
Total deductions ........................... (63,212) (34,855) (51,561) (53,702) (61,543)
-------- -------- -------- -------- --------
Net loan activity .............................. 3,841 18,033 27,588 33,946 13,408
-------- -------- -------- -------- --------
Loans, net, end of period .................. $265,564 $252,168 $261,723 $234,135 $200,189
======== ======== ======== ======== ========
</TABLE>
54
<PAGE>
Loan Maturity. The following table shows the remaining contractual
maturity of the Bank's loan portfolio at August 31, 1998. The table does not
include prepayments or scheduled principal amortization. Prepayments and
scheduled principal amortization on mortgage loans totalled $53.8 million for
the eight months ended August 31, 1998, and $52.7 million, $51.0 million, and
$38.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
At August 31, 1998
-----------------------------------------------------------------------------------------------------------
Home Equity
One-to Construction Loans and Total
Four- Multi- Commercial and Lines of Other Loans
Family Family Real Estate Development Credit Automobile Consumer Commercial Receivable
-------- --------- ----------- -------------- ----------- ------------ --------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less ....... $ 1,172 $ 84 $ 1,286 $ 879 $ 57 $ 651 $ 744 $ 669 $ 5,542
After one year:
More than one
year to three years .. 615 -- 212 51 31 5,743 1,894 1,086 9,632
More than three years
to five years ........ 2,235 -- 455 3,220 2,791 3,624 220 792 13,337
More than five years
to 10 years .......... 30,017 3,554 1,655 -- 4,249 -- 500 1,734 41,709
More than 10 years
to 15 years .......... 35,218 3,625 6,414 -- 2,378 -- 77 45 47,757
More than 15 years .... 68,583 15,512 11,066 -- 54,638 1 681 262 150,743
-------- ------- ------- ------ ------- ------- ------ ------ -------
Total amount due ..... $137,840 $22,775 $21,088 $4,150 $64,144 $10,019 $4,116 $4,588 268,720
======== ======= ======= ====== ======= ======= ====== ======
<CAPTION>
Less:
<S> <C>
Unadvanced loan funds ............................................................................................. (1,987)
Net deferred loan origination costs ............................................................................... 892
Allowance for loan losses ......................................................................................... (2,061)
--------
Loans, net ............................................................................................................. $265,564
========
</TABLE>
55
<PAGE>
The following table sets forth at August 31, 1998, the dollar amount of
gross loans receivable contractually due after August 31, 1999, and whether such
loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After August 31, 1999
---------------------------------------------------------
Fixed Adjustable Total
----------- ------------- -----------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family ................................ $ 81,885 $ 54,783 $136,668
Multi-family and commercial real estate ............ 2,499 39,994 42,493
Construction and development ....................... -- 3,271 3,271
-------- -------- --------
Total real estate loans ............ 84,384 98,048 182,432
-------- -------- --------
Consumer loans:
Home equity loans and lines of credit ....... 6,696 57,391 64,087
Automobile loans ............................ 9,368 -- 9,368
Other ....................................... 3,136 236 3,372
Commercial loans ..................................... 1,811 2,108 3,919
-------- -------- --------
Total loans .................................... $105,395 $157,783 $263,178
======== ======== ========
</TABLE>
One- to Four-Family Lending. The Bank currently offers both fixed-rate
and adjustable-rate mortgage ("ARM") loans with maturities of up to 30 years
secured by one- to four-family residences substantially all of which are located
in the Bank's primary market area. One- to four-family mortgage loan
originations are generally obtained from the Bank's in-house loan
representatives from existing or past customers, through advertising, and
through referrals from local builders, real estate brokers and attorneys. At
August 31, 1998, the Bank's one- to four-family mortgage loans totalled $137.8
million, or 51.3% of total loans. Of the one- to four-family mortgage loans
outstanding at that date, 59.8% were fixed-rate mortgage loans and 40.2% were
ARM loans.
The Bank currently offers fixed-rate mortgage loans with terms of up to
30 years. Approximately 63.6% of the Bank's fixed-rate one- to four-family loan
portfolio consist of loans with maturities of 15 years or less. The Bank also
currently offers a number of ARM loans with terms of up to 30 years and interest
rates which adjust every one or three years from the outset of the loan or which
adjust annually after a five year initial fixed period. The interest rates for
the Bank's ARM loans are indexed to either the one, three or five year Constant
Maturity Treasury ("CMT") Index. The Bank originates ARM loans with initially
discounted rates. The Bank's ARM loans generally provide for periodic (not more
than 2%) and overall (not more than 6%) caps on the increase or decrease in the
interest rate at any adjustment date and over the life of the loan. The Bank
retains for its portfolio substantially all loans originated, selling or
securitizing, from time to time, 30-year fixed-rate mortgage loans. Loans that
are sold are generally sold to Freddie Mac and Fannie Mae. The Bank generally
retains the servicing on all loans sold.
The origination of adjustable-rate residential mortgage loans, as
opposed to fixed-rate residential mortgage loans, helps reduce the Bank's
exposure to increases in interest rates. However, adjustable-rate loans
generally pose credit risks not inherent in fixed-rate loans, primarily because
as interest rates rise, the underlying payments of the borrower also rise,
thereby increasing the potential for default. The Bank attempts to minimize such
risk by assuming a 200 basis point increase in the loan's interest rate when
evaluating a borrower's creditworthiness based on the assumed higher payment.
Periodic and lifetime caps on interest rate increases also help to reduce the
risks associated with adjustable-rate loans but also limit the interest rate
sensitivity of such loans.
All one- to four-family mortgage loans are underwritten according to
the Bank's policies and secondary market underwriting guidelines. Generally, the
Bank originates one- to four-family residential mortgage loans in amounts up to
80% of the lower of the appraised value or the selling price of the property
securing the loan and up to 95% of the lesser of the appraised value or selling
price if private mortgage insurance ("PMI") is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due-on-sale clauses are an important means of adjusting the yields on
the Bank's fixed-rate mortgage loan
56
<PAGE>
portfolio and the Bank has generally exercised its rights under these clauses.
The Bank requires fire, casualty, title and flood insurance, if applicable, on
all properties securing real estate loans made by the Bank.
In an effort to provide financing for first-time home buyers, the Bank
offers its own first-time home buyer loan program. This program offers one- and
two-family residential mortgage loans to qualified low-to-moderate income
individuals. These loans are offered with initial five year fixed-rates of
interest which adjust annually thereafter with terms of up to 30 years. The
program includes initially discounted rates and periodic (not more than 1%) and
overall (not more than 4%) caps on the increase or decrease in the interest rate
at any adjustment date and over the life of the loan. Pursuant to this program,
borrowers receive reduced loan origination fees and closing costs. Such loans
must be secured by an owner-occupied residence. These loans are originated using
similar underwriting guidelines as are the Bank's other one- to four-family
mortgage loans. Such loans are originated in amounts of up to 95% of the lower
of the property's appraised value or the sale price. Private mortgage insurance
is required for loans with loan-to-value ("LTV") ratios of over 80%.
Home Equity Loans and Lines of Credit. The Bank offers home equity
revolving lines of credit, substantially all of which are secured by second
mortgages on owner-occupied one- to four-family residences located in the Bank's
primary market area and, to a lesser extent, by properties in northern
Connecticut and in Franklin County, Massachusetts. The lines of credit
maintained outside of the Bank's primary market were generated through the
services of a third party telemarketing firm, subject to approval by the Bank.
Such third party currently does very little solicitation on behalf of the Bank.
At August 31, 1998, home equity loans and lines of credit totalled $64.1
million, or 24.0% of the Bank's total loans and 81.9% of consumer loans. Home
equity lines of credit have adjustable-rates of interest which adjust on a
monthly basis. The adjustable-rate of interest charged on such loans is indexed
to the prime rate as reported in The Wall Street Journal. Home equity lines of
credit generally have an 18% lifetime limit on interest rates. Generally, the
maximum LTV ratio on home equity lines of credit is 75% of the assessed value of
the property less the outstanding balance of the first mortgage up to a maximum
of $100,000. The underwriting standards employed by the Bank for home equity
lines of credit include a determination of the applicant's credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan and the value of the collateral securing the loan. The
stability of the applicant's monthly income may be determined by verification of
gross monthly income from primary employment and, additionally, from any
verifiable secondary income.
The home equity line of credit may be drawn down by the borrower for a
period of ten years from the date of the loan agreement (the "draw period").
During the draw period, the borrower has the option of paying, on a monthly
basis, either principal and interest or only the interest. Following the draw
period, the borrower has fifteen years in which to payback the line of credit
(the "repayment period"). A borrower is precluded from accessing the home equity
line of credit during the repayment period unless terms are renegotiated with
the Bank. At any time during the draw period, all, or a portion of the
outstanding balance of a home equity line of credit, may be converted into a
fixed-rate, home equity loan with terms of five, ten or 15 years. See "Risk
Factors -- Increased Lending Risk Associated with Consumer, Multi-Family and
Commercial Real Estate and Commercial Business Lending."
Multi-Family and Commercial Real Estate Lending. The Bank originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small office buildings, industrial facilities or retail facilities primarily
located in the Bank's primary market area. The Bank's multi-family and
commercial real estate underwriting policies provide that such real estate loans
may be made in amounts of up to 80% of the appraised value of the property, 75%
if the property is being refinanced, subject to the Bank's current
loans-to-one-borrower limit, which at August 31, 1998 was $4.0 million. The
Bank's multi-family and commercial real estate loans may be made with terms of
up to 25 years and are offered with interest rates that adjust periodically and
are generally indexed to the prime rate as reported in The Wall Street Journal.
In reaching its decision on whether to make a multi-family or commercial real
estate loan, the Bank considers the net operating income of the property, the
borrower's expertise, credit history and profitability and the value of the
underlying property. In addition, with respect to commercial real estate rental
properties, the Bank will also consider the term of the lease and the quality of
the tenants. The Bank has generally required that the properties securing these
real estate loans have debt service coverage ratios (the ratio of earnings
before debt service to debt service) of at least 1.15x. Environmental impact
57
<PAGE>
surveys are generally required for commercial real estate loans. Generally, all
multi-family and commercial real estate loans made to corporations, partnerships
and other business entities require personal guarantees by the principals. The
Bank's multi-family real estate loan portfolio at August 31, 1998 was $22.8
million, or 8.5% of total loans, and the Bank's commercial real estate loan
portfolio at such date was $21.1 million, or 7.9% of total loans. The largest
multi-family or commercial real estate loan in the Bank's portfolio at August
31, 1998 was a $3.1 million multi-family real estate loan secured by a 126-unit
apartment building located in West Springfield, Massachusetts.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject to adverse conditions in the real estate market or the
economy. The Bank seeks to minimize these risks through its underwriting
standards. See "Risk Factors--Increased Lending Risks Associated with Consumer,
Multi-Family and Commercial Real Estate and Commercial Business Lending."
Construction and Development Lending. The Bank originates construction
and development loans primarily to finance the construction of one- to
four-family, owner-occupied residential real estate and commercial real estate
properties located in the Bank's primary market area. Commercial real estate
construction loans typically convert into permanent financing. Construction and
development loans are generally offered to customers and experienced builders
with whom the Bank has an established relationship. Construction and development
loans are typically offered with terms of up to 12 months; however, terms may be
extended up to four years under certain circumstances. The maximum loan-to-value
limit applicable to such loans is 80% for contract sales and 75% for speculative
properties. Construction loan proceeds are disbursed periodically in increments
as construction progresses and as inspections by the Bank's lending officers or,
on larger projects, independent architects or engineering firms, warrant. At
August 31, 1998, the Bank's largest construction and development loan was a
performing revolving line of credit with a $1.2 million outstanding balance
secured by a condominium development project in Easthampton, Massachusetts. At
August 31, 1998, construction and development loans totalled $4.2 million, or
1.5%, of the Bank's total loans.
The Bank originates land loans to local contractors and developers for
the purpose of making improvements thereon, or for the purpose of holding or
developing the land for sale. Such loans are secured by a lien on the property,
are limited to 60% of the lower of the acquisition price or the appraised value
of the land and have a term of up to three years with a floating interest rate
based on the prime rate as reported in The Wall Street Journal. The Bank's land
loans are generally secured by property in its primary market area. The Bank
requires title insurance and, if applicable, a hazardous waste survey reporting
that the land is free of hazardous or toxic waste.
Construction and development financing is generally considered to
involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction compared to the estimated cost (including interest)
of construction and other assumptions, including the estimated time to sell
residential properties. If the estimate of value proves to be inaccurate, the
Bank may be confronted with a project, when completed, having a value which is
insufficient to assure full repayment.
Automobile and Other Consumer Lending. The Bank offers automobile loans
with term of up to 60 months and loan-to-value ratios of 80% for new cars. For
used cars, the maximum loan-to-value ratio is 75% of the lesser of the retail
value shown in the NADA Used Car Guide or the purchase price, and the terms for
used automobile loans range between 48 months (for automobiles up to four years
old) to 36 months (for older vehicles). The interest rates offered are the same
for new and used automobile loans. At August 31, 1998, automobile loans totalled
$10.0 million, or 3.7% of the Bank's total loans and 12.8% of consumer loans.
Other Consumer loans at August 31, 1998 amounted to $14.1 million, or 5.3% of
the Bank's total loans and 12.8% of consumer loans. These loans include
education, second mortgages, collateral, motorcycle, boat, mobile home and
unsecured personal loans. Motorcycle, boat and mobile home loans are generally
made in amounts of up to 80% of the fair market value of the property securing
the loan. Collateral loans are generally secured by a passbook account, a
certificate of deposit, securities or life insurance. Unsecured personal loans
generally have a maximum borrowing limitation of $5,000 and a maximum term of
three years.
58
<PAGE>
Loans secured by rapidly depreciable assets such as automobiles,
motorcycles, boats or that are unsecured entail greater risks than one- to
four-family mortgage loans. In such cases, repossessed collateral for a
defaulted loan may not provide an adequate source of repayment of the
outstanding loan balance, since there is a greater likelihood of damage, loss or
depreciation of the underlying collateral. Further, collections on these loans
are dependent on the borrower's continuing financial stability and, therefore,
are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Finally, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans in the event of a default. See "Risk
Factors -- Increased Lending Risk Associated with Consumer, Multi-Family and
Commercial Real Estate and Commercial Business Lending."
Commercial Lending. At August 31, 1998, the Bank had $4.6 million in
commercial loans which amounted to 1.7% of total loans. In addition, at such
date, the Bank had $1.1 million of unadvanced commercial lines of credit. The
Bank makes commercial business loans primarily in its market area to a variety
of professionals, sole proprietorships and small businesses. The Bank offers a
variety of commercial lending products, including term loans for fixed assets
and working capital, revolving lines of credit, letters of credit, and Small
Business Administration guaranteed loans. The maximum amount of a commercial
business loan is limited by the Bank's loans-to-one-borrower limit which at
August 31, 1998, was $4.0 million. Term loans are generally offered with initial
fixed rates of interest for the first five years and with terms of up to 7
years. Business lines of credit have adjustable rates of interest and are
payable on demand, subject to annual review and renewal. Business loans with
variable rates of interest adjust on a monthly basis and are indexed to the
prime rate as published in The Wall Street Journal.
In making commercial business loans, the Bank considers the financial
statements of the borrower, the Bank's lending history with the borrower, the
debt service capabilities of the borrower, the projected cash flows of the
business and the value of the collateral. Commercial business loans are
generally secured by a variety of collateral, primarily equipment, assets and
accounts receivable, and are supported by personal guarantees. Depending on the
collateral used to secure the loans, commercial loans are made in amounts of up
to 80% of the adjusted value of the collateral securing the loan. The Bank
generally does not make unsecured commercial loans. In addition, the Bank
participates in loans, often community-based, with area lenders with whom the
Bank has a relationship. When determining whether to participate in such loans,
the Bank will underwrite its participation interest according to its own
underwriting standards. At August 31, 1998, $48,000, or 1.1% of the commercial
loan portfolio, were participation loans of this nature. In an effort to
increase its emphasis on commercial loans, the Bank intends to hire an
experienced commercial loan officer with the primary responsibility of
increasing commercial business and real estate loan volume.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value. See "Risk Factors --
Increased Lending Risk Associated with Consumer, Multi-Family and Commercial
Real Estate and Commercial Business Lending." At August 31, 1998, the Bank's
largest commercial loan was a $200,000 revolving line of credit to a retail
business located in South Hadley, Massachusetts.
Loan Approval Procedures and Authority. The Board of Investment
establishes, subject to ratification by the Board of Trustees, the lending
policies and loan approval limits of the Bank. In connection with one- to
four-family mortgage loans, the Board of Investment has authorized the following
persons to approve the loans up to the amounts indicated: one assistant vice
president and the vice president of commercial lending may approve loans up to
$150,000; the other assistant vice president and all loan origination and
underwriting officers may approve loans up to $227,150; and the Chief Executive
Officer and the Senior Vice President, Lending may approve loans up to $250,000.
59
<PAGE>
With respect to consumer loans, the Board of Investment has authorized
the following persons to approve loans up to the amounts indicated: assistant
branch managers and all but one branch supervisor may approve secured and
unsecured loans of up to $15,000 and $5,000, respectively; the remaining branch
supervisor, branch managers, loan originators and underwriting officers and the
vice president, operations may approve secured and unsecured loans of up to
$25,000 and $10,000, respectively; and the Chief Executive Officer and the
Senior Vice President, Lending may approve loans up to $75,000 and $50,000,
respectively.
The Board of Investment has authorized the following individuals to
approve home equity loans and lines of credit up to the amounts indicated: one
loan origination officer may approve such loans up to $25,000; lending vice
presidents, assistant vice presidents and loan origination and underwriting
officers may approve loans up to $100,000; and the Chief Executive Officer and
the Senior Vice President, Lending may approve loans up to $125,000.
All loans in excess of the these amounts must be approved by either the
Senior Vice President, Lending, the Officers' Loan Committee and/or the Board of
Investment. The Officers' Loan Committee, which currently consists of three
lending officers, is selected by the Board of Investment and ratified by the
Board of Trustees. Specifically, all loans, commitments or other extensions of
credit, which either alone or in the aggregate total up to $350,000 may be
approved by the Senior Vice President, Lending. Those loan commitments or other
extensions of credit, either alone or in the aggregate, which are greater than
$350,000 but are less than $750,000 must be approved by the Officers' Loan
Committee and those loans commitments or other extensions of credit, either
alone or in the aggregate, which exceed $750,000 must be approved by the Board
of Investment. Additionally, those loans less than $750,000 must be ratified by
the Board of Investment. All loans, commitments and other extensions of credit
which increase the total aggregate unsecured liability of a borrower to $75,000
or more must be approved by the Officers' Loan Committee.
With respect to commercial loans, the Board of Investment has
authorized the following persons to approve loans up to the amounts indicated:
the Assistant Vice President, Loan Servicing and Collection may approve
commercial real estate loans, commercial secured and unsecured loans in amounts
of up to $125,000, $50,000 and $10,000, respectively; the vice
president/commercial lending officer may approve commercial real estate loans,
commercial secured and unsecured loans in amounts of up to $250,000, $200,000
and $100,000, respectively; and the Chief Executive Officer and the Senior Vice
President, Lending may approve commercial real estate loans, commercial secured
and unsecured loans in amounts of up to $350,000, $250,000 and $125,000,
respectively.
All loans in excess of the these amounts must be approved by either the
Officer's Loan Committee and/or the Board of Investment. The Officers' Loan
Committee, which currently consists of three lending officers, is selected by
the Board of Investment and ratified by the Board of Trustees. Specifically, all
loans, commitments or other extensions of credit, either alone or in the
aggregate which exceed $350,000 or $750,000 must be approved by the Officers'
Loan Committee and the Board of Investment, respectively. Additionally, all
loans, commitments and other extensions of credit which increase the total
aggregate unsecured liability of a borrower to $125,000 or more must be approved
by the Officers' Loan Committee.
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies, Classified Assets and Real Estate Owned. Reports listing
all delinquent accounts are generated and reviewed by management and the Board
of Investment on a monthly basis and the Board of Trustees performs a bi-monthly
review of all loans or lending relationships delinquent 90 days or more. The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan, period and cause of delinquency and whether the borrower is
habitually delinquent. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. The Bank generally sends the borrower a
written notice of non-payment after the loan is 15 days past due. The Bank's
guidelines provide that telephone and written correspondence will be attempted
to ascertain the reasons for delinquency and the prospects of repayment. When
contact is made with the borrower at any time prior to foreclosure, the Bank
will offer to work out a repayment schedule with the borrower to avoid
foreclosure. In the event payment is not then received or the loan not otherwise
satisfied, additional letters and telephone calls generally are made. If the
loan is still not brought current or
60
<PAGE>
satisfied and it becomes necessary for the Bank to take legal action, which
typically occurs after a loan is 90 days or more delinquent, the Bank will
demand the loan and then commence foreclosure proceedings against any real
property that secured the loan or accept a deed in lieu of foreclosure. If a
foreclosure action is instituted and the loan is not brought current, paid in
full, or refinanced before the foreclosure sale, the property securing the loan
generally is sold at foreclosure and, if purchased by the Bank, becomes real
estate owned.
Federal regulations and the Bank's internal policies require that the
Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank currently classifies problem and
potential problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset
is considered Substandard if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the Bank will sustain some loss if the deficiencies are not corrected. Assets
classified as Doubtful have all of 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,
conditions and values, highly questionable and improbable. Assets classified as
Loss are those considered uncollectible and of such little value that their
continuance as assets, without the establishment of a specific loss reserve, is
not warranted. Assets which do not currently expose the Bank to a sufficient
degree of risk to warrant classification in one of the aforementioned categories
but possess weaknesses are required to be designated "Special Mention."
When the Bank classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for possible
loan losses in an amount deemed prudent by management unless the loss of
principal appears to be remote. When the Bank classifies one or more assets, or
portions thereof, as Loss, it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified.
The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the FDIC and
Commissioner, which can order the establishment of additional general or
specific loss allowances. The FDIC, in conjunction with the other federal
banking agencies, recently adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance for
financial institutions 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 general valuation
guidelines. Generally, the policy statement recommends that institutions have
effective systems and controls to identify, monitor and address asset quality
problems; that management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management has
established acceptable allowance evaluation processes that meet the objectives
set forth in the policy statement. While the Bank believes that it has
established an adequate allowance for possible loan losses, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to materially increase at that time its allowance for possible
loan losses, thereby negatively affecting the Bank's financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, future provisions are
dependent upon future events such as loan growth and portfolio diversification
and, as such, further additions to the level of specific and general loan loss
allowances may become necessary.
Management of the Bank and the Board of Investment review and classify
the assets of the Bank on a monthly basis and the Board of Trustees reviews the
results of the reports on a bi-monthly basis. The Bank classifies its assets in
accordance with the management guidelines described above. At August 31, 1998,
the Bank had $3.0 million, or 0.82%, of assets designated as Substandard,
consisting of 18 one- to four-family loans, three commercial real estate loans,
six multi-family loans, one construction and development loan, 14 consumer loans
and three commercial business loans. At such date, the Bank had no loans
classified as Doubtful or Loss. Also, at August 31, 1998, the Bank had $882,000,
or 0.24% of assets designated as Special Mention, consisting of seven one- to
four-family loans, three commercial real estate loans, two home equity lines of
credit and four commercial business loans. At August 31, 1998, all of these
classified assets represented 1.8% of total loans.
61
<PAGE>
At August 31, 1998, the Bank had two loans, each with balances of
$500,000 or more, which had been adversely classified or identified as a problem
credit. The first, which is classified as substandard, was restructured in 1994
and is secured by a blanket first mortgage on ten multi-family properties
located in Westfield, Massachusetts. Currently, the borrower provides the Bank
with monthly financial statements and the Bank actively monitors the properties'
vacancy rates. The borrower is current with respect to payments. The second
loan, which was originally restructured in 1992 and, more recently in December
1997, is classified as impaired. This loan is secured by an office/retail
building located in Wilbraham, Massachusetts. The borrower is current with
respect to payments. As of August 31, 1998, the aggregate outstanding carrying
balance of these loans was $1.4 million.
The following table sets forth the delinquencies in the Bank's loan
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At August 31, 1998 At December 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>
One- to four-family .......... 1 $116 3 $220 2 $ 80 1 $ 95
Commercial real estate ....... -- -- -- -- 2 192 1 790
Home equity loans
and lines of credit......... -- -- 1 60 1 30 -- --
Other consumer ............... 2 5 -- -- 6 38 -- --
---- ---- ---- ---- ---- ---- ---- ----
Total loans .................. 3 $121 4 $280 11 $340 2 $885
==== ==== ==== ==== ==== ==== ==== ====
Delinquent loans to total
loans(1).................... 0.05% 0.10% 0.13% 0.34%
==== ==== ==== ====
<CAPTION>
At December 31, 1996 At December 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>
One- to four-family ......... 2 $ 51 1 $ 7 6 $340 4 $384
Commercial real estate ...... 1 43 2 124 1 43 1 61
Home equity loans and lines
of credit ................. -- -- 1 30 2 39 -- --
Other consumer .............. 1 4 4 27 4 22 1 93
Commercial .................. -- -- -- -- -- -- 1 28
---- ---- ---- ---- ---- ---- ---- ----
Total loans ................. 4 $ 98 8 $252 13 $444 7 $566
==== ==== ==== ==== ==== ==== ==== ====
Delinquent loans to total
loans(1) .................. 0.04% 0.11% 0.22% 0.28%
==== ==== ==== ====
</TABLE>
- ----------------------
(1) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
62
<PAGE>
Nonperforming Assets and Impaired Loans. The following table sets forth
information regarding nonaccrual loans and REO. At August 31, 1998, nonaccrual
loans totalled $280,000, consisting of four loans, and REO totalled $323,000,
consisting of two residential building lots, a 25 lot residential subdivision
and a one- to four-family property. It is the general policy of the Bank to
cease accruing interest on loans 90 days or more past due and to fully reserve
for all previously accrued interest. If interest payments on all nonaccrual
loans for the eight months ended August 31, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995 had been made in accordance with original loan
agreements, interest income of $10,000, $38,000, $48,000, $13,000 and $62,000
respectively, would have been recognized. On January 1, 1995, the Bank adopted
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118. At August 31, 1998, the Bank
had a $1.2 million recorded investment in impaired loans which had specific
allowances of $290,000. At August 31, 1997, there were $1.3 million of impaired
loans with specific loan loss allowances of $238,000.
<TABLE>
<CAPTION>
At August 31, At December 31,
--------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate:
One- to four-family .............................. $ 220 $ 212 $ 95 $ 71 $ 412 $ 404 $1,638
Multi-family ..................................... -- -- -- -- -- 180 60
Commercial ....................................... -- 789 790 124 61 880 56
Home equity loans and lines of credit ............... 60 -- -- 30 93 113 170
Other consumer ...................................... -- 15 -- 27 -- 5 25
------ ------ ------ ------ ------ ------ ------
Total ............................................ 280 1,016 885 252 566 1,582 1,949
Real estate owned (REO), net(1) ....................... 323 385 189 348 534 955 1,126
Real estate in possession ............................. 12 -- 192 75 107 -- --
------ ------ ------ ------ ------ ------ ------
Total nonperforming assets .......................... 615 1,401 1,266 675 1,207 2,537 3,075
Troubled debt restructurings .......................... 582 274 274 -- 1,947 939 1,273
------ ------ ------ ------ ------ ------ ------
Troubled debt restructurings and
total nonperforming assets .......................... $1,197 $1,675 $1,540 $ 675 $3,154 $3,476 $4,348
====== ====== ====== ====== ====== ====== ======
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans(2)(3) ..................... 0.32% 0.51% 0.44% 0.11% 1.24% 1.34% 1.85%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets(3) ....................... 0.33% 0.49% 0.45% 0.21% 1.15% 1.31% 1.84%
- ------------------------
</TABLE>
(1) Real estate owned balances are shown net of related loss allowances.
(2) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
(3) Nonperforming assets consist of nonperforming loans and REO. Nonperforming
loans consist of nonaccruing loans and all loans 90 days or more past due
and other loans which have been identified by the Bank as presenting
uncertainty with respect to the collectibility of interest or principal.
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions for loan
losses based on management's on-going evaluation of the risks inherent in its
loan portfolio in consideration of the trends in its loan portfolio, the
national and regional economies and the real estate market in the Bank's primary
lending area. 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. The Bank's loan loss allowance determinations also incorporate
factors and analyses which consider the potential principal loss associated with
the loan, costs of acquiring the property securing the loan through foreclosure
or deed in lieu thereof, the periods of time involved with the acquisition and
sale of such property, and costs and expenses associated with maintaining and
holding the property until sale.
63
<PAGE>
Management calculates a loan loss allowance sufficiency analysis on a
bi-monthly basis based upon the loan portfolio composition, asset
classifications, loan-to-value ratios, potential impairments in the loan
portfolio and other factors. The analysis is compared to actual losses, peer
group comparisons and economic conditions. As of August 31, 1998, the Bank's
allowance for loan losses was $2.1 million or 0.77% of total loans, and 239.1%
of nonperforming loans and troubled debt restructurings as compared to $2.0
million or 0.74% of total loans, and 168% of nonperforming loans and troubled
debt restructurings as of December 31, 1997. The Bank had total nonperforming
loans and trouble debt restructurings of $862,000 and $1.2 million at August 31,
1998 and December 31, 1997, respectively, and nonperforming loans and trouble
debt restructurings to total loans of 0.32% and 0.47%, respectively. Management
believes that, based on information available at August 31, 1998, the Bank's
allowance for loan losses was sufficient to cover losses inherent in its loan
portfolio at that time. Based upon the Bank's plan to increase its emphasis on
non-one- to four-family mortgage lending, the Bank may further increase its
allowance for loan losses over future periods as conditions dictate. See "Risk
Factors--Increased Lending Risk Associated With Consumer, Multi-Family and
Commercial Real Estate and Commercial Business Lending." However, no assurances
can be given that the Bank's level of allowance for loan losses will be
sufficient to cover future loan losses incurred by the Bank or that further
future adjustments to the allowance for loan losses will not be necessary if
economic and other conditions differ substantially from the economic and other
conditions used by management to determine the current level of the allowance
for loan losses. In addition, the FDIC and the Commissioner, as an integral part
of their examination processes, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to make additional provisions
for estimated loan losses based upon judgments different from those of
management.
The following table sets forth activity in the Bank's allowance for
loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
At or for the
Eight Months
Ended August 31, At or For the Year Ended December 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- -------- --------- --------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of period ........ $1,952 $1,911 $1,911 $1,838 $1,657 $1,667 $1,500
Charged-off loans:
Real estate ......................................... -- 31 52 34 30 271 283
Consumer ............................................ 70 63 109 72 45 73 79
Commercial .......................................... -- 10 10 30 -- -- --
------ ------ ------ ------ ------ ------ ------
Total charged-off loans .......................... 70 104 171 136 75 344 362
------ ------ ------ ------ ------ ------ ------
Recoveries on loans previously charged-off:
Real estate ......................................... -- 8 11 10 24 11 --
Consumer ............................................ 19 12 21 19 22 23 19
Commercial .......................................... -- -- -- -- -- -- 2
------ ------ ------ ------ ------ ------ ------
Total recoveries ................................. 19 20 32 29 46 34 21
------ ------ ------ ------ ------ ------ ------
Net loans charged-off ................................. 51 84 139 107 29 310 341
Provision for loan losses ............................. 160 120 180 180 210 300 508
------ ------ ------ ------ ------ ------ ------
Allowance for loan losses, end of period .............. $2,061 $1,947 $1,952 $1,911 $1,838 $1,657 $1,667
====== ====== ====== ====== ====== ====== ======
Net loans charged-off to average interest-earnings
loans(1) ............................................ 0.03% 0.05% 0.06% 0.05% 0.01% 0.17% 0.20%
Allowance for loan losses to total loans(2) ........... 0.77% 0.77% 0.74% 0.81% 0.91% 0.88% 0.96%
Allowance for loan losses to nonperforming loans and
troubled debt restructuring(3) ...................... 239.10% 150.93% 168.42% 758.33% 73.14% 65.73% 51.74%
Net loans charged-off to allowance for loan losses..... 2.47% 4.31% 7.12% 5.60% 1.58% 18.71% 20.46%
Recoveries to charge-offs ............................. 27.14% 19.23% 18.71% 21.32% 61.33% 9.88% 5.80%
</TABLE>
- ------------------------
(1) Ratio is annualized for the eight month periods.
(2) Total loans includes loans, less unadvanced loan funds, plus deferred loan
costs (fees), net.
(3) Nonperforming loans and troubled debt restructuring consist of all loans
90 days or more past due and other loans which have been identified by the
Bank as presenting uncertainty with respect to the collectibility of
interest or principal.
64
<PAGE>
The following table sets forth the Bank's percent of allowance for loan
losses to total allowances and the percent of loans to total loans in each of
the categories listed at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. These
allocations are not necessarily indicative of future losses and do not restrict
the use of the allowance to absorb losses in any other loan category.
<TABLE>
<CAPTION>
At August 31,
-----------------------------------------------------------
1998 1997
------------------------------ ----------------------------
% of Percent of % of Percent of
Allowance Loans in Allowance Loans in
in each Each in Each Each
Category Category Category Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans... $1,506 73.07% 69.16% $1,524 78.28% 70.38%
Consumer loans...... 457 22.17 29.13 325 16.69 28.40
Commercial loans.... 98 4.76 1.71 98 5.03 1.22
------ ----- ----- ------ ----- -----
Total allowance
for loan losses. $2,061 100.00% 100.00% $1,947 100.00% 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
At December 31,
-----------------------------------------------------------
1997 1996
------------------------------ ----------------------------
% of Percent of % of Percent of
Allowance Loans in Allowance Loans in
in each Each in Each Each
Category Category Category Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans... $1,506 77.15% 69.34% $1,547 80.95% 74.71%
Consumer loans...... 348 17.83 29.03 256 13.40 23.65
Commercial loans.... 98 5.02 1.63 108 5.65 1.64
------ ----- ----- ------ ----- -----
Total allowance
for loan losses. $1,952 100.00% 100.00% $1,911 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ------------------------------- ------------------------------
% of Percent of % of Percent of % of Percent of
Allowance Loans in Allowance Loans in Allowance Loans in
in each Each in each Each in each Each
Category Category Category Category Category Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans..................... $1,555 84.60% 79.15% $1,441 86.96% 88.01% $1,402 84.10% 87.80%
Consumer loans........................ 145 7.89 19.19 78 4.71 10.52 127 7.62 11.01
Commercial loans...................... 138 7.51 1.66 138 8.33 1.47 138 8.28 1.19
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for loan losses..... $1,838 100.00% 100.00% $1,657 100.00% 100.00% $1,667 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
65
<PAGE>
Real Estate Owned. At August 31, 1998 and December 31, 1997, the Bank
had $323,000 and $188,000 of REO, respectively. When the Bank acquires property
through foreclosure or deed in lieu of foreclosure, it is initially recorded at
the lower of the recorded investment in the corresponding loan or the fair value
of the related assets at the date of foreclosure, less costs to sell.
Thereafter, if there is a further deterioration in value, the Bank provides for
a specific allowance and charges operations for the diminution in value.
Investment Activities
The Board of Trustees establishes the investment policy and procedures
of the Bank and has delegated investment authority and responsibility to the
Bank's Board of Investment. It is the general policy of the Bank that all
investment transactions be conducted in a safe and sound manner. The Bank's
investment policy further provides that investment decisions be based upon a
thorough analysis of each proposed investment to determine its quality, inherent
risks, fit within the Bank's overall asset/liability management objectives, the
effect on the Bank's risk-based capital and prospects for yield and/or
appreciation. While general investment strategies are developed and authorized
by the Board of Investment, the execution of specific investment actions and the
day-to-day oversight of the Bank's investment portfolio rests with the President
and Senior Vice President/Treasurer. These officers are authorized to execute
investment transactions of up to $5 million per transaction without the prior
approval of the Board of Investment if such transactions are within the scope of
the Bank's established investment policy. On a monthly basis, the Board of
Investment reviews and evaluates all investment activities for safety and
soundness, adherence to the Bank's investment policy and assurance that
authority levels are maintained.
As required by SFAS No. 115, the Bank has established an investment
portfolio of securities that are categorized as held-to-maturity,
available-for-sale or held-for-trading. The Bank generally invests in securities
as a method of utilizing funds not utilized for loan origination activity and as
a method of maintaining liquidity at levels deemed appropriate by management.
The Bank does not currently maintain a portfolio of securities categorized as
held-for-trading. At August 31, 1998, the Bank's securities portfolio totalled
$71.5 million, or 19.5% of assets, all of which was categorized as
available-for-sale.
Mortgage-Backed Securities. In the past, the Bank has purchased
mortgage-backed securities in order to (i) achieve positive interest rate
spreads with minimal administrative expense and (ii) lower its credit risk as a
result of the guarantees provided by Freddie Mac, Fannie Mae, and Ginnie Mae.
The Bank purchases mortgage-backed securities insured or guaranteed by Fannie
Mae, Freddie Mac and Ginnie Mae. More recently, the Bank completed the
securitization of $19.1 million of fixed-rate one- to four-family mortgage loans
with Fannie Mae. The loans are serviced as mortgage-backed securities for Fannie
Mae. In addition to resulting in a decrease in loans receivable and a related
increase in mortgage-backed securities, the securitization provides several
benefits to the Bank, including (i) improvement in the credit risk profile of
the Bank's balance sheet by converting whole loans into mortgage-backed
securities guaranteed by Fannie Mae, (ii) reduction of the required level of
risk-based capital, and (iii) addition of high quality collateral designated as
"available-for-sale" which can be pledged for borrowings or sold in the
secondary market to fund future loan growth.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by one- to four-family mortgages. The issuers of such securities (generally U.S.
government agencies and government sponsored enterprises, including Fannie Mae,
Freddie Mac and Ginnie Mae) pool and resell the participation interests in the
form of securities to investors such as the Bank and guarantee the payment of
principal and interest to investors. Mortgage-backed securities generally yield
less than the loans that underlie such securities because of the cost of payment
guarantees and credit enhancements. However, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Bank.
66
<PAGE>
Although the Bank no longer invests in Real Estate Mortgage Investment
Conduits ("REMICs"), the Bank did maintain $8.7 million of such investments in
its securities portfolio at August 31, 1998. Generally, REMICs hold commercial
and/or residential real estate mortgages in trust and issue securities
representing an undivided interest in such mortgages. A REMIC, which can be a
corporation, trust, association or partnership, assembles mortgages into pools
and issues pass-through certificates, multiclass bonds (similar to a
collateralized mortgage obligation) or other securities to investors in the
secondary mortgage market. Mortgage-backed securities issued through a REMIC are
generally debt financings of the issuer.
At August 31, 1998, mortgage-backed securities totalled $52.8 million,
or 14.4%, of assets and 15.4% of interest earning assets, all of which were
classified as available-for-sale. At August 31, 1998, 17.1% of the
mortgage-backed securities were backed by adjustable-rate loans and 82.4% were
backed by fixed-rate loans. The mortgage-backed securities portfolio had a
stated rate of 6.8% at August 31, 1998. The estimated fair value of the Bank's
mortgage-backed securities at August 31, 1998, was $52.8 million, which is
$976,000 more than the amortized cost of $51.8 million. Investments in
mortgage-backed securities involve a risk that actual prepayments may differ
from estimate prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby changing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates.
Equity Securities. The Bank currently maintains a diversified equity
security portfolio. At August 31, 1998, the Bank's equity securities portfolio
totalled $18.7 million, or 5.1% of assets, all of which were classified as
available-for-sale. Such portfolio consisted of $14.9 million of diversified
common stock and $3.2 million of preferred stock issued by corporate issuers and
$1.4 million of mutual funds. The Bank's current policies generally provide that
the maximum equity investment in any one corporation shall not exceed $300,000
and the maximum aggregate investment in equity securities shall not exceed 10%
of the Bank's total assets.
Investments in equity securities involve risk as they are not insured
or guaranteed investments and are subject to stock market fluctuations. Such
investments are carried at their market value and can directly affect the net
surplus of the Bank. The Bank also utilizes, from time to time, "covered" call
options with respect to common stocks as a means to further supplement its
revenues associated with equity investments. Such investment activity is
specifically authorized by both federal and Massachusetts law.
67
<PAGE>
The following table sets forth at the dates indicated certain
information regarding the amortized cost and market values of the Bank's
investment securities.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
At August 31, 1998 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>
Debt Securities:
U.S. Government and federal
agency obligations ............. $ -- $ -- $ -- $ -- $ -- $ -- $ 5,034 $ 5,050
Other debt securities ........... -- -- -- -- 250 250 1,157 1,155
------- ------- ------- ------- ------- ------- ------- -------
Total debt securities ........ -- -- -- -- 250 250 6,191 6,205
------- ------- ------- ------- ------- ------- ------- -------
Equity securities available-
for-sale:
Preferred stock ................. 3,246 3,330 3,177 3,345 4,527 4,723 4,510 4,786
Common stock(1) ................. 14,858 14,226 9,425 12,382 7,576 9,122 6,631 7,485
Mutual funds .................... 1,371 1,130 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total equity ................. 19,475 18,686 12,602 15,727 12,103 13,845 11,141 12,271
------- ------- ------- ------- ------- ------- ------- -------
securities
Mortgage-backed securities
available-for sale:
Freddie Mae ..................... 6,341 6,449 7,923 8,059 11,218 11,268 2,523 2,515
Fannie Mae ...................... 34,300 34,710 18,353 18,476 22,275 22,116 21,206 21,182
Ginnie Mae ...................... 2,513 2,648 2,814 2,941 2,937 2,999 -- --
REMICs .......................... 8,666 8,989 10,169 10,437 10,874 11,148 11,662 11,864
------- ------- ------- ------- ------- ------- ------- -------
Total mortgage-backed
securities .................. 51,820 52,796 39,259 39,913 47,304 47,531 35,391 35,561
------- ------- ------- ------- ------- ------- ------- -------
Total securities(2) .......... $71,295 $71,482 $51,861 $55,640 $59,657 $61,626 $52,723 $54,037
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -----------------------
(1) On January 1, 1994, the Bank adopted SFAS 115 and, accordingly, there
were no investment securities categorized as held-to-maturity during
the years ended December 31, 1996 and 1995.
(2) Does not include $3.0 million of FHLB-Boston stock held by the Bank.
68
<PAGE>
The following table sets forth the Bank's securities activities for the
periods indicated. This table does not include FHLB-Boston stock held by the
Bank.
<TABLE>
<CAPTION>
For the Eight Months
Ended
August 31, For the Year Ended December 31,
-------------------------- ------------------------------------
1998 1997 1997 1996 1995
----------- -------------- ------------ ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities (available-for-sale):
Mortgage-backed securities, beginning of period ................. $ 39,913 $ 47,531 $ 47,531 $ 35,561 $ 42,756
-------- -------- -------- -------- --------
Purchases and securitization .................................... 19,068 -- -- 18,039 --
Calls: mortgage-backed securities ............................... -- (5) (496) (120) (32)
Repayments and prepayments ...................................... (6,516) (4,756) (7,561) (6,017) (7,346)
Net accretion ................................................... 9 7 12 13 12
Increase in unrealized gain ..................................... 322 217 427 55 171
-------- -------- -------- -------- --------
Net increase (decrease) in mortgage-backed securities ........ 12,883 (4,537) (7,618) 11,970 (7,195)
-------- -------- -------- -------- --------
Mortgage-backed securities, end of period ....................... $ 52,796 $ 42,994 $ 39,913 $ 47,531 $ 35,561
======== ======== ======== ======== ========
Debt and equity securities:
Debt and equity securities, beginning of period ................. $ 15,727 $ 14,095 $ 14,095 $ 18,476 $ 18,887
-------- -------- -------- -------- --------
Purchases: equity securities (available-for-sale) ............... 12,658 5,900 10,285 8,569 6,149
Sales: equity securities (available-for-sale) ................... (5,153) (4,647) (7,521) (10,727) (7,368)
Calls:
Debt securities (held-to-maturity) ........................... -- -- -- -- (100)
Debt securities (available-for-sale) ......................... -- -- -- (241) --
Equity securities (available-for-sale) ....................... (530) (1,259) (1,716) -- (4)
Principal payments: Corporate bonds ............................ -- -- -- (166) (602)
Transfer to Charitable Foundation: equity securities
(available-for-sale) ........................................... (102) (549) (549) -- --
Maturities:
Debt securities (held-to-maturity) ........................... -- -- -- -- (505)
Debt securities (available-for-sale) ......................... -- (250) (250) (2,386) --
Net amortization ................................................ -- -- -- (28) (68)
Increase (decrease) in unrealized gain .......................... (3,914) 379 1,383 598 2,087
-------- -------- -------- -------- --------
Net increase (decrease) in debt and equity securities ........ 2,959 (426) 1,632 (4,381) (411)
-------- -------- -------- -------- --------
Debt and equity securities, end of period ....................... $ 18,686 $ 13,669 $ 15,727 $ 14,095 $ 18,476
======== ======== ======== ======== ========
</TABLE>
69
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of August 31, 1998. There were no securities with
contractual maturities of one year or less.
<TABLE>
<CAPTION>
At August 31, 1998
-----------------------------------------------------------------------------------------
More than One More than Five
Year to Five Years Years to Ten Years More than Ten Years Total
-------------------- --------------------- --------------------- --------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
--------- --------- -------- --------- --------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
Mortgage-backed securities:
Freddie Mae ........................ $12 10.00% $ 3 7.75% $ 6,434 7.43% $ 6,449 7.44%
Fannie Mae ......................... -- -- 14,858 6.31 19,853 6.97 34,710 6.69
Ginnie Mae ......................... -- -- -- -- 2,648 7.50 2,648 7.50
REMICs ............................. -- -- 258 5.25 8,731 6.42 8,989 6.38
--- ------- ------- -------
Total mortgage-backed
securities .................... 12 10.00% 15,119 6.30% 37,666 6.96% 52,796 6.77%
Equity securities ..................... -- -- -- -- -- -- 18,686 4.10%
--- ------- ------- -------
Total securities(1) ............ $12 $15,119 $37,666 $71,482
=== ======= ======= =======
</TABLE>
- --------------------
(1) Does not include $3.0 million of FHLB-Boston stock held by the Bank.
70
<PAGE>
Sources of Funds
General. Deposits, repayments and prepayments of loans, cash flows
generated from operations and FHLB advances are the primary sources of the
Bank's funds for use in lending, investing and for other general purposes.
Deposits. The Bank offers a variety of consumer and commercial deposit
accounts with a range of interest rates and terms. The Bank's deposit accounts
consist of savings, retail checking/NOW accounts, commercial checking accounts,
money market accounts, club accounts and certificate of deposit accounts. The
Bank offers certificate of deposit accounts with balances in excess of $100,000
at preferential rates (jumbo certificates) and also offers Individual Retirement
Accounts ("IRAs") and other qualified plan accounts.
At August 31, 1998, the Bank's deposits totalled $273.6 million, or
82.2%, of total liabilities. For the eight months ended August 31, 1998, the
average balance of core deposits (savings, NOW, money market and demand
accounts) totalled $126.1 million, or 47.4% of total average deposits. At August
31, 1998, the Bank had a total of $141.2 million in certificates of deposit, of
which $101.9 million had maturities of less than one year. For the year ended
December 31, 1997, the average balance of core deposits represented
approximately 45.4% of total deposits and certificate accounts represented
54.6%, as compared to core deposits representing 46.6% of total deposits and
certificate accounts representing 53.4% of deposits for the year ended December
31, 1996. Although the Bank has a significant portion of its deposits in core
deposits, management monitors activity on the Bank's core deposits and, based on
historical experience and the Bank's current pricing strategy, believes it will
continue to retain a large portion of such accounts. The Bank is not limited
with respect to the rates it may offer on deposit products.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Bank's deposits are obtained predominantly from the areas in
which its banking offices are located. The Bank relies primarily on customer
service, advertising and long-standing relationships with customers to attract
and retain these deposits; however, market interest rates and rates offered by
competing financial institutions affect the Bank's ability to attract and retain
deposits. The Bank uses traditional means of advertising its deposit products,
including radio and print media and generally does not solicit deposits from
outside its market area. While certificate accounts in excess of $100,000 are
accepted by the Bank, and may be subject to preferential rates, the Bank does
not actively solicit such deposits as such deposits are more difficult to retain
than core deposits. Although the Bank's policies allow for the use of brokered
deposits, the Bank does not currently solicit brokered deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." All Massachusetts savings banks
are required to be members of the Mutual Savings Central Fund and are subject to
its assessments. The Mutual Savings Central Fund maintains the DIF, a private
deposit insurer, which insures all deposits in member banks in excess of FDIC
deposit insurance limits. See "Regulation and Supervision--Massachusetts Banking
Laws and Supervision."
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
For the
Eight Months Ended
August 31, For the Year Ended December 31,
------------------------- ------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ----------- ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Increase before interest credited $ 4,018 $3,359 $ 3,512 $ 7,848 $ 4,157
Interest credited(1) 6,870 6,603 10,185 9,445 8,676
------- ------ ------- ------- -------
Net increase $10,888 $9,962 $13,697 $17,293 $12,833
======= ====== ======= ======= =======
</TABLE>
- ------------------------
(1) Does not include escrow interest credited of $8,000, $7,000, $7,000, $5,000
and $9,000 for the periods ended August 31, 1998 and 1997 and December 31,
1997, 1996 and 1995, respectively.
71
<PAGE>
At August 31, 1998, the Bank had $24.7 million in certificate accounts
in amounts of $100,000 or more, maturing as follows:
Weighted
Average
Maturity Period Amount Rate
- --------------- ------ --------
(Dollars in thousands)
Three months or less ........................... $ 7,185 5.33%
Over three through six months .................. 4,687 5.47
Over six through 12 months ..................... 4,998 5.37
Over 12 months ................................. 7,872 6.64
-------
Total .......................................... $24,742 5.78%
=======
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize average daily balances.
<TABLE>
<CAPTION>
For the Eight Months Ended For the Year Ended
August 31, 1998 December 31, 1997
-------------------------------------- ---------------------------------------
Percent Weighted Percent Weighted
Average of Total Average Average of Total Average
Balance Deposits Rate Balance Deposits Rate
------------ ------------ ------------ ------------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits .................... $ 9,763 3.66% --% $ 7,939 3.11% --%
Savings accounts(1) ................ 66,375 24.89 2.27 64,285 25.16 2.74
Money Market accounts .............. 23,457 8.80 3.41 19,238 7.53 2.12
NOW accounts ....................... 27,241 10.21 1.04 24,941 9.76 1.01
Total certificates of deposit ...... 139,881 52.44 5.52 139,119 54.44 5.56
-------- ------ -------- ------
Total average deposits ........ $266,717 100.00% 3.87% $255,522 100.00% 3.97%
======== ====== ======== ======
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------------------
1996 1995
-------------------------------------- ---------------------------------------
Percent Weighted Percent Weighted
Average of Total Average Average of Total Average
Balance Deposits Rate Balance Deposits Rate
------------ ------------ ------------ ------------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits .................... $ 6,933 2.90% --% $ 5,703 2.51% --%
Savings accounts(1) ................ 65,042 27.25 2.59 67,221 29.55 2.54
Money Market accounts .............. 16,825 7.05 2.62 17,754 7.80 2.81
NOW accounts ....................... 22,831 9.57 1.06 20,920 9.19 1.30
Total certificates of deposit ...... 127,068 53.23 5.54 115,933 50.95 5.37
-------- ------ -------- ------
Total average deposits ........ $238,699 100.00% 3.94% $227,531 100.00% 3.83%
======== ====== ======== ======
</TABLE>
- ----------------------
(1) Savings accounts include mortgagors' escrow deposits.
72
<PAGE>
The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at August 31, 1998.
<TABLE>
<CAPTION>
Period to Maturity from August 31, 1998
-------------------------------------------
Less One Two At December 31,
than to to Over Total ----------------------------------
One Two Three Three August 31,
Year Years Years Years 1998 1997 1996 1995
---------- --------- ----------- ---------- ---------- ----------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00%............ $ 148 $ 13 $ 11 $34 $ 206 $ 75 $ 132 $ 3,172
4.01% to 5.00%........ 26,797 -- -- -- 26,797 3,744 29,506 24,914
5.01% to 6.00%........ 63,358 17,122 5,541 -- 86,021 107,995 85,788 63,563
6.01% to 7.00%........ 11,554 -- -- -- 11,554 15,306 7,282 16,900
7.01% to 8.00%........ -- 16,649 -- -- 16,649 16,129 15,689 15,138
-------- ------- ------ --- -------- -------- -------- --------
Total............. $101,857 $33,784 $5,552 $34 $141,227 $143,249 $138,397 $123,687
======== ======= ====== === ======== ======== ======== ========
</TABLE>
Borrowed Funds. As part of its operating strategy, the Bank utilizes
advances from the FHLB as an alternative to retail deposits to fund its
operations. By utilizing FHLB advances, which possess varying stated maturities,
the Bank can meet its liquidity needs without otherwise being dependent upon
retail deposits, which have no stated maturities (except for certificates of
deposit), which are interest rate sensitive and which are subject to withdrawal
from the Bank at any time. These FHLB advances are collateralized primarily by
certain of the Bank's mortgage loans and mortgage-backed securities and
secondarily by the Bank's investment in capital stock of the FHLB. FHLB advances
are made pursuant to several different credit programs, each of which has its
own interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions, including the Bank, fluctuates from time-to-time
in accordance with the policies of the FHLB. See "Regulation and Supervision --
Federal Home Loan Bank System." At August 31, 1998, the Bank had $54.8 million
in outstanding advances from the FHLB compared to $41.7 million at December 31,
1997.
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the Eight At or For the Year Ended
Months Ended December 31,
August 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------- ------------- -----------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FHLB advances:
Average balance outstanding.............. $52,181 $39,176 $40,099 $26,941 $16,948
======= ======= ======= ======= =======
Maximum amount outstanding at any
month-end during the period............ $57,758 $44,878 $44,878 $38,145 $21,494
======= ======= ======= ======= =======
Balance outstanding at end of period..... $54,792 $44,878 $41,726 $35,441 $14,472
======= ======= ======= ======= =======
Weighted average interest rate during
the period............................. 5.61% 5.77% 5.84% 5.97% 6.62%
==== ==== ==== ==== ====
Weighted average interest rate at end
of period.............................. 5.42% 5.75% 5.94% 5.66% 6.67%
==== ==== ==== ==== ====
</TABLE>
73
<PAGE>
Trust Services
In 1994, the Bank established the Woronoco Savings Bank Trust &
Investment Management Department (the "trust department"). The trust department
provides trust and investment services to individuals, partnerships,
corporations and institutions and acts as a fiduciary of estates and
conservatorships and as a trustee under various wills, trusts and other plans.
The Bank believes that the trust department is an important element of its
operating strategy to attract and retain customers. The Bank has implemented
several policies governing the practices and procedures of the trust department,
including policies relating to maintaining confidentiality of trust records,
drafting trust documents and instruments, investment of trust property, handling
conflicts of interest, and maintaining impartiality. Such policies are aimed at
maintaining the highest standards of fiduciary conduct. At August 31, 1998, the
trust department was managing 194 accounts with assets of $20.1 million, in the
aggregate.
Subsidiary Activities
Walshingham Enterprises, Inc. was established in July 1983 for the
purpose of acquiring, holding and selling residential and commercial real
estate. However, the subsidiary no longer holds any real property and currently
is inactive. Woronoco Security Corp. and Court Street Security Corporation were
established in November 1996 and March 1998, respectively, for the purpose of
acquiring and holding investment securities of a type that are permissible for
banks to hold under applicable law. Both Woronoco Security Corp. and Court
Street Security Corporation were established to qualify as "securities
corporations" for Massachusetts tax purposes. See "Federal Tax and State
Taxation -- State Taxation." The results of operations of all of the Bank's
subsidiaries will be consolidated in the results and operations of the Company.
The Woronoco Foundation, Inc.
In 1996, the Bank established a private charitable foundation, The
Woronoco Foundation, Inc. (the "foundation"). The foundation, which is not a
subsidiary of the Bank, was established for the purpose of providing grants to
charitable organizations in the communities in which the Bank operates. The
foundation was funded in 1997 by a donation from the Bank of marketable equity
securities with a cost basis and fair value of approximately $235,000 and
$549,000, respectively, at the date of donation and transfer. The foundation's
current nine member Board of Directors consists of three of each of the Bank's
current Trustees, officers and corporators. The Bank will continue to maintain
the foundation after conversion but may, in the future, wind down its operations
and affairs. It is not expected that the existence of the Bank's current
foundation will impact the business and affairs of the Woronoco Savings
Charitable Foundation which is being established in connection with the Bank's
Conversion. See "Woronoco Savings Charitable Foundation."
74
<PAGE>
Properties
The Bank currently conducts its business through its main office
located in Westfield, Massachusetts and ten other banking offices and one
stand-alone ATM. The Bank is also currently constructing a full-service banking
office in Amherst, Massachusetts, to be located inside a supermarket/grocery
store operated by the regionally based Big Y Foods, Inc. The construction costs
for the Amherst office are estimated to be approximately $250,000 and the Bank
expects the office to become fully operational during the first quarter of 1999.
Once the banking office is established, the Company believes that the Bank's
facilities will be adequate to meet the then present and immediately foreseeable
needs of the Bank and the Company.
<TABLE>
<CAPTION>
Net Book Value
of Property
Leased, Original Year Date of or Leasehold
Licensed or Leased Lease/License Improvements
Location Owned or Acquired Expiration at August 31, 1998
- --------------------------------------- ---------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Main/Executive Office: (In thousands)
31 Court Street
Westfield, Massachusetts 01085.......... Owned 1951 -- $988
Banking Offices:
44 Little River Road
Westfield, Massachusetts 01085.......... Owned 1971 -- 146
185 College Highway
Southwick, Massachusetts 01077.......... Owned 1988 -- 621
74 Lamb Street
South Hadley, Massachusetts 01075....... Owned 1995 -- 464
119 Winsor Street
Ludlow, Massachusetts 01056............. Owned 1997 -- 545
608 College Highway
Southwick, Massachusetts 01077.......... Leased 1977 2002 49
1359 Springfield Street
Feeding Hills, Massachusetts 01013...... Leased 1994 1999(1) 59
800 Boston Road
Springfield, Massachusetts 01119........ Licensed 1994 1999(1)(2) 127
503 Memorial Avenue
West Springfield, Massachusetts 01089... Licensed 1994 1999(1)(2) 128
44 Willimansett Avenue
South Hadley, Massachusetts 01075....... Licensed 1997 2002(1)(2) 85
Other Office and Properties:
177 Montgomery Road..................... (3) -- -- --
Westfield, Massachusetts 10185
2-16 Central Street..................... Owned(4) 1990 -- (5)
Westfield, Massachusetts 01085
127 North Elm Street
Westfield, Massachusetts 01085.......... Leased(6) 1998 2003 --
------
Total................................... $3,212
======
</TABLE>
- ---------------------
(1) The Bank has an option to renew this lease/license for three additional
five-year periods.
(2) This banking office is located inside a supermarket/grocery store operated
by the regionally based Big Y Foods, Inc. The Bank maintains a sublicense
or, in the case of the South Hadley office, a license to possess the
property. Generally, the holder of a license or sublicense has less property
rights than the possessor of a leasehold interest.
(3) This office is located in a local high school and is operated by students
for the benefit of teachers and students of the school. This office offers
only retail deposit products and does not provide any other banking
services. The Bank does not pay rent but does pay for its portion of the
utilities. The Bank has been operating at this location since 1990.
(4) The property consists of commercial retail space which the Bank leases to a
local glass and mirror company. The property also consists of vacant office
space which the Bank currently utilizes as a storage facility.
(5) Net book value of the property is included in net book value for the Bank's
main office.
(6) Consists of a stand-alone ATM located at a retail food and beverage
establishment. The ATM became operational in September 1998.
75
<PAGE>
Legal Proceedings
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the financial condition and results of operations of the Bank.
Personnel
As of August 31, 1998, the Bank had 110 full-time employees and 32
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to be
good. See "Management of the Bank--Other Benefit Plans" for a description of
certain compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank will report their income on a
consolidated basis, using a calendar year and the accrual method of accounting
and will be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly the Bank's treatment
of its reserve for bad debts discussed below. The following discussion of tax
matters material to the operations of the Company and Bank is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Company. The Bank has not been audited by the IRS
or the Massachusetts Department of Revenue ("Massachusetts DOR") in the past
five years.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Act"), which was enacted on August 20, 1996, made significant changes to
provisions of the Code relating to a savings institution's use of bad debt
reserves for federal income tax purposes and requires such institutions to
recapture (i.e. take into income) certain portions of their accumulated bad debt
reserves. The effect of the 1996 Act on the Bank is discussed below. Prior to
the enactment of the 1996 Act, the Bank was permitted to establish tax reserves
for bad debts and to make annual additions thereto, which additions, within
specified formula limits, were deducted in arriving at the Bank's taxable
income. Prior to the 1996 Tax Act, the Bank's deduction with respect to
"qualifying loans," which are generally loans secured by certain interests in
real property, could be computed using an amount based on a six-year moving
average of the Bank's actual loss experience (the "Experience Method"), or a
percentage equal to 8% of the Bank's taxable income (the "PTI Method"), computed
without regard to this deduction and with additional modifications and reduced
by the amount of any permitted addition to the non-qualifying reserve. The
Bank's deduction with respect to non-qualifying loans was required to be
computed under the Experience Method.
The 1996 Act. Under the 1996 Act, for its current and future taxable
years, as a "Small Bank" (as defined in the 1996 Act, a "small bank" is
generally defined as one with assets under $500 million) the Bank is permitted
to make additions to its tax bad debt reserves under an Experience Method based
on total loans. The Federal income tax reserve for loan losses at the Bank's
base year amounted to approximately $1.6 million. If any portion of the reserve
is used for purposes other than to absorb the losses for which established,
approximately 150% of the amount actually used (limited to the amount of the
reserve) would be subject to taxation in the fiscal year in which used. As the
Bank intends to use the reserve only to absorb loan losses, a deferred income
tax liability of approximately $831,000 has not been provided.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and an
amount based on the amount distributed (but not in excess of the amount of such
reserves) will be included in the Bank's income. The term "non-dividend
distributions" is defined as distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
76
<PAGE>
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not cause this pre-1988 reserve to be included in the Bank's
income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includable in income for federal
income tax purposes, assuming a 35% federal corporate income tax rate. See
"Regulation and Supervision" and "Dividend Policy" for limits on the payment of
dividends by the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carry forwards. The adjustment to AMTI based
on book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2.0 million, is imposed on corporations, including the
Bank, whether or not an Alternative Minimum Tax ("AMT") is paid. The Bank does
not expect to be subject to the AMT.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
excluded.
State Taxation
Massachusetts Commonwealth Taxation. Prior to July, 1995, the Bank was
subject to an annual Massachusetts excise (income) tax equal to 12.54% of its
pre-tax income. In 1995, legislation was enacted to reduce the Massachusetts
bank excise (income) tax rate and to allow Massachusetts-based financial
institutions to apportion income earned in other states. Further, this
legislation expands the applicability of the tax to non-bank entities and
out-of-state financial institutions. The Massachusetts excise tax rate for
savings banks is currently 10.91% of federal taxable income, adjusted for
certain items. This rate will be reduced over the next year so that the Bank's
tax rate will become 10.5% by December 31, 1999. Taxable income includes gross
income as defined under the Code, plus interest from bonds, notes and evidences
of indebtedness of any state, including Massachusetts, less deductions, but not
the credits, allowable under the provisions of the Code. No deductions, however,
are allowed for dividends received until July 1, 1999. In addition, carry
forwards and carrybacks of net operating losses are not allowed.
A financial institution or business corporation is generally entitled
to special tax treatment as a "security corporation," provided that: (a) its
activities are limited to buying, selling, dealing in or holding securities on
its own behalf and not as a broker; and (b) it has applied for, and received,
classification as a "security corporation" by the Commissioner of the
Massachusetts DOR. A security corporation that is also a bank holding company
under the Code is subject to a tax equal to 0.33% of its gross income. A
security corporation that is not a bank holding company under the Code is
subject to a tax equal to 1.32% of its gross income. The Bank has received an
opinion from Wolf & Company, P.C. that the ownership of 100% of the stock the
ESOP Loan Subsidiary by the Company will not prevent the Company from qualifying
as a security corporation, provided that the Company: (a) applies for, and
receives, security corporation classification by the Massachusetts DOR; and (b)
does not conduct any activities deemed impermissible under the governing
statutes and the various regulations, directives, letter rulings and
administrative pronouncements issued by the Massachusetts DOR.
77
<PAGE>
Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempted from Delaware Corporate income tax
but is required to file an annual report with and pay an annual franchise tax to
the State of Delaware.
REGULATION AND SUPERVISION
General
As a savings bank chartered by the Commonwealth of Massachusetts, the
Bank is subject to extensive regulation under state law with respect to many
aspects of its banking activities; this state regulation is administered by the
Commissioner. In addition, as a bank whose deposits are insured by the FDIC
under the BIF, the Bank is subject to deposit insurance assessments by the FDIC,
the FDIC has examination and supervisory authority over the Bank, with a broad
range of enforcement powers and the FDIC regulates the Bank's activities and
operations. Finally, the Bank is required to maintain reserves against deposits
according to a schedule established by the Federal Reserve System. These laws
and regulations have been established primarily for the protection of
depositors, customers and borrowers of the Bank, not bank stockholders.
The following discussion of the laws and regulations material to the
operations of the Company and the Bank are summaries and are qualified in their
entirety by reference to such laws and regulations. The Holding Company will
also be required to file certain reports with, and otherwise comply with the
rules and regulations, of the OTS, the Commissioner and of the Securities and
Exchange Commission ("SEC") under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Holding Company are
referred to below or elsewhere herein.
Massachusetts Banking Laws and Supervision
Massachusetts savings banks are regulated and supervised by the
Commissioner. The Commissioner is required to regularly examine each
state-chartered bank. The approval of the Commissioner is required to establish
or close branches, to merge with another bank, to form a holding company, to
issue stock or to undertake many other activities. Any Massachusetts bank that
does not operate in accordance with the regulations, policies and directives of
the Commissioner is subject to sanctions. The Commissioner may under certain
circumstances suspend or remove trustees or officers of a bank who have violated
the law, conducted a bank's business in a manner which is unsafe, unsound or
contrary to the depositors' interests, or been negligent in the performance of
their duties.
All Massachusetts-chartered savings banks are required to be members of
the Mutual Savings Central Fund and are subject to its assessments. The Mutual
Savings Central Fund maintains the Deposit Insurance Fund, a private deposit
insurer, which insures all deposits in member banks in excess of FDIC deposit
insurance limits. In addition, the Mutual Savings Central Fund acts as a source
of liquidity to its members in supplying them with low-cost funds, and
purchasing certain qualifying obligations from them.
Major changes in Massachusetts law in 1982 and 1983 substantially
expanded the powers of savings banks, and made their powers virtually identical
to those of state-chartered commercial banks. The powers which
Massachusetts-chartered savings banks can exercise under these laws are
summarized below.
Lending Activities. A Massachusetts-chartered savings bank may make a
wide variety of mortgage loans. Fixed-rate loans, adjustable-rate loans,
variable-rate loans, participation loans, graduated payment loans, construction
and development loans, condominium and co-operative loans, second mortgage loans
and other types of loans may be made in accordance with applicable regulations.
Mortgage loans may be made on real estate in Massachusetts or in another New
England state if the bank making the loan has an office there or under certain
other circumstances. In addition, certain mortgage loans may be made on improved
real estate located anywhere in the United States. Commercial loans may be made
to corporations and other commercial enterprises with or without security. With
certain exceptions, such loans may be made without geographic limitation.
Consumer and personal loans may be made with
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or without security and without geographic limitation. Loans to individual
borrowers generally will be limited to 20% of the total of the Bank's capital
accounts and stockholders' equity.
Investments Authorized. Massachusetts-chartered savings banks have
broad investment powers under Massachusetts law, including so-called "leeway"
authority for investments that are not otherwise specifically authorized. The
investment powers authorized under Massachusetts law are restricted by federal
law to permit, in general, only investments of the kinds that would be permitted
for national banks. The Bank has authority to invest in all of the classes of
loans and investments that are permitted by its existing loan and investment
policies.
Payment of Dividends. A savings bank may only pay dividends on its
capital stock if such payment would not impair the bank's capital stock and
surplus account. No dividends may be paid to stockholders of a bank if such
dividends would reduce stockholders' equity of the bank below the amount of the
liquidation account required by Massachusetts conversion regulations.
Branches. With the approval of the Commissioner, branches may be
established in any city or town in Massachusetts; in addition, savings banks may
operate automated teller machines at any of their offices or, with the
Commissioner's approval, anywhere in Massachusetts. Sharing of ATMs or
"networking" is also permitted with the Commissioner's approval.
Massachusetts-chartered savings banks may also operate ATMs outside of
Massachusetts if permitted to do so by the law of the jurisdiction in which the
ATM is located.
Parity Regulation. The Massachusetts regulation on parity with national
banks establishes procedures allowing state-chartered banks to exercise
additional or more flexible parallel powers granted to national banks under
federal law which are not otherwise permitted under state law. Under the parity
regulation, a bank which is either "adequately capitalized" or "well
capitalized," which has not been informed in writing by the Commissioner or an
applicable federal bank regulatory agency that it has been designated to be in
"troubled condition," and which has received at least a "satisfactory" CRA
rating at the most recent examination by the Commissioner or other applicable
federal bank regulatory agency may engage in certain activities in which
Massachusetts-chartered banks ordinarily may not engage. Such activities
include, but are not limited to, the establishment of temporary branch offices,
investment in corporate affiliates and subsidiaries, engagement or mortgage in
certain types of home equity loans, financing of mutual fund distributions,
engagement in lease financing transactions, investment in community development
and public welfare projects, and the provision of tax planning and preparation,
payroll and financial planning services, among others. The procedures and
requirements for engaging in such activities range from an application process,
expedited review and notice process to activities requiring no application or
notice whatsoever. The applicable procedures and requirements vary according to
the nature of the activity to be engaged in and the capitalization of the bank.
As of the date of this prospectus, the Bank was "well capitalized," had received
a CRA rating of "satisfactory" and was not in "troubled condition" and was
therefore eligible to engage in certain of the above-referenced activities,
subject to the applicable procedure and requirements of Massachusetts
regulation.
Other Powers. Massachusetts-chartered savings banks may also lease
machinery and equipment, act as trustee or custodian for tax qualified
retirement plans, establish trust departments and act as professional trustee or
fiduciary, provide payroll services for their customers, issue or participate
with others in the issuance of mortgage-backed securities and establish mortgage
banking companies and discount securities brokerage operations. Some of these
activities require the prior approval of the Commissioner.
Federal Regulations
Capital Requirements. Under FDIC regulations, federally insured
state-chartered banks that are not members of the Federal Reserve System ("state
non-member banks"), such as the Bank, are required to comply with minimum
leverage capital requirements. For an institution determined by the FDIC to not
be anticipating or experiencing significant growth and to have well diversified
risk, including no undue interest rate risk exposure, excellent asset quality,
high liquidity, good earnings and to be in general a strong banking
organization, rated composite 1 under the Uniform Financial Institutions Ranking
System (the rating system) established by the Federal Financial Institutions
Examination Council, the minimum capital leverage requirement is a ratio of Tier
1 capital to total assets of 3%. For
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all other institutions, the minimum leverage capital ratio is 3% plus an
additional "cushion" amount of at least 100 to 200 basis points. Tier 1 capital
is the sum of common stockholders' equity, noncumulative perpetual preferred
stock (including any related surplus) and minority investments in certain
subsidiaries, less intangible assets (except for certain servicing rights and
credit card relationships).
The FDIC has also adopted risk-based capital guidelines to which the
Bank is subject. The guidelines establish a systematic analytical framework
designed to make regulatory capital requirements sensitive to differences in
risk profiles among banking organizations. The FDIC guidelines require state
non-member banks to maintain certain levels of regulatory capital in relation to
regulatory risk-weighted assets. The ratio of such regulatory capital to
regulatory risk-weighted assets is referred to as the Bank'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. For example, under the FDIC's
risk-weighting system, cash and securities backed by the full faith and credit
of the U.S. government are given a 0% risk weight. Mortgage-backed securities
that qualify under the Secondary Mortgage Enhancement Act, including those
issued, or fully guaranteed as to principal and interest, by Fannie Mae or
Freddie Mac, are assigned a 20% risk weight. Single-family first mortgages not
more than 90 days past due with loan-to-value ratios under 80%, multi-family
mortgages (maximum 36 dwelling units) with loan-to-value ratios under 80% and
average annual occupancy rates over 80%, and certain qualifying loans for the
construction of one- to four-family residences pre-sold to home purchasers, are
assigned a risk weight of 50%. Consumer loans and commercial real estate loans,
repossessed assets and assets more than 90 days past due, as well as all other
assets not specifically assigned categories are risk weighted at 100%.
State non-member banks must maintain a minimum ratio of qualifying
capital to risk-weighted assets of at least 8%, of which at least one-half be
Tier 1 capital. Qualifying total capital consists of Tier 1 capital plus Tier 2
or supplementary capital items, which include allowances for loan losses in an
amount of up to 1.25% of risk-weighted assets, cumulative preferred stock,
preferred stock with a maturity of over 20 years, and certain other capital
instruments. The includable amount of Tier 2 capital cannot exceed the amount of
the institution's Tier 1 capital. Qualifying total capital is further reduced by
the amount of the bank's investments in banking and finance subsidiaries that
are not consolidated for regulatory capital purposes, reciprocal cross-holdings
of capital securities issued by other banks and certain other deductions.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
required each federal banking agency to revise its risk-based capital standards
for insured institutions to ensure that those standards take adequate account of
interest-rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family residential loans.
In August 1995, the FDIC, along with the other federal banking
agencies, adopted a regulation providing that the agencies will take account of
the exposure of a bank's capital and economic value to changes in interest rate
risk in assessing a bank's capital adequacy. According to the agencies,
applicable considerations include the quality of the bank's interest rate risk
management process, the overall financial condition of the bank and the level of
other risks at the bank for which capital is needed. Institutions with
significant interest rate risk may be required to hold additional capital. The
agencies also have issued a joint policy statement providing guidance on
interest rate risk management, including a discussion of the critical factors
affecting the agencies' evaluation of interest rate risk in connection with
capital adequacy. The agencies have determined not to proceed with a previously
issued proposal to develop a supervisory framework for measuring interest rate
risk and an explicit capital component for interest rate risk.
The following is a summary of the Bank's regulatory capital at
August 31, 1998:
GAAP Capital to Total Assets.......................... 9.11%
Total Capital to Risk-Weighted Assets................. 13.01%
Tier I Leverage Ratio................................. 9.08%
Tier I to Risk-Weighted Assets........................ 12.35%
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Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things: internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation; fees and benefits; and such
other operational and managerial standards as the agency deems appropriate. The
federal banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness (the "Guidelines") to implement
these safety and soundness standards. 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 Guidelines address internal controls and information systems,
internal audit system, credit underwriting, loan documentation, interest rate
risk exposure, asset growth, asset quality, earnings and compensation, and fees
and benefits. Most recently, the agencies have issued guidelines for Year 2000
computer compliance 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 the Federal Deposit
Insurance Act, as amended, ("FDI Act"). The final regulation establishes
deadlines for the submission and review of such safety and soundness compliance
plans.
Real Estate Lending Policies. Under FDIC regulations which became
effective March 19, 1993, state-chartered non-member banks must adopt and
maintain written policies that establish appropriate limits and standards for
extensions of credit that are secured by liens or interest in real estate or are
made for the purpose of financing permanent improvements to real estate. These
policies must establish loan portfolio diversification standards, prudent
underwriting standards, including loan-to-value limits, that are clear and
measurable, loan administration procedures and documentation, approval and
reporting requirements. The real estate lending policies must reflect
consideration of the Interagency Guidelines for Real Estate Lending Policies
(the "Interagency Guidelines") that have been adopted by the federal bank
regulators.
The Interagency Guidelines, among other things, call upon a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits: (i) for loans
secured by raw land, the supervisory loan-to-value limit is 65% of the value of
the collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multi-family or other nonresidential property, the supervisory limit is 80%;
(iv) for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and (v) for loans secured by other improved property
(e.g., farmland, completed commercial property and other income-producing
property including non owner occupied, one- to four-family property), the limit
is 85%. Although no supervisory loan-to-value limit has been established for
owner-occupied, one to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
Investment Activities
Since the enactment of the FDICIA, all state-chartered FDIC insured
banks, including savings banks, have generally been limited to activities as
principal and equity investments of the type and in the amount authorized for
national banks, notwithstanding state law. FDICIA and the FDIC regulations
thereunder permit certain exceptions to these limitations. For example, certain
state chartered banks, such as the Bank, may, with FDIC approval, continue to
exercise state authority to invest in common or preferred stocks listed on a
national securities exchange or the Nasdaq National Market 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. In
addition, the FDIC is authorized to permit such institutions to engage in state
authorized activities or investments that do not meet this standard (other than
non-subsidiary equity investments) for institutions that meet all applicable
capital requirements if it is determined that such activities or investments do
not pose a significant risk to the BIF. The FDIC has recently proposed revisions
to its regulations governing the procedures for institutions seeking approval to
engage in such activities or investments. These proposed revisions would, among
other things, streamline certain application procedures for healthy banks and
impose certain quantitative and qualitative restrictions on a bank's dealings
with its subsidiaries engaged in activities not permitted for national bank
subsidiaries. All non-subsidiary equity investments, unless otherwise authorized
or
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approved by the FDIC, must have been divested by December 19, 1996, pursuant to
a FDIC-approved divestiture plan unless such investments were grandfathered by
the FDIC. The Bank received grandfathering authority from the FDIC in February,
1993 to invest in listed stocks and/or registered shares subject to the maximum
permissible investment of 100% of Tier 1 capital, as specified by the FDIC's
regulations, or the maximum amount permitted by Massachusetts Commonwealth
Banking Law, whichever is less. Such grandfathering authority is subject to
termination upon the FDIC's determination that such investments pose a safety
and soundness risk to the Bank or in the event the Bank converts its charter,
other than a mutual to stock conversion, or undergoes a change in control. As of
August 31, 1998, the Bank had $18.7 million of securities which were subject to
such grandfathering authority.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective
action legislation. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to be
"well capitalized" if it has a total risk-based capital ratio of 10% or greater,
a Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5%
or greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is deemed to be "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%. As of August 31, 1998, the Bank was a "well
capitalized" institution and immediately upon completion of the Conversion
expects to be a "well capitalized" institution.
"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 institutions in an
amount equal to the lesser of 5.0% of the Bank's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. 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 but not limited to 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 dismiss
directors or officers, and restrictions on interest rates paid on deposits,
compensation of executive officers and capital distributions by the parent
holding company. "Critically undercapitalized" institutions also may not,
beginning 60 days after becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any material transaction outside the
ordinary course of business. In addition, "critically undercapitalized"
institutions are subject to appointment of a receiver or conservator. Generally,
subject to a narrow exception, the appointment of a receiver or conservator is
required for a "critically undercapitalized" institution within 270 days after
it obtains such status.
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 institution is any company or entity that
controls, is controlled by, or is under common control with the savings
institution, other than a subsidiary. In a holding company context, at a
minimum, the parent holding company of a savings institution and any companies
which are controlled by such parent holding company are affiliates of the
savings institution . Generally, Section 23A limits the
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extent to which the savings institution or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings institution'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 the making of
loans or other extensions of credit to an affiliate; the purchase of assets from
an affiliate, the purchase of, or an investment in, the securities of an
affiliate; the acceptance of securities of an affiliate as collateral for a loan
or extension of credit to any person; or 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 on 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 institution or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings
institution with respect to loans to 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 institution, 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 institution'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
shareholders who control 10% or more of voting securities of a stock savings
institution, and their respective related interests, unless such loan is
approved in advance by a majority of the board of directors of the savings
institution. Any "interested" director may not participate in the voting. The
loan amount (which includes all other outstanding loans to such person and their
related interests) 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 shareholders must be made on terms substantially the same
as offered in comparable transactions to other persons, except that such
insiders may receive preferential loans made pursuant to a benefit or
compensation program that is widely available to the Bank's employees and does
not give preference to the insider over the employees. Section 22(g) of the
Federal Reserve Act places additional limitations on loans to executive
officers.
Enforcement
The FDIC has extensive enforcement authority over insured savings
banks, including the Bank. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and desist
orders and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
to unsafe or unsound practices.
The FDIC has authority under Federal law to appoint a conservator or
receiver for an insured bank under certain circumstances. The FDIC is required,
with certain exceptions, to appoint a receiver or conservator for an insured
state non-member bank if that bank was "critically undercapitalized" on average
during the calendar quarter beginning 270 days after the date on which the
savings institution became "critically undercapitalized." For this purpose,
"critically undercapitalized" means having a ratio of tangible capital to total
assets of less than 2%. See "--Prompt Corrective Regulatory Action." The FDIC
may also appoint itself as conservator or receiver for an insured state
non-member savings institution under certain circumstances on the basis of the
institution's financial condition or upon the occurrence of certain events,
including: (i) insolvency (whereby the assets of the savings institution are
less than its liabilities to depositors and others); (ii) substantial
dissipation of assets or earnings through violations of law or unsafe or unsound
practices; (iii) existence of an unsafe or unsound condition to transact
business; (iv) likelihood that the savings institution will be unable to meet
the demands of its depositors or to pay its obligations in the normal course of
business; and (v) insufficient capital, or the incurring or likely incurring of
losses that will deplete substantially all of the institution's capital with no
reasonable prospect of replenishment of capital without federal assistance.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending eight
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and
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one of three supervisory subcategories within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information which the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. The FDIC is authorized to raise
the assessment rates in certain circumstances. The FDIC has exercised this
authority several times in the past and may raise insurance premiums in the
future. If such action is taken by the FDIC, it could have an adverse effect on
the earnings of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Federal Reserve System
The Federal Reserve Board regulations require depository institutions
to maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $47.8 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $47.8
million, the reserve requirement is $1.43 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $47.8 million. The first $4.7 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
Community Reinvestment Act
Under the Community Reinvestment Act, as amended ("CRA"), as
implemented by FDIC regulations, a state non-member 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
requires the FDIC, in connection with its examination of an institution, 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. The CRA was amended, effective July 1, 1990, to require public
disclosure of an institution's CRA rating and require the FDIC to provide a
written evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system which replaced the five-tiered numerical rating
system. The Bank's latest CRA rating, received from the FDIC was "satisfactory."
In April 1995, the FDIC and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual performance
in meeting community needs. In particular, the proposed system would focus on
three tests: (a) a lending test, to evaluate the institution's record of making
loans in its service areas; (b) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing, and programs benefitting low or moderate income individuals and
businesses; and (c) a service test, to evaluate the institution's delivery of
services through its branches, ATMs, and other offices. Small banks would be
assessed pursuant to a streamlined approach focusing on a lesser range of
information and performance standards. The term "small bank" is defined as
including banks with less than $250 million in assets or an affiliate of a
holding company with banking and thrift assets of less than $1 billion, which
would include the Bank.
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Massachusetts Regulation. The Bank is also subject to provisions of the
Massachusetts law which impose continuing and affirmative obligations upon
banking institutions organized in Massachusetts to serve the credit needs of its
local community ("MCRA"), which are similar to those imposed by the CRA. The
MCRA also requires the Commissioner to consider a bank's MCRA rating when
reviewing a bank's application to engage in certain transactions, including
mergers, asset purchases and the establishment of branch offices or automated
teller machines, and provides that such assessment may serve as a basis for the
denial of any such application. The Bank's latest MCRA rating received from the
Division of Banks was "satisfactory."
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital stock in the FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB, whichever is greater. The Bank was in compliance with this
requirement with an investment in FHLB stock at August 31, 1998 of $3.0 million.
FHLB advances must be secured by specified types of collateral and all long-term
advances may only be obtained for the purpose of providing funds for residential
housing finance. At August 31, 1998, the Bank had $54.8 million in FHLB
advances.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the eight months ended August 31, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995, cash dividends from the
FHLB to the Bank amounted to approximately $130,000, $106,000, $144,000,
$127,000 and $127,000, respectively. Further, there can be no assurance that the
impact of recent or future legislation on the FHLBs will not also cause a
decrease in the value of the FHLB stock held by the Bank.
Holding Company Regulation
Federal law allows a state savings bank that qualifies as a "qualified
thrift lender" ("QTL"), discussed below, to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
the Home Owners' Loan Act, as amended ("HOLA"). Such election would result in
its holding company being regulated as a savings and loan holding company by the
OTS rather than as a bank holding company by the Federal Reserve Board. The Bank
has made such election and expects to receive approval from the OTS to become a
savings and loan holding company prior to consummation of the Conversion. The
Company will be regulated as a non-diversified unitary savings and loan holding
company within the meaning of the HOLA. As such, the Company will be required to
register with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
Additionally, the Bank will be required to notify the OTS at least 30 days
before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage. Upon any non-supervisory acquisition by the
Company of another savings association as a separate subsidiary, the Company
would become a multiple savings and loan holding company and would be subject to
extensive limitations on the types of business activities in which it could
engage. The HOLA limits the activities of a multiple savings and loan holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, as amended ("BHC Act"), subject to the prior approval of the OTS,
and to other activities authorized by OTS regulation. Multiple savings and loan
holding companies are prohibited from acquiring or retaining, with certain
exceptions, more than 5% of a non-subsidiary company engaged in activities other
than those permitted by the HOLA.
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<PAGE>
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings association or holding company thereof or
from acquiring such an institution or company by merger, consolidation or
purchase of its assets, without prior written approval of the OTS. In evaluating
applications by holding companies to acquire savings association, the OTS must
consider the financial and managerial resources and future prospects of the
company and institution involved, the effect of the acquisition on the risk to
the insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings institutions
in more than one state, except: (i) interstate supervisory acquisitions by
savings and loan holding companies; and (ii) the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.
In a savings and loan holding company structure, the Bank is prohibited from
extending credit to affiliates not engaged exclusively in activities permissible
for a bank holding company and may not invest in the securities of an affiliate,
except a subsidiary.
In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), the Bank must continue to qualify as a QTL. In order to qualify
as a QTL, the Bank must maintain compliance with the test for a "domestic
building and loan association," as defined in the Code, or with a Qualified
Thrift Lender Test ("QTL Test"). Under the QTL Test, a savings institution is
required to maintain at least 65% of its "portfolio assets" (total assets less:
(i) specified liquid assets up to 20% of total assets; (ii) intangibles,
including goodwill; and (iii) the value of property used to conduct business) in
certain "qualified thrift investments" (primarily residential mortgages and
related investments, including certain mortgage-backed and related securities)
in at least 9 months out of each 12 month period. A holding company of a savings
institution that fails to qualify as a QTL must either convert to a bank holding
company and thereby become subject to the regulation and supervision of the
Federal Reserve Board or operate under certain restrictions. As of August 31,
1998, the Bank maintained in excess of 65% of its portfolio assets in qualified
thrift investments. The Bank also met the QTL test in each of the prior 12
months and, therefore, met the QTL test. Recent legislative amendments have
broadened the scope of "qualified thrift investments" that go toward meeting the
QTL test to fully include credit card loans, student loans and small business
loans.
Massachusetts Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in Massachusetts may be also subject to regulation under the Massachusetts law.
The term "bank holding company," for the purposes of Massachusetts law, is
defined generally to include any company: (i) which, directly or indirectly,
owns, controls or holds with power to vote more than 25% of the voting stock of
each of two or more banking institutions, including commercial banks and state
co-operative banks, savings banks and savings and loan associations and national
banks, federal savings banks and federal savings and loan associations; (ii)
which controls the election of a majority of the directors of each of two or
more banking institutions; or (iii) if the company is a banking institution,
which, directly or indirectly, owns, controls or holds 25% or more of the voting
stock of one or more banking institutions or which controls the election of a
majority of directors of one or more banking institutions. In general, a holding
company controlling, directly or indirectly, only one banking institution will
not be deemed to be a bank holding company for the purposes of Massachusetts
law. Under Massachusetts law, the prior approval of the Board of Bank
Incorporation is required before: (1) any action is taken that causes any
company to become a bank holding company; (2) any action is taken to acquire
direct or indirect ownership or control of any additional voting stock in any
such banking institution; (3) any bank holding company acquires direct or
indirect ownership or control of more than 5% of the voting stock of a banking
institution; (4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (5) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Although the Company will not be a bank holding company
for purposes of Massachusetts law upon the Effective Date of the Conversion, any
future acquisition of ownership, control, or the power to vote 25% or more of
the voting stock of another banking institution or bank holding company would
cause it to become such. The Company has no current plan or arrangement to
acquire ownership or control, directly or indirectly, of 25% or more of the
voting stock of another banking institution.
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Interstate Banking and Branching
The Company, as a savings and loan holding company, will be limited
under HOLA with respect to its acquisition of a savings association located in a
state other than Massachusetts. In general, a savings and loan holding company
may not acquire an additional savings association subsidiary that is located in
a state other than the home state of its first savings association subsidiary
unless such an interstate acquisition is permitted by the statutes of such other
state. Many states permit such interstate acquisitions if the statutes of the
home state of the acquiring savings and loan holding company satisfy various
reciprocity conditions. Massachusetts is one of a number of states that permit,
subject to the reciprocity conditions of the Massachusetts Banking Law,
out-of-state bank and savings and loan holding companies to acquire
Massachusetts savings associations.
In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
In the past, branching across state lines was not generally available
to a state bank such as the Bank. Out-of-state branches of banking institutions
are authorized under the Massachusetts Banking Law, but similar authority does
not exist generally under the laws of most other states. The Interstate Banking
Act permitted, beginning June 1, 1997, the responsible federal banking agencies
to approve merger transactions between banks located in different states,
regardless of whether the merger would be prohibited under the law of the two
states. The Interstate Banking Act also permitted a state to "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and permitted a
state to "opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation before that date. Accordingly, the Interstate Banking
Act, beginning June 1, 1997, permitted a bank, such as the Bank, to acquire
branches in a state other than Massachusetts unless the other state had opted
out of the Interstate Banking Act. The Interstate Banking Act also authorizes de
novo branching into another state if the host state enacts a law expressly
permitting out of state banks to establish such branches within its borders.
The Interstate Banking Act may facilitate the further consolidation of
the banking industry. The effect of the Interstate Banking Act on the Bank, if
any, is likely to occur as banking institutions, state legislators, and bank
regulators respond to the new federal regulatory structure. The states will have
to establish appropriate corporate law, tax and regulatory structures to adjust
to the growth of new interstate banks.
Thrift Rechartering
The Bank is subject to extensive regulation and supervision as a
savings bank. In addition, the Company, as a savings and loan holding company,
will be subject to extensive regulation and supervision. Such regulations, which
affect the Bank on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations is also subject to change by
the authorities who examine the Bank and interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Commissioner, the OTS, the FDIC or the Congress,
could have a material impact on the Company, the Bank, its operations or the
Conversion.
Legislation enacted several years ago provides that the BIF and the
Savings Association Insurance Fund ("SAIF") will merge on January 1, 1999 if
there are no more savings associations as of that date. Several bills have been
introduced in the current Congress that would eliminate the federal thrift
charter and the OTS. A bill that was recently passed by the House of
Representatives would subject unitary savings and loan holding companies to the
activities restrictions generally applicable to multiple savings and loan
holding companies under the legislation and would not require state savings
institutions, such as the Bank, to change their charter. A grandfathering
provision would allow existing unitary savings and loan holding companies to
continue to engage in activities permitted a unitary savings and loan holding
company under existing law and that grandfather could be transferred to
acquirers. Unless the grandfather date in the bill is changed, the Company would
not qualify for the grandfather if the legislation is enacted. The Bank is
unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the
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legislation, if enacted, would affect its business. The Bank is also unable to
predict whether the SAIF and BIF will eventually be merged.
Federal Securities Laws
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares. Shares
of the Common Stock purchased by persons who are not affiliates of the Company
may be resold without registration. Shares purchased by an affiliate of the
Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Company meets the current public information requirements
of Rule 144 under the Securities Act, each affiliate of the Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks. Provision may be made in the
future by the Company to permit affiliates to have their shares registered for
sale under the Securities Act under certain circumstances.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes,
each of which approximately contains one-third of the Board. The directors shall
be elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Paul S. Allen, Joseph M. Houser, Jr., Asher Nesin and
Norman H. Storey, has a term of office expiring at the first annual meeting of
stockholders, a second class, consisting of Messrs. James A. Adams, Francis J.
Ehrhardt, Cornelius D. Mahoney and D. Jeffrey Templeton, has a term expiring at
the second annual meeting of stockholders and a third class, consisting of
Messrs. William G. Aiken, Richard L. Pomeroy, Paul Tsatsos and Joseph P. Keenan
and Ms. Ann V. Schultz, has a term of office expiring at the third annual
meeting of stockholders.
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names. Information concerning
the principal occupations, employment and other information for each executive
officer and director of the Company during the past five years is set forth
under "Management of the Bank--Biographical Information."
Name Position(s) Held With the Company
- ---- ---------------------------------
Cornelius D. Mahoney....... President and Chief Executive Officer
Debra L. Murphy............ Senior Vice President and Chief Financial Officer
Agostino J. Calheno........ Senior Vice President
Terry J. Bennett........... Corporate Secretary
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation, retirement or removal by the Board of Directors.
Director Compensation
Since formation of the Company, none of the executive officers,
directors or other personnel have received remuneration from the Company. For
information regarding fees paid to the Bank's Board of Trustees, see "Management
of the Bank--Trustee and Director Compensation."
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MANAGEMENT OF THE BANK
Trustees
The Directors of the Company are also Trustees of the Bank. Upon
consummation of the Conversion, the current Trustees of the Bank will become the
Directors of the stock chartered Bank. The following table sets forth certain
information regarding the Board of Trustees of the Bank.
<TABLE>
<CAPTION>
Trustee Term
Name Age (1) Position(s) Held With the Bank Since Expires
- -------- --------- ---------------------------------- ---------- ---------
<S> <C> <C> <C> <C>
James A. Adams 74 Trustee 1962 2000
William G. Aiken 57 Trustee 1983 2001
Paul S. Allen 78 Trustee 1974 1999
Francis J. Ehrhardt 71 Trustee 1979 2000
Joseph M. Houser, Jr. 59 Trustee 1983 1999
Joseph P. Keenan 50 Trustee 1991 2001
Cornelius D. Mahoney 53 Trustee, President and 1985 2000
Chief Executive Officer
Asher Nesin 80 Chairman of the Board and Vice 1963 1999
President
Richard L. Pomeroy 71 Trustee 1986 2001
Ann V. Schultz 64 Trustee 1991 2001
Norman H. Storey 52 Trustee 1987 1999
D. Jeffrey Templeton 57 Trustee 1988 2000
Paul Tsatsos 51 Trustee 1995 2001
</TABLE>
- -------------------------------
(1) As of August 31, 1998
Executive Officers Who Are Not Trustees
The following table sets forth certain information regarding the
executive officers of the Bank who are not also trustees.
Name Age (1) Position(s) Held With the Bank
- ---- ------- ------------------------------
Agostino J. Calheno 48 Senior Vice President - Lending
Debra L. Murphy 42 Senior Vice President and Treasurer
- ---------------------------
(1) As of August 31, 1998.
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The executive officers of the Bank are elected annually and will hold
office in the converted Bank until the annual meeting of the Board of Directors
of the Bank held immediately after the first annual meeting of stockholders of
the Bank subsequent to Conversion, and until their successors are elected and
qualified or until death, resignation, retirement or removal by the Board of
Directors. Officers are re-elected by the Board of Directors annually.
Biographical Information
Trustees
James A. Adams is president and funeral director of Adams Funeral
Service, Inc., located in Westfield, Massachusetts. Mr. Adams has served as a
Trustee since 1962.
William G. Aiken has been a pharmacy manager with Foodmart Pharmacy
since October, 1997. From 1990 to September, 1997, Mr. Aiken was the pharmacy
manager of Brooks Drug. He has been a member of the Board of Trustees since
1983.
Paul S. Allen is a certified public accountant. He has maintained a
practice with Paul S. Allen, sole proprietorship, for over fifty years. He has
served on the Board of Trustees since 1974.
Francis J. Ehrhardt is a manager of commercial real estate and a
general contractor. He has served as a Trustee since 1979.
Joseph M. Houser, Jr. has been a self-employed certified public
accountant for the past twenty-seven years and a consultant with Data Results,
Inc. for the past seven years. Mr. Houser has been a Trustee since 1983.
Joseph P. Keenan is a self-employed physician. He has been a Trustee
since 1991.
Cornelius D. Mahoney joined Woronoco Savings Bank in 1975 after five
years at First Hawaiian Bank, Honolulu, Hawaii. He became President and Chief
Executive Office and Trustee of the Bank in 1986. He is the immediate Past
Chairman of America's Community Bankers, Past Chairman of the Massachusetts
Bankers Association and a former Director of the Federal Home Loan Bank of
Boston. Mr. Mahoney holds an MBA from Western New England College.
Asher Nesin has served since 1994 as Chairman of the Board of Directors
of Micro Abrasives Corp., a company that manufactures precision abrasive lapping
powders. From 1957 until 1994, Mr. Nesin was President and Chief Executive
Officer of Micro Abrasives Corp. He has been a Trustee of the Bank since 1963,
Chairman of the Board of Trustees since 1979 and Vice President of the Bank
since 1979.
Richard L. Pomeroy has been a member of the Board of Trustees since
1986. Until his retirement in 1987, he was the owner of and an insurance agent
with Pomeroy Insurance, Inc.
Ann V. Schultz served as a vice president of the Bank from 1987 to
1990. She has served on the Board of Trustees since 1991.
Norman H. Storey has been a real estate broker with Storey Real Estate
for the past thirty years. In addition, Mr. Storey has been a reserve police
officer and Justice of the Peace with the Town of Southwick, Massachusetts for
the last twenty-five years. Mr. Storey has served as a Trustee of the Bank since
1987.
D. Jeffrey Templeton is the owner and President of The Mosher 6 Inc., a
machinery manufacturing and distribution firm located in Chicopee,
Massachusetts. Mr. Templeton has been a member of the Board of Trustees since
1988.
Paul Tsatsos is a self-employed certified public accountant. He has
been a Trustee with the Bank since 1995.
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Executive Officers Who Are Not Trustees
Agostino J. Calheno joined the Bank in 1992 as Senior Vice President of
Lending. He operates as the chief lending officer of the Bank, overseeing all
lending operations. Mr. Calheno has over twenty-four years of bank lending
experience in the local area. He is a member of the Mortgage Markets and Lending
Technology Committee of America's Community Bankers and serves on numerous
boards of local charitable organizations. Mr. Calheno received a B.B.A. from the
University of Massachusetts and is a graduate of the National School of Finance
& Management and Executive Development Program at Fairfield University.
Debra L. Murphy, CPA joined the Bank in 1988 as Senior Vice President
and Treasurer. She operates as the chief financial officer of the Bank and is
responsible for all regulatory financial reporting and management of the
investment portfolio, in addition to overseeing the human resource and training
areas of the Bank. She has ten years previous experience with KPMG Peat Marwick
as senior audit manager specializing in the audits of financial institutions.
Ms. Murphy received a B.B.A. from the University of Massachusetts and is a
graduate of the National School of Finance & Management and the Executive
Development Program at Fairfield University. She also serves on several boards
of charitable organization within the local community.
Meetings and Committees of the Boards of the Bank and the Company
Currently, the Bank's Board of Trustees meets every two months and may
have additional special meetings as may be called in the manner specified in the
Bylaws. During the year ended December 31, 1997, the Board held six meetings. No
Trustee attended fewer than 75% in the aggregate of the total number of meetings
of the Board or Board Committees on which such Trustee served for the year ended
December 31, 1997. After Conversion, the Bank anticipates conducting board
meetings on a monthly basis.
The Board of Trustees of the Bank has established the following
committees:
The Bank's Board of Investment consists of Messrs. Nesin (Chairperson),
Ehrhardt, Aiken, Houser, Mahoney and Storey. The Board of Investment is
responsible for approving all loans made or acquired by the Bank, establishing
rates of interest charged for loans and paid for deposits, approving and
monitoring all securities investment activities and approving and monitoring
foreclosure actions. The Board of Investment meets bi-weekly or more frequently
if necessary and met 24 times in 1997. After Conversion, the Board of Investment
will be replaced by an Executive Committee. The Bank anticipates that such
committee will meet on a monthly basis.
The Audit Committee consists of Messrs. Tsatsos (Chairperson), Allen
and Templeton. This committee is responsible for reviewing the Bank's financial
statements, supervising the Bank's internal auditor and engaging the Bank's
external auditors. The committee meets quarterly and met four times in 1997.
The Long Range Planning Committee consist of Messrs. Aiken
(Chairperson), Mahoney and Nesin and Ms. Schultz. This Committee reviews and
assesses the validity of the Bank's long-term Business Plan and reaffirms the
Business Plan's underlying principles and strategies. The Committee meets
annually and met once in 1997.
The Bylaw Committee consists of Carl J. Antonellis, Jr., clerk of the
Bank (Chairperson), and Messrs. Pomeroy and Templeton. This committee is
responsible for reviewing and proposing revisions to the Bylaws of the Bank, as
necessary. The committee meets on an as-needed basis and met once in 1997.
The Building Committee consists of Messrs. Ehrhardt (Chairperson),
Pomeroy and Storey as voting members and Mr. James E. Gardner, Executive Vice
President of the Bank, in an ex officio capacity. This committee is responsible
for examining and supervising the physical structure and maintenance of the
Bank's real estate facilities. The committee meets quarterly or on an as-needed
basis and met ten times in 1997.
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The Personnel and Compensation Committee consists of Messrs. Templeton
(Chairperson), Nesin and Ehrhardt and is responsible for all matters regarding
compensation and fringe benefits for executive officers of the Bank. The
committee meets annually or on an as-needed basis and met three times in 1997.
The Trust Committee consists of Messrs. Houser (Chairperson), Adams,
Pomeroy and Mahoney. This committee is responsible for certifying the activities
of the Bank's trust department. The committee meets on a bi-monthly basis and
met six times in 1997.
Additionally, the Bank has a number of management committees including
the Asset/Liability Management Committee and the Technology Committee.
The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Allen, Templeton and
Tsatsos; the Pricing Committee consisting of the entire Board of Directors of
the Company; the Compensation Committee consisting of Messrs. Ehrhardt, Nesin
and Templeton; and the Nominating Committee consisting of Ms. Schultz and
Messrs. Adams and Storey.
Trustee and Director Compensation
Non-employee Trustees of the Bank currently receive an annual retainer
of $1,200, except that the Chairman of the Board receives an annual retainer of
$6,000, and receive a fee of $300 for every Board of Trustee or committee
meeting attended. Members of the Bank's Board of Investment additionally receive
an annual retainer of $3,600 and a fee of $300 for every meeting attended. The
Clerk of the Board of Investment receives an annual retainer of $900.
Additionally, committee chairpersons, other than the Chairman of the Board of
Trustees, receive an annual retainer of $1,200. The Clerk of the Bank receives
an annual retainer of $600 and a fee of $350 for every Board of Trustee meeting
attended. In 1997, the Board of Trustees met six times and the Board of
Investment held 24 meetings.
After Conversion, the Bank plans to provide all non-employee directors
of the Bank with an annual retainer of $3,600 and a fee of $500 for all regular
monthly and special meetings attended. In addition, the Bank plans to replace
the Board of Investment with an executive committee. All members of the Board
committees will receive a fee of $300 for each meeting attended, except that no
committee member will receive committee fees which aggregate more than $1,200.
The Bank plans that there will be no annual retainers for committee members or
chairpersons and no fees associated with serving as a clerk or secretary of the
Board of Directors or of any committee.
The Bank currently sponsors the Trustee Indexed Fee Continuation Plan
(the "Trustee Plan") for members of its Board of Trustees. The Trustee Plan
provides an annual retirement benefit to each trustee upon the trustee's
retirement from the Board. In order to qualify for benefits under the Trustee
Plan, a trustee must have reached age 65 and completed ten years of continuous
service with the Board at the time of his or her retirement. If the trustee has
completed at least five but less than ten continuous years of service with the
Board at the time of retirement, his or her benefits will be reduced based on a
vesting schedule contained in the plan. The retirement benefit provided to each
trustee is based on an indexed formula contained in the plan. The indexed
formula is tied to the earnings on a specific life insurance policy. The Bank
has funded the Trustee Plan through the purchase of split-dollar life insurance
on the lives of the trustees. In most cases, the Bank will recover the full cost
of the plan for each trustee through the proceeds of the life insurance
policies.
Honorary Trustees
The Bank also maintains three Honorary Trustees. Pursuant to the Bank's
Bylaws, persons who have served as a Trustee at the Bank for at least ten years
may be elected for an indefinite term. Honorary Trustees are not officers nor
members of the Board of Trustees and therefore are not included in determining
whether a quorum is present. Such persons receive no compensation nor are they
entitled to vote.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank 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 and to other officers of the Bank who
received salary and bonus in excess of $100,000 ("Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term Compensation(2)
------------------------------
Annual Compensation (1) Awards Payouts
--------------------------------- ----------------------- --------
Restricted Securities
Fiscal Other Annual Stock Underlying LTIP All Other
Executive Year Salary Bonus Compensation(2) Awards Option/SARs Payouts Compensation(3)
- ------------------- ------ ------- ------ -------------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cornelius D. Mahoney 1997 $171,572 $32,200 -- -- -- -- $121,000
President and Chief
Executive Officer
Agostino J. Calheno 1997 $94,800 $17,940 -- -- -- -- --
Senior Vice
President-Lending
Debra L. Murphy 1997 $94,800 $17,800 -- -- -- -- --
Senior Vice President and
Treasurer
James E. Gardner 1997 $94,400 $9,060 -- -- -- -- --
Executive Vice President
</TABLE>
- ----------------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Named Executive Officers under the Bank's 401(k) Plan.
"Bonus" consists of Board approved discretionary bonus.
(2) For 1997, there were no (a) perquisites over the lesser of $50,000 or 10% of
the individual's total salary and bonus for the year; (b) payments of above-
market preferential earnings on deferred compensation; (c) payments of
earnings with respect to long-term incentive plans prior to settlement or
maturation; (d) tax payment reimbursements; or (e) preferential discounts on
stock. For 1997, the Bank had no restricted stock or stock related plans in
existence.
(3) Other compensation includes insurance premiums paid by the Bank under a
split-dollar life insurance arrangement for Mr. Mahoney.
Employment Agreements
Upon the Conversion, the Bank and the Company each intend to enter into
employment agreements with Messrs. Mahoney and Calheno and Ms. Murphy
(individually, the "Executive") (collectively, the "Employment Agreements"). The
Employment Agreements are intended to ensure that the Bank and the Company will
be able to maintain a stable and competent management base after the Conversion.
The continued success of the Bank and the Company depends to a significant
degree on the skills and competence of the above referenced officers.
The Employment Agreements will provide for a three-year term. The term of
the Company Employment Agreements shall be extended on a daily basis unless
written notice of non-renewal is given by the Board of Directors and the term of
the Bank Employment Agreements shall be renewable on an annual basis. The
Employment Agreements provide that the Executive's base salary will be reviewed
annually. The base salaries which will be effective for such Employment
Agreements for Messrs. Mahoney and Calheno and Ms. Murphy will be $215,000
$115,000 and $115,000 respectively. In addition to the base salary, the
Employment Agreements provide for, among other things, participation in stock
benefits plans and other fringe benefits applicable to executive personnel. The
Employment Agreements provide for termination by the Bank or the Company for
cause, as defined in the Employment Agreements, at any time. In the event the
Bank or the Company chooses to terminate the Executive's employment for reasons
other than for cause, or in the event of the Executive's resignation from the
Bank and the Company upon: (i) failure to re-elect the Executive to his/her
current offices; (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a relocation
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of the Executive's principal place of employment by more than 25 miles; (iv) a
reduction in the benefits and perquisites being provided to the Executive in the
Employment Agreement; (v) liquidation or dissolution of the Bank or the Company;
or (vi) a breach of the Employment Agreement by the Bank or the Company, the
Executive or, in the event of death, his/her beneficiary would be entitled to
receive an amount equal to the remaining base salary payments due to the
Executive for the remaining term of the Employment Agreement and the
contributions that would have been made on the Executive's behalf to any
employee benefit plans of the Bank and the Company during the remaining term of
the Employment Agreement. The Bank and the Company would also continue and pay
for the Executive's life, health, dental and disability coverage for the
remaining term of the Employment Agreement. Upon any termination of the
Executive, the Executive is subject to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary termination
follows a change in control of the Bank or the Company, the Executive or, in the
event of the Executive's death, his/her beneficiary, would be entitled to a
severance payment equal to the greater of: (i) the payments due for the
remaining terms of the agreement; or (ii) three times the average of the five
preceding taxable years' annual compensation. The Bank and the Company would
also continue the Executive's life, health, and disability coverage for
thirty-six months. Notwithstanding that both the Bank and Company Employment
Agreements provide for a severance payment in the event of a change in control,
the Executive would only be entitled to receive a severance payment under one
agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company's Employment Agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under
Massachusetts and Delaware law, respectively. In the event of a change in
control of the Bank or the Company, the total amount of payments due under the
Agreements, based solely on the base salaries of the officers who will receive
Employment Agreements excluding any benefits under any employee benefit plan
which may be payable, would equal approximately $2.2 million.
Change in Control Agreements
Upon Conversion, the Bank intends to enter into three-year Change in
Control Agreements with six officers, who will not be covered by an employment
agreement. The Change in Control Agreement shall be renewable on an annual
basis. The Change in Control Agreements will provide that in the event that
voluntary or involuntary termination follows a change in control of the Company
or the Bank, the officers would be entitled to receive a severance payment equal
to three times their average annual compensation for the five most recent
taxable years. The Bank would also continue and pay for the officers' life,
health and disability coverage for thirty-six months following termination. In
the event of a change in control of the Company or the Bank, the total payments
that would be due under the Change in Control Agreements, based solely on the
current annual compensation paid to the officers covered by the Change in
Control Agreements and excluding any benefits under any employee benefit plan
which may be payable, would equal approximately $1.2 million.
Employee Severance Compensation Plan
Upon consummation of the Conversion, the Bank intends to establish the
Woronoco Savings Bank Employee Severance Compensation Plan ("Severance Plan")
which will provide eligible employees with severance pay benefits in the event
of a change in control of the Bank or the Company following Conversion. The Bank
anticipates that eligible employees will participate in the Severance Plan once
they have completed one year of service with the Bank. Management personnel with
Employment Agreements or Change in Control Agreements will not participate in
the Severance Plan.
Under the Severance Plan, in the event of a change in control of the Bank
or the Company, eligible employees who are terminated from or terminate their
employment within one year of the change in control (for reasons specified under
the Severance Plan), will be entitled to receive a severance payment. As a
severance benefit, a terminated individual
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will receive an amount equal to one month's base pay for each year of service
with the Bank, up to a maximum of two years' base salary. The Bank reserves the
right to amend or terminate the Severance Plan at any time prior to a change in
control. In the event the provisions of the Severance Plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels and the anticipated benefit described above, would equal
approximately $1.3 million.
Insurance Plans
All full-time employees of the Bank, upon completion of the applicable
introductory period, may elect coverage for comprehensive hospitalization and
medical insurance.
Other Benefit Plans
401(k) Plan. The Bank has adopted the SBERA 401(k) Plan (the "401(k)
Plan"), a tax-qualified profit sharing plan with a qualified cash or deferred
arrangement under Section 401(k) of the Code for the benefit of its eligible
employees. The 401(k) Plan currently provides participants with savings and
retirement benefits based on employee deferrals of compensation, as well as
matching and other discretionary contributions made by the Bank. Eligible
employees may begin participating in the 401(k) Plan upon the completion of one
"Year of Service" (as defined in the 401(k) Plan) and attainment of age
twenty-one. Participants currently may make annual salary reduction
contributions to the 401(k) Plan in amounts from 1% to 15% of their
compensation, subject to a legally permissible limit ($10,000 for 1998). The
Bank, effective July 1, 1998, makes a matching contribution equal to 100% of the
first 3% of compensation deferred by each participant in the 401(k) Plan. A
participant is always 100% vested in his or her elective deferrals of
compensation under the 401(k) Plan. Participants are also always 100% vested in
employer contributions to the 401(k) Plan.
Currently, participants may invest their accounts under the 401(k) Plan in
and among eight funds sponsored by SBERA. The Bank intends to add, as an
investment option, an employer stock fund in which participants may invest a
portion of their account balances primarily in Company stock, subject to
limitations set forth in the plan document.
Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service for any reason. However, participants may
request hardship withdrawals and loans from the 401(k) Plan under certain
circumstances. Distributions from the 401(k) Plan are generally subject to
federal and state income taxes and distributions made prior to a participant
attaining age 59 1/2 are also subject to a federal excise tax.
Pension Plan. The Bank also maintains a tax-qualified defined benefit
pension plan for its employees (the "Pension Plan"). Generally, eligible
employees of the Bank begin participating in the Pension Plan upon the
completion of one "Year of Service" (as defined in the Pension Plan) and the
attainment of age twenty-one. The Bank makes contributions to the Pension Plan
sufficient to fund benefits determined according to a formula set forth in the
plan. A participant's accrued benefit under the Pension Plan is actuarially
determined based on the participant's compensation (as described in the plan)
and the participant's service with the Bank. A participant becomes eligible for
a full benefit upon attainment of his normal retirement age (age 65). The
Pension Plan also provides a reduced early retirement benefit for participants
who retire between the ages of 55 and 65. Participants become vested in their
accrued benefits under the Pension Plan upon completing 3 years of service or
age sixty-two, if earlier.
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The table below reflects the annual pension benefit payable to a
participant in the Pension Plan, assuming various levels of compensation and
years of service credited as of the participant's normal retirement age. As of
August 31, 1998, Mr. Mahoney had 22.5 years of service with the Bank for
purposes of the Pension Plan.
Years of Credited Service
----------------------------------------------------------
Average
Annual
Earnings(1) 15 20 25 30 35
------------- --------- --------- --------- --------- ---------
$50,000 $11,823 $15,765 $19,706 $23,647 $23,647
$75,000 19,136 25,515 31,893 38,272 38,272
$100,000 26,448 35,265 44,081 52,897 52,897
$125,000 33,761 45,015 56,268 67,522 67,522
$150,000 41,073 54,765 68,456 82,147 82,147
$175,000 43,998 58,665 73,331 87,997 87,997
$200,000 43,998 58,665 73,331 87,997 87,997
$250,000 43,998 58,665 73,331 87,997 87,997
$300,000 43,998 58,665 73,331 87,997 87,997
$350,000 43,998 58,665 73,331 87,997 87,997
$400,000 43,998 58,665 73,331 87,997 87,997
- -------------------------------
(1) Code Section 401(a)(17) limits the amount of compensation the Bank may
consider in computing benefits under the Pension Plan to $150,000, as
periodically adjusted ($160,000 for 1998).
Employee Stock Ownership Plan. The Bank intends to establish a
tax-qualified employee stock ownership plan (the "ESOP") in connection with the
Conversion. Generally, eligible employees will become participants in the ESOP
upon the completion of one year of service with the Bank (with credit given for
service with the Bank prior to adoption of the plan) and attainment of age
twenty-one. With the consent of the Bank, an affiliate of the Bank may adopt the
ESOP for the benefit of its employees.
The Bank expects a committee of the Board of Directors to serve as the
administrative committee of the ESOP (the "ESOP Committee"). The ESOP Committee
will appoint an unrelated corporate trustee for the ESOP prior to the
Conversion. Among other matters, the ESOP Committee may generally instruct the
trustee regarding the investment of funds contributed to the ESOP, subject to
the terms of the plan document and the trust agreement. The Bank expects the
ESOP to purchase 8% of the Common Stock issued in the Conversion, including
shares issued to the Foundation. As part of the Conversion, and in order to fund
the ESOP's purchase of the Common Stock issued in the Conversion, the ESOP
intends to borrow funds either from the ESOP Loan Subsidiary or a third-party
lender equal to 100% of the aggregate purchase price of the Common Stock. The
trustee of the ESOP will repay the loan principally from the Bank's annual
contributions to the ESOP over an expected period of 12 years. Subject to
receipt of any necessary regulatory approvals or opinions, the Bank may make
contributions to the ESOP for repayment of the loan since participants in the
ESOP are employees of the Bank or, alternatively, the Bank may reimburse the
Company for contributions made by the Company with respect to employees of the
Bank. The Bank expects the initial interest rate (which may be fixed or
variable) for the loan to be at or near the prime rate on or about the date of
Conversion.
The trustee of the ESOP will pledge shares of Common Stock purchased by
the ESOP in connection with the Conversion as collateral for the loan and will
hold the shares in a suspense account. As the trustee repays the loan, the
trustee will release a portion of the shares from the suspense account and
allocated them to the accounts of participants in the ESOP. The trustee will
release the pledged shares annually from the suspense account in an amount
proportional to the repayment of the ESOP loan and allocate the released shares
to the participants as follows: first, if applicable, a portion of the shares
released during the plan year will be allocated to a special "matching" account
under the ESOP equal in value to the amount of matching contribution, if any, to
which the participant would be entitled under the terms
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<PAGE>
of the 401(k) Plan for the plan year. Second, the trustee will allocate the
remaining shares released from the suspense account (as well as any other non-
matching contributions made to the ESOP) to active participants' accounts in an
amount proportional to each participant's compensation (as determined under the
terms of the plan) relative to all participants' compensation for the plan year.
Participants will generally become fully vested in contributions made to
the ESOP by the Bank, including any matching contributions relating to employee
deferrals under the 401(k) Plan upon the completion of three years of service
(with credit given for service with the Bank prior to its adoption of the ESOP).
Benefits generally become distributable under the ESOP and become subject to
income tax upon death, retirement, disability or other separation from service.
The ESOP trustee will vote all allocated shares held in the ESOP in
accordance with the instructions of the plan participants. The ESOP trustee,
subject to its fiduciary duties under ERISA, will vote the unallocated shares
(i.e., those held in the suspense account) and allocated shares for which it
receives no proper voting instructions in a manner calculated to most accurately
reflect the instructions it receives from participants regarding the allocated
stock. In the event no shares have been allocated under the ESOP at the time
such shares are to be voted, each participant shall be deemed to have one share
allocated to his account solely for voting purposes.
Supplemental Executive Retirement Plan. The Code limits the amount of
compensation the Bank may consider in providing benefits under its tax-qualified
retirement plans, such as the 401(k) Plan, the Pension Plan and the ESOP. The
Code further limits the amount of benefit accruals and annual contributions
under such plans on behalf of any employee. Upon Conversion, the Bank intends to
implement a non-qualified deferred compensation arrangement known as a
Supplemental Executive Retirement Plan ("SERP"). The SERP will generally provide
benefits to eligible individuals (designated by the Board of Directors of the
Bank or its affiliates) that cannot be provided under the ESOP as a result of
the limitations imposed by the Code, but that would have been provided under the
ESOP but for such limitations. In addition to providing for benefits lost under
the ESOP as a result of limitations imposed by the Code, the SERP will also make
up lost ESOP benefits to designated individuals who retire, who terminate
employment in connection with a change in control, or whose participation in the
ESOP ends due to termination of the ESOP in connection with a change in control
prior to the complete scheduled repayment of the ESOP loan. Generally, upon the
retirement of an eligible individual or upon a change in control of the Bank or
the Company prior to complete repayment of the ESOP Loan, the SERP will provide
the individual with a benefit equal to what the individual would have received
under the ESOP had he remained employed throughout the term of the ESOP or had
the ESOP not been terminated prior to the scheduled repayment of the ESOP loan
less the benefits actually provided under the ESOP on behalf of such individual.
An individual's benefits under the SERP will generally become payable upon the
participant's retirement (in accordance with the standard retirement policies of
the Bank), upon the change in control of the Bank or the Company, or as
determined under the ESOP.
The Bank may establish a grantor trust in connection with the SERP to
satisfy the obligations of the Bank with respect to the SERP. The assets of the
grantor trust would remain subject to the claims of the Bank's general creditors
in the event of the Bank's insolvency until paid to the individual pursuant to
the terms of the SERP.
Split Dollar Life Insurance Arrangement. In 1995, the Bank established a
split-dollar life insurance arrangement for Mr. Mahoney primarily in order to
restore retirement benefits lost under the Pension Plan due to limitations
imposed by the Code. Pursuant to the terms of the split-dollar arrangement, the
Bank pays the premiums on the life insurance policy, which is owned by Mr.
Mahoney. Upon Mr. Mahoney's death, or upon liquidation of the policy's cash
surrender value, the Bank will recover all of the cumulative payments it made
with respect to the policy. In connection with the split-dollar arrangement, the
Bank also agreed to reimburse Mr. Mahoney each year for the tax obligations
arising from any federal or state taxable income he recognizes as a result of
the reportable economic benefit of the arrangement and as a result of the Bank's
reimbursement for such tax liabilities.
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Stock-Based Incentive Plan. Following the Conversion, the Board of
Directors of the Company intends to adopt the Stock-Based Incentive Plan which
will provide for the granting of options to purchase Common Stock ("Stock
Options"), Common Stock ("Stock Awards"), Limited Option Rights and Limited
Stock Rights to eligible officers, employees, and directors of the Company and
Bank. The Company may provide such stock based benefits under the Stock-Based
Incentive Plan or may establish one or more separate plans which would provide
for the benefits described herein.
In the event the Stock-Based Incentive Plan (or any separate plan(s)) is
adopted within one year after conversion, applicable regulations require such
plan to be approved by a majority of the Company's stockholders at a meeting of
stockholders to be held no earlier than six months after the completion of the
Conversion. Under the Stock-Based Incentive Plan, the Company intends to grant
Stock Options in an amount equal to 10% of the shares of Common Stock issued in
the Conversion, including shares issued to the Foundation (385,560, 453,600,
521,640 and 599,886 shares based upon the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Price Range), and intends to grant Stock
Awards in an amount equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (154,224, 181,440, 208,656
and 239,954 shares based upon the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range). Any Common Stock awarded under the
Stock-Based Incentive Plan will be awarded at no cost to the recipients. The
plan may be funded through the purchase of Common Stock by a trust established
in connection with the Stock-Based Incentive Plan (or any separate plan(s)) or
from authorized but unissued shares. The Board intends to appoint an independent
fiduciary to serve as trustee of a trust to be established in connection with
the Stock-Based Incentive Plan. In the event that additional authorized but
unissued shares are acquired by the Stock-Based Incentive Plan after the
Conversion, the interests of existing shareholders would be diluted. See "Pro
Forma Data."
The grants of Stock Options and Stock Awards will be designed to attract
and retain qualified personnel in key positions, provide officers and key
employees with a propriety interest in the Company as an incentive to contribute
to the success of the Company and reward key employees for outstanding
performance. All employees of the Company and its subsidiaries, including the
Bank, will be eligible to participate in the Stock-Based Incentive Plan. It is
expected that the committee administering the plan will determine the terms of
awards granted to officers and employees. The committee will also determine
whether Stock Options will be Incentive or Non-Statutory Stock Options, as
defined below, the number of shares subject to each stock option and Stock
Award, the exercise price of each Non-Statutory Stock Option, whether Stock
Options may be exercised by delivering other shares of Common Stock, and when
Stock Options become exercisable or Stock Awards vest. Only employees may
receive grants of Incentive Stock Options. Therefore, under the Stock-Based
Incentive Plan, directors may receive only grants of Non-Statutory Stock
Options. If such plan is adopted within one year after conversion, FDIC
regulations provide that no individual officer or employee of the Bank may
receive more than 25% of the stock options available under the Stock-Based
Incentive Plan (or any separate plan for officers and employees) and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the stock options available under the Stock-Based Incentive Plan
(or any separate plan for directors). FDIC regulations also provide that no
individual officer or employee of the Bank may receive more than 25% of the
restricted stock awards available under the Stock-Based Incentive Plan (or any
separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the restricted
stock awards available under the Stock-Based Incentive Plan (or any separate
plan for directors).
The Stock-Based Incentive Plan will provide for the grant of: (i) Stock
Options intended to qualify as incentive Stock Options under Section 422 of the
Code ("Incentive Stock Options"); (ii) Stock Options that do not so qualify
("Non-Statutory Stock Options"); and (iii) limited option rights ("Limited
Option Rights"). Limited Option Rights are exercisable only upon a change in
control of the Bank or the Company. It is anticipated that all Stock Options
granted contemporaneously with stockholder approval of the Stock-Based Incentive
Plan will qualify as Incentive Stock Options to the extent permitted under
Section 422 of the Code. Unless sooner terminated, the Stock-Based Incentive
Plan will be in effect for a period of ten years from the earlier of adoption by
the Board of Directors or approval by the Company's Stockholders. Subject to
stockholder approval, the Company intends to grant Stock Options with Limited
Option Rights under the plan at an exercise price equal to at least the fair
market value of the underlying Common Stock on the date of grant.
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An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to the Company as a result of the grant or exercise of Incentive Stock
Options unless there has been a disqualifying disposition. In the case of a
Non-Statutory Stock Option and in the case of a disqualifying disposition of an
Incentive Stock Option, an individual will realize ordinary income upon exercise
of the stock option (or upon the disqualifying disposition) in an amount equal
to the amount by which the exercise price exceeds the fair market value of the
Common Stock purchased by exercising the stock option on the date of exercise.
The amount of any ordinary income realized by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option will be a deductible expense to the Company for tax purposes. In
the case of Limited Rights, the option holder will have to include the amount
paid to him or her upon exercise in his gross income for federal income tax
purposes in the year in which the payment is made and the Company will be
entitled to a deduction for federal income tax purposes of the amount paid.
The Stock-Based Incentive Plan will provide for the granting of Stock
Awards and Limited Stock Rights. Limited Stock Rights would be exercisable by
participants upon a change in control of the Company or Bank as described in the
plan. Subject to any applicable Massachusetts or FDIC regulations, upon the
exercise of a Limited Stock Right, the recipient will be entitled to receive a
cash payment equal to the fair market value of all unvested Stock Awards in
exchange for any rights to such unvested Stock Awards. Grants of Stock Awards
and Limited Stock Rights to officers and employees may be made in the form of
base grants and/or performance grants (the vesting of which would be contingent
upon performance goals established by the committee administering the plan). In
establishing any performance goals, the committee may utilize the annual
financial results of the Bank, actual performance of the Bank as compared to
targeted goals such as the ratio of the Bank's net worth to total assets, the
Bank's return on average assets, or such other performance standards as
determined by the committee with the approval of the Board of Directors.
When a participant becomes vested with respect to Stock Award, the
participant will realize ordinary income equal to the fair market value of the
Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participants will be a deductible expense for tax purposes for the Bank. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants would receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of Stock
Awards may direct the voting of the shares awarded to them. Shares not subject
to grants and shares allocated subject to the achievement of performance goals
will be voted by the trustee in proportion to the directions provided with
respect to shares subject to grants. Vested shares will be distributed to
recipients as soon as practicable following the day on which they vest.
The vesting periods for awards under the Stock-Based Incentive Plan will
be determined by the Committee administering the Plan. If the Stock-Based
Incentive Plan (or any separate plans for employees and directors) is adopted
within one year after conversion, awards would become vested and exercisable
subject to applicable regulations, which such regulations require that any
awards begin vesting no earlier than one year from the date of shareholder
approval of the plan and, thereafter, vest at a rate of no more than 20% per
year and may not be accelerated except in the case of death or disability. Stock
Options could be exercisable for three months following the date on which the
employee or director ceases to perform services for the Bank or the Company,
except that in the event of death or disability, options accelerate and become
fully vested and could be exercisable for up to one year thereafter or such
longer period as determined by the Company. In the case of death or disability,
Stock Options may be exercised for a period of 12 months. However, any Incentive
Stock Options exercised more than three months following the date the employee
ceases to perform services as an employee would be treated as a Non-Statutory
Stock Option. In the event of retirement, if the optionee continues to perform
services as a director or consultant on behalf of the Bank, the Company or an
affiliate, unvested options would continue to vest in accordance with their
original vesting schedule until the optionee ceases to serve as a consultant or
director. In the event of death, disability or normal retirement, the Company,
if requested by the optionee, or the optionee's beneficiary, could elect, in
exchange for vested options, to pay the optionee, or the optionee's beneficiary
in the event of death, the amount by which the fair market value of the Common
Stock exceeds the exercise price of the options on the date of the employee's
termination of employment.
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Subject to any applicable regulatory requirements, the Stock-Based
Incentive Plan (or any separate plans for employees and directors) may be
amended subsequent to the expiration of the one-year period to provide for
accelerated vesting of previously granted Stock Options or Stock Awards in the
event of a change in control of the Company or the Bank. A change in control
would generally be considered to occur when a person or group of persons acting
in concert acquires beneficial ownership of 20% or more of any class of equity
security of the Company or the Bank or in the event of a tender or exchange
offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Bank or contested election
of directors which resulted in the replacement of a majority of the Board of
Directors by persons not nominated by the directors in office prior to the
contested election.
Transactions With Certain Related Persons
Federal regulations require that all loans or extensions of credit to
executive officers and trustees must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In addition,
loans made to a trustee or executive officer in excess of the greater of $25,000
or 5% of the Bank's capital and surplus (up to a maximum of $500,000) must be
approved in advance by a majority of the disinterested members of the Board of
Trustees.
The Bank currently makes loans to its executive officers and trustees on
the same terms and conditions offered to the general public. The Bank's policy
provides that all loans made by the Bank to its executive officers and trustees
be made in the ordinary course of business, on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk of
collectibility or present other unfavorable features. As of August 31, 1998, 19
of the Bank's executive officers or trustees had loans with outstanding balances
totaling $1.4 million in the aggregate. All such loans were made by the Bank in
the ordinary course of business, with no favorable terms and such loans do not
involve more than the normal risk of collectibility or present unfavorable
features.
The Company intends that all transactions in the future between the
Company and its executive officers, directors, holders of 10% or more of the
shares of any class of its common stock and affiliates thereof, will contain
terms no less favorable to the Company than could have been obtained by it in
arm's length negotiations with unaffiliated persons and will be approved by a
majority of independent outside directors of the Company not having any interest
in the transaction.
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Subscriptions of Trustees and Executive Officers
The following table sets forth the number of shares of Common Stock that
the Bank's trustees and executive officers and their associates propose to
purchase, assuming shares of Common Stock are sold at the minimum and maximum of
the Estimated Price Range and that sufficient shares will be available to
satisfy their subscriptions. The table also sets forth the total expected
beneficial ownership of Common Stock as to all trustees and executive officers
as a group.
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated Price of the Estimated Price
Range (1) Range (1)
--------------------------- -------------------------
As a Percent As a Percent
Number of Shares Number of Shares
Name Amount of Shares Sold of Shares Sold
- -------- --------- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
James A. Adams .......................... $ 30,000 3,000 0.08 3,000 0.06%
William G. Aiken ........................ 5,000 500 0.01 500 0.01
Paul S. Allen ........................... 5,000 500 0.01 500 0.01
Francis J. Ehrhardt ..................... 15,000 1,500 0.04 1,500 0.03
Joseph M. Houser, Jr .................... 10,000 1,000 0.03 1,000 0.02
Joseph P. Keenan ........................ 200,000(2) 20,000 0.56 20,000 0.41
Cornelius D. Mahoney .................... 15,000 1,500 0.04 1,500 0.03
Asher Nesin ............................. 50,000 5,000 0.14 5,000 0.10
Richard L. Pomeroy ...................... 10,000 1,000 0.03 1,000 0.02
Ann V. Schultz .......................... 2,000 200 0.01 200 --
Norman H. Storey ........................ 25,000 2,500 0.07 2,500 0.05
D. Jeffrey Templeton .................... 50,000 5,000 0.14 5,000 0.10
Paul Tsatsos ............................ 40,000 4,000 0.11 4,000 0.08
Agostino J. Calheno ..................... 15,000 1,500 0.04 1,500 0.03
Debra L. Murphy ......................... 15,000 1,500 0.04 1,500 0.03
------ ----- ---- ----- ----
All Trustees and Executive Officers
as a Group (15 persons)(3)............. $487,000 48,700 1.35% 48,700 0.98%
======== ====== ==== ====== ====
</TABLE>
- ------------------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
orders by the ESOP. Intended purchases by the ESOP are expected to be 8% of
the shares issued in the Conversion, including shares issued to the
Foundation. Also does not include Common Stock which may be awarded under
the Stock-Based Incentive Plan to be adopted equal to 4% of the Common
Stock issued in the Conversion, including shares issued to the Foundation,
and Common Stock which may be purchased pursuant to options which may be
granted under the Stock-Based Incentive Plan equal to 10% of the number of
shares of Common Stock issued in the Conversion, including shares issued to
the Foundation.
(2) Such amount represents the maximum allowable purchase for such
individual.
(3) Including the effect of shares issued to the Foundation, the aggregate
beneficial ownership of all trustees and executive officers as a group
would be 1.26% and 0.93% at the minimum and maximum of the Estimated Price
Range, respectively.
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THE CONVERSION
THE BOARD OF TRUSTEES OF THE BANK AND THE COMMISSIONER OF BANKS OF THE
COMMONWEALTH OF MASSACHUSETTS HAVE APPROVED THE PLAN OF CONVERSION, SUBJECT TO
APPROVAL BY THE CORPORATORS OF THE BANK ENTITLED TO VOTE ON THE MATTER AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL BY THE
COMMISSIONER DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF
CONVERSION BY SUCH AGENCY.
General
On August 26, 1998, the Bank's Board of Directors unanimously adopted
the Plan of Conversion, which was subsequently amended, pursuant to which the
Bank will be converted from a Massachusetts-chartered mutual savings bank to a
Massachusetts-chartered stock savings bank. It is currently intended that all of
the capital stock of the Bank will be held by the Company, which is incorporated
under Delaware law. The Plan has been approved by the Commissioner and the Bank
has received a notice of intent not to object to the Plan from the FDIC, subject
to, among other things, approval of the Plan by the Bank's corporators. A
special meeting of the Bank's corporators has been called for this purpose to be
held on ___________, 1998 (the "Special Meeting").
The Company expects to receive approval from the OTS to become a
savings and loan holding company and to acquire all of the common stock of the
Bank to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Bank to be issued in the Conversion. The
Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company or all of the common stock of the Bank, if
the holding company form of organization is not utilized, to be issued in the
Conversion.
The Plan provides that the Board of Directors of the Bank, at any time
prior to the issuance of the Common Stock and for any reason, may decide not to
use the holding company form of organization in implementing the Conversion.
Such reasons may include possible delays resulting from overlapping regulatory
processing, or policies or conditions, which could adversely affect the Bank's
or the Company's ability to consummate the Conversion and transact its business
after the Conversion as contemplated herein and in accordance with the Bank's
operating policies. In the event that such a decision is made, the Bank will
withdraw the Company's registration statement from the SEC and will take all
steps necessary to complete the Conversion without the Company, including filing
any necessary documents with the Commissioner, FDIC and any other appropriate
regulatory authority. In such event, and provided there is no regulatory action,
directive or other consideration upon which basis the Bank determines not to
complete the Conversion, if permitted by the Commissioner, the Bank will issue
and sell the common stock of the Bank and subscribers will be notified of the
elimination of the Company and resolicited (i.e., be permitted to affirm their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
funds will be promptly refunded with interest, or be permitted to modify or
rescind their subscriptions) and notified of the time period within which
subscribers must affirmatively notify the Bank of their intention to affirm,
modify or rescind their subscription. The following description of the Plan
assumes that a holding company form of organization will be used in the
Conversion. In the event that a holding company form of organization is not
used, all other pertinent terms of the Plan as described below will apply to the
conversion of the Bank from the mutual to stock form of organization and the
sale of the Bank's common stock.
The Plan provides generally that the Bank will convert from a mutual
savings bank to a capital stock savings bank and that non-transferable
subscription rights to subscribe for the Common Stock in a subscription offering
(the "Subscription Offering") will be granted in the following order of
priority: (1) holders of deposit accounts of the Bank which totalled $50 or more
on July 31, 1997 ("Eligible Account Holders"); (2) holders of deposit accounts
of the Bank which totalled $50 or more on June 30, 1998 ("Supplemental Eligible
Account Holders"); (3) the Employee Plans, consisting of the ESOP which intends
to subscribe for up to 8% of the Common Stock issued in connection with the
Conversion, including shares issued to the Foundation; and (4) trustees,
corporators, directors, officers and employees of the Bank and Company who do
not otherwise qualify as an Eligible Account Holder or Supplemental Eligible
Account Holder. Concurrently with the Subscription Offering, subject to the
approval of the Commissioner, shares will
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be offered in a direct community offering to certain members of the general
public (the "Direct Community Offering") with a preference given to natural
persons residing in Hampden and Hampshire Counties, Massachusetts (such natural
persons are referred to as "Preferred Subscribers"), subject to the prior rights
of holders of subscription rights. It is anticipated that all shares not
subscribed for in the Subscription and Direct Community Offerings will be
offered for sale by the Company to the general public in a syndicated community
offering (the "Syndicated Community Offering"). The Bank and Company have the
right to accept or reject, in whole or in part, any orders to purchase shares of
the Common Stock received in the Direct Community Offering or Syndicated
Community Offering.
The aggregate price of the shares of Common Stock to be sold in the
Conversion will be determined based upon an independent appraisal prepared by
Keller of the estimated pro forma market value of the Common Stock giving effect
to the Conversion. All shares of Common Stock to be issued and sold in the
Conversion will be sold at the same price. Keller's independent appraisal will
be updated and the final price of the shares will be determined at the
completion of the Subscription and Direct Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
independent appraisal has been performed by Keller, a consulting firm
experienced in the valuation and appraisal of savings institutions. See "--Stock
Pricing" for a determination of the estimated pro forma market value of the
Common Stock.
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available upon written request from the Bank and is
available for inspection at the main office of the Bank. The Plan is also filed
as an Exhibit to the Registration Statement of which this Prospectus is a part,
copies of which may be obtained from the SEC. See "Additional Information."
Establishment of the Charitable Foundation
General. In furtherance of the Bank's commitment to its local
community, the Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will establish the Foundation, which will be incorporated under
Delaware law as a non-stock corporation, and will fund the Foundation with
Common Stock of the Company, as further described below. The Company and the
Bank believe that the funding of the Foundation with Common Stock of the Company
is a means of establishing a common bond between the Bank and its community and
thereby enables the Bank's community to share in the potential growth and
success of the Company over the long-term. By further enhancing the Bank's
visibility and reputation in its local community, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise. The Foundation will be dedicated to charitable purposes within the
communities in which the Bank maintains a banking office, including community
development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community activities
within the Bank's local community and has previously formed a charitable
foundation. See "Business of the Bank--The Woronoco Foundation, Inc." The Bank
received a "satisfactory" CRA rating in its last CRA examination. The Bank's
latest MCRA rating received from the Commissioner was "satisfactory." The
Foundation is being formed as a complement to the Bank's existing community
activities and its existing foundation's activities, not as a replacement for
such activities. The Bank intends to continue to emphasize community lending and
community activities following the Conversion. However, such activities are not
the Bank's sole corporate purpose. The Foundation, conversely, will be
completely dedicated to community activities and the promotion of charitable
causes, and may be able to support such activities in manners that are not
presently available to the Bank. The Bank believes that the Foundation will
enable the Company and the Bank to assist within the communities in which the
Bank maintains a banking office in areas beyond community development and
lending and will enhance its current activities under the CRA. In this regard,
the Board of Trustees believes the establishment of a charitable foundation is
consistent with the Bank's commitment to community service. The Board further
believes that the funding of the Foundation with Common Stock of the Company is
a means of enabling the Bank's community to share in the potential growth and
success of the Company long after completion of the Conversion. The Foundation
will accomplish that goal by providing for continued ties between the Foundation
and Bank, thereby forming a partnership within the communities in which the Bank
maintains a banking office. The establishment of the Foundation will also enable
the Company and the Bank to develop a unified
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charitable donation strategy and will centralize the responsibility for
administration and allocation of corporate charitable funds. Charitable
foundations have been formed by other financial institutions for this purpose,
among others. The Bank, however, does not expect the contribution to the
Foundation to take the place of the Bank's traditional community lending and
charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's Bylaws,
the Foundation's Board of Directors will be comprised of seven members, all of
whom are existing Directors, Trustees or officers of the Company or the Bank. A
Nominating Committee of the Board will nominate individuals eligible for
election to the board of directors. The members of the Foundation, who are
comprised of its Board members, will elect the Directors at the annual meeting
of the Foundation from those nominated by the Nominating Committee. Directors
will be divided into three classes with each class appointed for three-year
terms. The certificate of incorporation of the Foundation provides that the
corporation is organized exclusively for charitable purposes, including
community development, as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further provides that no part of the
net earnings of the Foundation will inure to the benefit of, or be distributable
to, its directors, officers or members.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. As directors of a nonprofit
corporation, directors of the Foundation will at all times be bound by their
fiduciary duty to advance the Foundation's charitable goals, to protect the
assets of the Foundation and to act in a manner consistent with the charitable
purpose for which the Foundation is established. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Company held by the
Foundation. However, all shares of Common Stock held by the Foundation will be
voted in the same ratio as all other shares of the Common Stock on all proposals
considered by stockholders of the Company; provided, however, that the FDIC may
waive the voting restriction under certain circumstances, such as if the
restriction would result in the loss of the tax-exempt status of the Foundation.
In the event that the FDIC were to waive the voting requirement or the voting
restriction becomes unenforceable, the FDIC may, at that time, impose additional
conditions relating to the control of the Common Stock held by the Foundation.
There can be no assurances that the FDIC would grant a waiver of such voting
restriction, unconditional or otherwise.
The Foundation's place of business will be located at the Company's
administrative offices and initially the Foundation is expected to have no
employees but will utilize the members of the staff of the Company or the Bank.
The Board of Directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation.
The Company intends to capitalize the Foundation with Common Stock of
the Company in an amount equal to 8% of the total amount of Common Stock to be
sold in connection with the Conversion. At the minimum, midpoint, maximum and
15% above the maximum of the Estimated Price Range, the contribution to the
Foundation would equal 285,600, 336,000, 386,400 and 444,360 shares, which would
have a market value of $2.9 million, $3.4 million, $3.9 million and $4.4
million, respectively, assuming the Purchase Price of $10.00 per share. The
Company and the Bank determined to fund the Foundation with Common Stock rather
than cash because it desired to form a bond within the communities in which the
Bank maintains a banking office in a manner that would allow those communities
to share in the potential growth and success of the Company and the Bank over
the long-term. The funding of the Foundation with stock also provides the
Foundation with a potentially larger endowment than if the Company contributed
cash to the Foundation since, as a shareholder, the Foundation will share in the
potential growth and success of the Company. As such, the contribution of stock
to the Foundation has the potential to provide a self-sustaining funding
mechanism which reduces the amount of cash that the Company, if it were not
making the stock donation, would have to contribute to the Foundation in future
years in order to maintain a level amount of the charitable grants and
donations.
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The Foundation will receive working capital from any dividends that may
be paid on the Company's Common Stock in the future, and subject to applicable
federal and state laws, loans collateralized by the Common Stock or from the
proceeds of the sale of any of the Common Stock in the open market from time to
time as may be permitted to provide the Foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation, except where the
Board of Directors of the Foundation determines that the failure to sell an
amount of common stock greater than such amount would result in a long-term
reduction of the value of the Foundation's assets and/or would otherwise
jeopardize the Foundation's capacity to carry out its charitable purposes. Upon
completion of the Conversion and the contribution of shares to the Foundation
immediately following the Conversion, the Company would have 3,855,600,
4,536,000, 5,216,400 and 5,998,860 shares issued and outstanding at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Price Range.
Because the Company will have an increased number of shares outstanding, the
voting and ownership interests of shareholders in the Company's common stock
would be diluted by 7.4%, as compared to their interests in the Company if the
Foundation was not established. For additional discussion of the dilutive
effect, see "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
will qualify as a Section 501(c)(3) exempt organization under the Code, and will
be classified as a private foundation. The Foundation will submit a request to
the IRS to be recognized as an exempt organization. As long as the Foundation
files its application for tax-exempt status within 15 months from the date of
its organization, and provided the IRS approves the application, the effective
date of the Foundation's status as a Section 501(c)(3) organization will be the
date of its organization. The Company's independent accountants, however, have
not rendered any advice on the regulatory condition to the contribution agreed
to by the Foundation which requires that all shares of Common Stock of the
Company held by the Foundation must be voted in the same ratio as all other
outstanding shares of Common Stock of the Company on all proposals considered by
stockholders of the Company. See "--Regulatory Conditions Imposed on the
Foundation."
Under Delaware law, the Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Code, the Company may deduct up to 10% of its
taxable income before the charitable contribution deduction in any one year and
any contributions made by the Company in excess of the deductible amount will be
deductible over each of the five succeeding taxable years, subject to a 10%
limitation each year. The Company and the Bank believe that the Conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised in the
Conversion. In making such a determination, the Company and the Bank considered
the dilutive impact of the contribution of Common Stock to the Foundation on the
amount of Common Stock available to be offered for sale in the Conversion. Based
on such consideration, the Company and Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and the potential benefits of the Foundation within the
communities in which the Bank maintains a banking office. In this regard,
assuming the sale of the Common Stock at the midpoint of the Estimated Price
Range, the Company would have pro forma consolidated capital of $69.8 million or
17.33% of pro forma consolidated assets and the Bank's pro forma leverage and
risk-based capital ratios would be 12.63% and 17.82%, respectively. See
"Regulatory Capital Compliance," "Capitalization," and "Comparison of Valuation
and Pro Forma Information with No Foundation." Thus, the amount of the
contribution will not adversely impact the financial condition of the Company
and the Bank and the Company and the Bank therefore believe that the amount of
the charitable contribution is reasonable given the Company's and the Bank's pro
forma capital positions. As such, the Company and the Bank believe that the
contribution does not raise safety and soundness concerns.
The Company and the Bank have received an opinion of their independent
tax advisors that the Company's contribution of its own stock to the Foundation
should not constitute an act of self-dealing, and that the Company will be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution less the nominal par value that the Foundation is
required to pay the Company for such stock, subject to a limitation based on 10%
of the Company's annual taxable income before the charitable contribution
deduction. The Company would be
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able to carry forward for federal income purposes any unused portion of the
deduction for five years following the contribution. However, the Company would
not be able to carry forward any unused portion of its charitable contribution
for Commonwealth of Massachusetts income tax purposes. If the Foundation had
been established in 1997, assuming the sale of the Common Stock at the maximum
Estimated Price Range, the Company would have received a charitable contribution
deduction of approximately $1.4 (based on the Bank's pre-tax income for 1997, an
assumed tax rate of 37% and a contribution of Common Stock equal to $3.9 The
Company is permitted under the Code to carry over the excess contribution over
the five year period following the contribution to the Foundation. Assuming the
close of the Offerings at the midpoint of the Estimated Price Range, the Company
estimates that all of the deduction should be deductible over the six-year
period. Neither the Company nor the Bank expect to make any further
contributions to the Foundation within the first five years following the
initial contribution. After that time, the Company and the Bank may consider
future contributions to the Foundation. Any such decisions would be based on an
assessment of, among other factors, the financial condition of the Company and
the Bank at that time, the interests of shareholders and depositors of the
Company and the Bank, and the financial condition and operations of the
Foundation.
Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company will be entitled to a deduction for
the charitable contribution, there can be no assurances that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that the
deduction will be permitted. In such event, the Company's tax benefit related to
the contribution to the Foundation would be expensed without tax benefit,
resulting in a reduction in earnings in the year in which the IRS makes such a
determination. See "Risk Factors--Establishment of the Charitable Foundation."
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following conditions to be agreed to by the
Foundation in writing as a condition to receiving the FDIC's non-objection to
the Bank's Conversion:
1. the Foundation will be subject to examination by the FDIC;
2. the Foundation must comply with supervisory directives imposed
by the FDIC;
3. the Foundation will operate in accordance with written
policies adopted by the Foundation's board of directors,
including a conflict of interest policy acceptable to the
FDIC;
4. the Foundation shall not engage in self-dealing and shall
comply with all laws necessary to maintain its tax-exempt
status under the Code; and
5. any shares of Common Stock of the Company held by the
Foundation must be voted in the same ratio as all other shares
of Common Stock of the Company voted on all proposals
considered by stockholders of the Company; provided, however,
the FDIC may waive this voting restriction under certain
circumstances, such as in the event the restriction would
result in the loss of the tax-exempt status of the Foundation,
but may impose additional conditions as part of the granting
of such waiver.
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There can be no assurances that the FDIC would grant a waiver,
unconditional or otherwise, of the voting restriction. If the voting restriction
is waived or becomes unenforceable, the FDIC may impose such other conditions
relating to control of the Foundation's Common Stock as is determined by the
FDIC to be appropriate at the time. The Foundation will also be subject to
substantially similar conditions imposed by the Commissioner and the
Massachusetts Division of Banks, as well as the requirement that the Foundation
be approved by the affirmative vote of two-thirds of the corporators present and
voting at the Special Meeting.
Purposes of Conversion
The Bank, as a mutual bank, currently does not have stockholders and
has no authority to issue stock. By converting to the stock form of organization
and simultaneously forming its holding company, the Bank will be structured in
the form used by commercial banks, most business entities and a growing number
of savings institutions. The Board of Trustees of the Bank currently
contemplates that all of the stock of the Bank shall be held by the Company, a
business corporation organized under the laws of the State of Delaware, and that
the Company will issue and sell the Common Stock pursuant to the Plan. The
Conversion will be important to the future growth and performance of the Bank by
enhancing the net worth position of the Bank to enable the Bank to expand the
Bank's franchise, compete more effectively with commercial banks and other
financial institutions for new business opportunities and, as a stock
institution, to increase its equity capital base and access the capital markets
when needed. The business purposes of the Conversion are to provide the Bank
with equity capital which will enable it to increase its reserves and net worth
to support future lending and operational growth and branching activities and to
increase its ability to render services to the communities it serves. The Bank
believes that by combining quality service and products with a local ownership
base, its customers and community members who become stockholders will be more
inclined to do business with, and perhaps bring additional business to the Bank.
The holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock financial institutions, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Company will be in a position after the Conversion,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. While there are benefits
associated with the holding company form of organization, such form of
organization may involve additional costs associated with its maintenance and
regulation as a savings and loan company, such as additional administrative
expenses, taxes and regulatory filings or examination fees.
The potential impact of Conversion upon the Bank's capital base is
significant. At August 31, 1998, the Bank had Tier I Leverage capital of $33.3
million, or 9.08% of average assets. Assuming that $40.7 million (based on the
$42.0 million at the midpoint of the Estimated Price Range) of net proceeds are
realized from the sale of Common Stock (see "Pro Forma Data" for the basis of
this assumption) and assuming that 50% of the net proceeds are used by the
Company to purchase the capital stock of the Bank, the Bank's Tier I Leverage
capital would increase to $48.2 million, resulting in a pro forma leverage
capital ratio of 12.63% giving effect to the Conversion. In the event that the
holding company form of organization is not utilized and all the net proceeds,
at the midpoint of the Estimated Price Range, are retained by the Bank, the
Bank's Tier I Leverage capital would increase to $73.9 million, resulting in a
pro forma Tier I Leverage capital ratio of 18.6% at August 31, 1998. The
investment of the net proceeds from the sale of the Common Stock will provide
the Bank with additional income to further increase its capital position.
After completion of the Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, 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, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options under the Stock-Based Incentive Plan or the possible issuance of
authorized but unissued shares to the Stock-Based Incentive Plan. Following the
Conversion, the Company will also be able to use stock-based benefit plans to
attract and retain executive and other personnel for itself and its
subsidiaries. See "Management of the Bank--Executive Compensation."
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Effects of Conversion
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which may have realizable value
only in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time, as owners, would have a claim to
share pro rata in any residual surplus and reserves after other claims,
including claims of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds representing the
liquidation account established in connection with the Conversion. Additionally,
permanent nonwithdrawable capital stock is created and offered to depositors
which represents the ownership of the institution's net worth. The Common Stock
is separate and apart from deposit accounts and cannot be and is not insured by
the FDIC, the Mutual Savings Central Fund or any other governmental agency.
Certificates are issued to evidence ownership of the permanent stock. The stock
certificates are transferable, and therefore the stock may be sold or traded if
a purchaser is available with no effect on any deposit account the seller may
hold in the institution.
No assets of the Company or the Bank will be distributed in connection
with the Conversion other than pursuant to the payment of expenses incurred in
connection therewith.
Continuity. While the Conversion is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
Commissioner, the FDIC and the Mutual Savings Central Fund. After Conversion,
the Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The Trustees of the Bank at the time of Conversion will serve as
Directors of the Bank after the Conversion. The Directors of the Company will
consist of the same individuals who will serve on the Board of Directors of the
Bank. All officers of the Bank at the time of Conversion will retain their
positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of Conversion will automatically continue as a depositor after the
Conversion, and each deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC and the Mutual Savings Central Fund to the same extent as
before the Conversion. Depositors will continue to hold their existing passbooks
and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as it was contractually fixed prior to the Conversion.
Effect on Voting Rights of Corporators. At present, corporators of the
Bank possess all voting rights in the Bank. Upon Conversion, corporators will
cease to exist and will no longer be entitled to vote at meetings of the Bank.
Upon Conversion, all voting rights in the Bank will be vested in the Company as
the sole stockholder of the Bank. Exclusive voting rights with respect to the
Company will be vested in the holders of Common Stock. Depositors of the Bank
will not have voting rights after the Conversion except to the extent that they
become stockholders of the Company through the purchase of Common Stock.
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Tax Effects. The Bank has received opinions with regard to Federal and
Massachusetts income taxation which indicate that the adoption and
implementation of the Plan of Conversion set forth herein will not be taxable
for Federal or Massachusetts income tax purposes to the Bank or its Eligible
Account Holders or Supplemental Eligible Account Holders or the Company, subject
to the limitations and qualifications in such opinions. See "--Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would have a claim to receive such remaining assets, pro
rata, based upon the deposit balances in their deposit accounts immediately
prior to liquidation. In the unlikely event that the Bank were to liquidate
after Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account," if any, to certain depositors (as
described in "--Liquidation Rights," below), with any assets remaining
thereafter distributed to the Company as the holder of the Bank's capital stock.
Pursuant to applicable rules and regulations, a post-conversion merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured savings institution would not be considered a liquidation and in
such a transaction, the liquidation account would be required to be assumed by
the surviving institution.
Stock Pricing
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common Stock,
as determined on the basis of an independent appraisal. The Bank and the Company
have retained Keller, which is experienced in the evaluation and appraisal of
business entities, to make such appraisal. For its services in making such
appraisal, Keller will receive a fee of $31,000, including expenses and fees
related to the preparation of a business plan for the Bank and the Company. The
Bank and the Company have agreed to indemnify Keller and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as the
independent appraiser, except where Keller's liability results from its own
negligence or fault.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the Bank,
including liquidity, capitalization, asset composition, funding mix, amount of
intangible assets owned, and level of interest rate risk; the economic,
demographic and competitive aspects of the Bank's existing marketing area; the
quality and depth of the Bank's management; certain historical, financial and
other information relating to the Bank; a comparative evaluation of the
operating and financial statistics of the Bank with those of other savings
institutions; the aggregate size of the offering of the Common Stock; the impact
of Conversion on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; the trading market for securities
of comparable institutions and general conditions in the market for such
securities; and recent regulatory matters. In particular, the appraisal
considered the Bank's financial condition and projected and historical operating
results, including income and expense trends, asset size, loan portfolio
composition, nonperforming loans and assets, interest rate sensitivity position,
capital position, and yields on assets and costs of liabilities in comparison to
a select group of publicly-traded thrifts with assets equal to or less than $700
million. The Board of Trustees of the Bank and Board of Directors of the Company
have reviewed the appraisal of Keller in determining the reasonableness and
adequacy of such appraisal consistent with applicable regulations and have
reviewed the methodology and reasonableness of assumptions utilized by Keller in
the preparation of such appraisal and established the Estimated Price in a
manner consistent with this appraisal.
On the basis of the foregoing, Keller has advised the Company and the
Bank that, in its opinion dated as of October 23, 1998, the estimated pro forma
market value of the Common Stock being sold in connection with the Conversion
ranged from a minimum of $35.7 million to a maximum of $48.3 million with a
midpoint of $42.0 million. The Board of Directors established the Estimated
Price Range of $35.7 million to $48.3 million within the Valuation Price Range
based on the issuance of 3,570,000 to 4,830,000 shares at the Purchase Price of
$10.00 per share. The Estimated Price Range may be amended with the approval of
the Commissioner and FDIC, if required, if necessitated by subsequent
developments in the financial condition of the Company or the Bank or market
conditions generally.
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Such appraisal, however, is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing such shares of
Common Stock. Keller did not independently verify the Consolidated Financial
Statements and other information provided by the Bank, nor did Keller value
independently the assets or liabilities of the Bank. The appraisal considers the
Bank as a going concern and should not be considered as an indication of the
liquidation value of the Bank. Moreover, because such appraisal 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 such shares in the Conversion will thereafter be able to sell such
shares at prices at or above the Purchase Price or in the range of the foregoing
valuation of the pro forma market value thereof.
Following commencement of the Subscription and Direct Community
Offerings, the maximum of the Estimated Price Range may be increased up to 15%
and the number of shares of Common Stock being sold in the Conversion may be
increased to 5,554,500 shares due to regulatory considerations, or changes in
the market and general financial and economic conditions, without the
resolicitation of subscribers. See "--Limitations on Common Stock Purchases" as
to the method of distribution and allocation of additional shares that may be
issued in the event of an increase in the Estimated Price Range to fill unfilled
orders in the Subscription and Direct Community Offerings.
No sale of shares of Common Stock in the Conversion may be consummated
unless prior to such consummation Keller confirms that nothing of a material
nature has occurred which, taking into account all relevant factors, would cause
it to conclude that the aggregate price is materially incompatible with the
estimate of the pro forma valuation of the aggregate market value of the Common
Stock at the time of the sale of the Common Stock. If such is not the case, a
new Estimated Price Range may be set, a new Subscription and Direct Community
Offering and/or Syndicated Community Offering may be held or such other action
may be taken as the Company and the Bank shall determine and the Commissioner
and FDIC may permit.
Copies of the appraisal report of Keller including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Bank and the other locations specified under "Additional
Information."
Number of Shares to be Issued
Depending upon market or financial conditions following the
commencement of the Subscription and Direct Community Offerings, the total
number of shares to be sold in the Conversion may be increased or decreased
without a resolicitation of subscribers, provided that the product of the total
number of shares times the price per share is not below the minimum of the
Estimated Price Range or more than 15% above the maximum of the Estimated Price
Range. Based on a fixed purchase price of $10.00 per share and the Keller
estimate of the pro forma market value of the Common Stock ranging from a
minimum of $35.7 million to a maximum, as increased by 15%, of $55.5 million,
the number of shares of Common Stock expected to be sold is between a minimum of
3,570,000 shares and a maximum, as adjusted by 15%, of 5,554,500 shares. The
actual number of shares issued between this range will depend on a number of
factors and shall be determined by the Bank and Company subject to the approval
of the Commissioner and FDIC.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Bank after consultation with
the Commissioner and FDIC, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the Commissioner and FDIC. If the number of shares issued in the
Conversion is increased due to an increase of up to 15% in the Estimated Price
Range to reflect changes in market or financial conditions, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares. See "--Limitations on Common
Stock Purchases."
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An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the
sale of Common Stock in the Conversion will be increased by a number of shares
equal to 8% of the Common Stock sold in the Conversion to fund the Foundation.
Assuming the sale of shares in the Offerings at the maximum of the Estimated
Price Range, the Company will issue 386,400 shares of its Common Stock from
authorized but unissued shares to the Foundation immediately following the
completion of the Conversion. In that event, the Company will have total shares
of Common Stock outstanding of 5,216,400 shares. Of that amount, the Foundation
will own 8%. Funding the Foundation with authorized but unissued shares will
have the effect of diluting the ownership and voting interests of persons
purchasing shares in the Conversion by 7.4% since a greater number of shares
will be outstanding upon completion of the Conversion than would be if the
Foundation were not established. See "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with the Bank who had a balance of $50 or more as of July 31,
1997 ("Eligible Account Holders"); (2) holders of deposit accounts with a
balance of $50 or more as of June 30, 1998 ("Supplemental Eligible Account
Holders"); (3) the Employee Plans, including the ESOP; and (4) trustees,
corporators, directors, officers and employees who do not otherwise qualify as
Eligible or Supplemental Eligible Account Holders. All subscriptions received
will be subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion and as described below under "--Limitations on Common Stock
Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: (1)
$200,000 of Common Stock but which may be increased to 5.0% of the Common Stock
offered or decreased to 0.10% of the Common Stock offered without the further
approval of the corporators or resolicitation of subscribers; (2) one-tenth of
one percent (.10%) of the total offering of shares of Common Stock; or (3)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Eligible Account Holder's
Qualifying Deposit (defined by the Plan as any deposit account in the Bank with
a balance of $50 or more as of July 31, 1997) and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders ($___) in each
case on the Eligibility Record Date. All of such subscription rights amounts are
subject to the overall maximum purchase limitation. See "--Limitations on Common
Stock Purchases." Subscription rights received by trustees, corporators and
officers of the Bank and their associates based on increased deposits in the
Bank in the one-year period preceding July 31, 1997 will be subordinated to all
other subscription rights of Eligible Account Holders.
In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Common Stock in excess of the total number of such
shares eligible for subscription, the shares of Common Stock will be allocated
so as to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective Qualifying Deposits bear to the total amount of Qualifying Deposits
of all remaining Eligible Account Holders whose subscriptions remain unfilled;
provided, however, that no fractional shares shall be issued. If the amount so
allocated exceeds the amount subscribed for by any one or more Eligible Account
Holders, the excess shall be reallocated (one or more times as necessary) among
those Eligible
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Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible Account
Holder has an ownership interest. Failure to list an account could result in
less shares being allocated than if all accounts had been disclosed.
Priority 2: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after the satisfaction of subscriptions by
Eligible Account Holders, each Supplemental Eligible Account Holder will
receive, without payment therefor, as second priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of: (1) $200,000 of Common Stock but which may be increased to 5.0% of
the Common stock offered or decreased to 0.10% of the Common Stock offered
without the further approval of the corporators or resolicitation of
subscribers; (2) one tenth of one percent (.10%) of the total offering of shares
of Common Stock; or (3) fifteen times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
to be issued by a fraction of which the numerator is the amount of the
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator is
the total amount of Qualifying Deposits of all Supplemental Eligible Account
Holders, in each case on the Supplemental Eligibility Record Date. All of such
subscription rights amounts are subject to the overall maximum purchase
limitation. See "--Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription after the satisfaction of
subscriptions by Eligible Account Holders, the shares of Common Stock will be
allocated so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the
remaining subscribing Supplemental Eligible Account Holders whose subscriptions
remain unfilled in the proportion that the amounts of their respective
qualifying deposits bear to the total amount of Qualifying Deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unfilled; provided, however, that no fractional shares shall be issued. If the
amount so allocated exceeds the amount subscribed for by any one or more
Supplemental Eligible Account Holders, the excess shall be reallocated (one or
more times as necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his or her stock order form all accounts in which
such Supplemental Eligible Account Holder has an ownership interest. Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed. The subscription rights received by Eligible Account Holders
will be applied in partial satisfaction of the subscription rights to be
received as a Supplemental Eligible Account Holder.
Priority 3: Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders and Supplemental Eligible Account Holders, the Employee Plans, including
the ESOP, will receive, without payment therefor, as third priority,
nontransferable subscription rights to purchase, in the aggregate, up to 8% of
Common Stock issued in the Conversion, including any increase in the number of
shares of Common Stock to be issued in the Conversion after the date hereof as a
result of an increase of up to 15% in the maximum of the Estimated Price Range.
The ESOP intends to purchase 8% of the shares to be issued in connection with
the Conversion, including shares issued to the Foundation, or 308,448, 362,880,
417,312 and 479,908 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively. If, after the filling of
subscriptions of Eligible Account Holders and Supplemental Eligible Account
Holders, a sufficient number of shares are not available to fill the
subscriptions by the ESOP, the subscription by the ESOP shall be filled to the
maximum extent possible. If all the shares of Common Stock offered in the
Subscription Offering are purchased by Eligible Account Holders and Supplemental
Account Holders, then the ESOP will purchase shares in the open market following
consummation of the conversion. The ESOP shall not be deemed to be an Associate
or Affiliate of, or a Person Acting in Concert with, any trustee, corporator,
director or officer of the Company or the Bank. Subscriptions
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by the ESOP will not be aggregated with shares of Common Stock purchased
directly by or which are otherwise attributable to any other participants in the
Subscription and Direct Community Offerings, including subscriptions of any of
the Bank's trustees, corporators, officers, employees or associates thereof. See
"Management of the Bank--Other Benefit Plans--Employee Stock Ownership Plan."
Priority 4: Trustees, Corporators, Directors, Officers and Employees.
Trustees, corporators, directors, officers and employees of the Bank and the
Company shall be entitled to purchase up to 30% of the total offering of shares
of capital stock, but only to the extent that shares are available after
satisfying the subscriptions of Eligible Account Holders, Supplemental Eligible
Account Holders and the Tax-Qualified Employee Stock Benefit Plan. The shares
shall be allocated among trustees, corporators, directors, officers and
employees on an equitable basis such as by giving weight to the period of
service, compensation and position of the individual, subject to the 5%
limitation on the amount of shares which may be purchased by any Person or
Participant, together with any Associate or group of persons Acting in Concert.
However, trustees, corporators, directors and officers of the Bank and the
Company shall not be deemed to be Associates or Persons Acting in Concert solely
as a result of their board membership or employment.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on the Expiration Date (________, 1999) at 12:00 noon,
Eastern time, unless extended for up to 45 days by the Bank and Company or such
additional periods with the approval of the Commissioner and FDIC, if required.
Subscription rights which have not been exercised prior to the Expiration Date
will become void. The Bank will not execute orders until all shares of Common
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the Commissioner and FDIC, all funds
delivered to the Bank pursuant to the Subscription Offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be canceled. If an extension beyond the 45 day period following the Expiration
Date is granted, the Bank will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions and have
their funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Bank of their intention to confirm,
modify, or rescind their subscription. If an affirmative response to any
resolicitation is not received by the Company from a subscriber, such order will
be rescinded and all subscription funds will be promptly returned with interest.
Such extensions may not go beyond August 26, 2000.
Direct Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, Supplemental
Eligible Account Holders, the ESOP and trustees, corporators, directors,
officers and employees, the Bank has determined to offer shares pursuant to the
Plan to certain members of the general public with a preference given to
Preferred Subscribers. Such persons, together with associates of and persons
acting in concert with such persons, may purchase up to $200,000 of Common
Stock, subject to the maximum overall purchase limitation and exclusive of
shares issued pursuant to an increase in the Estimated Price Range by up to 15%.
See "--Limitations on Common Stock Purchases." This amount may be increased to
up to a maximum of 5% of the Common Stock issued or decreased to less than
$200,000 at the discretion of the Company and the Bank, subject to the approval
of the Commissioner and the FDIC. Orders accepted in the Direct Community
Offering shall be filled up to a maximum of 2% of the total offering and
thereafter remaining shares shall be allocated on an equal number of shares
basis per order until all orders have been filled. The opportunity to subscribe
for shares of Common Stock in the Direct Community Offering category is subject
to the right of the Bank and the Company, in its sole discretion, to accept or
reject any such orders, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the Expiration Date. The Direct
Community Offering may be commenced at any time during the Subscription Offering
or subsequent thereto.
Residents of Foreign Countries and Certain States
The Company will make reasonable efforts to comply with the securities
laws of all states of the United States in which persons entitled to subscribe
for Conversion stock pursuant to the Plan reside. However, no such person will
be offered any subscription rights or sold any Conversion stock under the Plan
who resides in a foreign country or who
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resides in a state of the United States with respect to which the Bank
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise. No payments will be made in lieu
of the granting of subscription rights to such persons.
Marketing and Underwriting Arrangements
The Bank and the Company have engaged Sandler O'Neill as a financial
and marketing advisor to advise the Company and the Bank with respect to the
Subscription and Direct Community Offerings. Sandler O'Neill is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. ("NASD"). Sandler O'Neill will assist the Company and the Bank in the
Conversion by, among other things: (i) developing marketing materials; (ii)
targeting potential investors in the Subscription Offering and other investors
eligible to participate in the Direct Community Offering; (iii) soliciting
potential investors by phone or in person; (iv) training management and staff to
perform tasks in connection with the Conversion; (v) managing and setting up the
Conversion Center; and (vi) managing the subscription campaign.
The Bank will pay Sandler O'Neill a management fee in the amount of
$20,000 and a commission equal to 1.25% of the aggregate dollar amount of all
stock sold in the Subscription and Direct Community Offerings. Such amount is
exclusive of any shares sold to the ESOP, trustees, corporators, directors,
officers and employees and associates as defined the Bank's Plan of Conversion.
Such fees will be paid upon completion of the Conversion. Sandler O'Neill shall
be reimbursed for its expenses, in an amount not to exceed $50,000, including
legal fees. Sandler O'Neill has not prepared any report or opinion constituting
a recommendation or advice to the Company or the Bank or to persons who
subscribe in the Offerings, nor has it prepared an opinion as to the fairness to
the Company or the Bank of the Purchase Price or the terms of the Offerings.
Sandler O'Neill expresses no opinion as to the prices at which Common Stock to
be issued in the Offerings may trade. The Bank has agreed to indemnify Sandler
O'Neill against certain liabilities including certain liabilities under the
Securities Act and certain misrepresentations or breaches by the Company or the
Bank relating to the agreement with Sandler O'Neill. Total marketing fees to
Sandler O'Neill are expected to be $401,000 to $628,000 at the minimum and 15%
above the maximum of the Estimated Price Range, respectively. See "Pro Forma
Data" for the assumptions used to arrive at these estimates.
Trustees, corporators, directors and officers of the Bank and the
Company may participate in the solicitation of offers to purchase Common Stock.
Questions of prospective purchasers will be directed to officers or registered
representatives. Other employees of the Bank may participate in the Offerings in
ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase Common Stock or provide advice regarding the purchase of Common Stock.
The Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
trustees, directors, officers and employees to participate in the sale of Common
Stock. No trustee, director, officer or employee of the Company or the Bank will
be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
Procedure for Purchasing Shares in Subscription and Direct Community Offerings
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Direct Community Offerings,
an executed stock order and certification form with the required payment for
each share subscribed for, or with appropriate authorization for withdrawal from
the Bank's deposit account (which may be given by completing the appropriate
blanks in the stock order form), must be physically received by the Bank at any
of its offices by 12:00 noon, Eastern time, on the Expiration Date. Stock order
forms which are: (i) returned as undeliverable by the United States Postal
Service; (ii) not received
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by such time; (iii) executed defectively; or (iv) received without full payment
(or appropriate withdrawal instructions) are not required to be accepted. In
addition, the Bank and Company are not obligated to accept orders submitted on
photocopied or facsimilied stock order forms and will not accept stock order
forms unaccompanied by an executed certification form. Notwithstanding the
foregoing, the Company and Bank shall have the right, each in their sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Common Stock for which they subscribe in the Direct Community
Offering at any time prior to 48 hours before the completion of the Conversion.
The Company and the Bank have the right to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that they will do
so. Once received, an executed stock order form may not be modified, amended or
rescinded without the consent of the Bank unless the Conversion has not been
completed within 45 days after the end of the Subscription and Direct Community
Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and trustees, corporators, directors, officers and employees are
properly identified as to their stock purchase priorities, depositors as of the
Eligibility Record Date (July 31, 1997) and the Supplemental Eligibility Record
Date (June 30, 1998) must list all accounts on the stock order form giving all
names, account numbers and social security/tax identification numbers relating
to each account. Failure to list all such names, account numbers and social
security/tax identification numbers relating to each account may result in a
reduction in the number of shares allocated to a subscribing member.
Payment for subscriptions may be made (i) in cash if delivered in
person at any full-service banking office of the Bank; (ii) by check, bank
draft or money order, provided that checks will only be accepted subject to
collection; or (iii) by authorization of withdrawal from deposit accounts
maintained at the Bank. The funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion. No wire transfers or third party checks will be
accepted. Interest will be paid on payments made by cash, check, bank draft or
money order at the Bank's passbook rate of interest from the date payment is
received until the completion or termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Direct Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company or the ESOP
Loan Subsidiary to lend to the ESOP, at such time, the aggregate Purchase Price
of the shares for which it subscribed.
Owners of self-directed IRAs and other Qualified Plan accounts, such as
Keogh accounts, may use the assets of such IRAs and other Qualified Plan
accounts, to purchase shares of Common Stock in the Subscription and Direct
Community Offerings, provided that such IRAs or other Qualified Plan accounts
are not maintained at the Bank. Persons with IRAs or Qualified Plan accounts
maintained at the Bank must have their accounts transferred to an unaffiliated
institution or broker to purchase shares of Common Stock in the Subscription and
Direct Community Offerings. In addition, the provisions of ERISA and IRS
regulations require that officers, directors and ten percent shareholders who
use self-directed IRA or Qualified Plan account funds to purchase shares of
Common Stock in the Subscription and Direct Community Offerings, make such
purchases for the exclusive benefit of the IRAs or Qualified Plan accounts. For
further information regarding the transfer of the above-mentioned accounts,
please call the Conversion Center at (413) ___-____.
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Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the Commissioner and the FDIC,
no person with subscription rights may transfer or enter into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for his or her account. Stock purchased in the Subscription
Offering must be registered in the name(s) of the registered account holder(s)
and failure to do so will result in the rejection of the order. Each person
exercising such subscription rights will be required to certify that he or she
is purchasing shares solely for his or her own account and that he or she has no
agreement or understanding regarding the sale or transfer of such shares. The
regulations also prohibit any person from offering or making an announcement of
an offer or intent to make an offer to purchase such subscription rights or
shares of Common Stock prior to the completion of the Conversion.
The Bank and the Company will pursue any and all legal and equitable
remedies (including forfeiture) in the event they become aware of the transfer
of subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Syndicated Community Offering
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Direct
Community Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company and
the Bank have the right to reject orders in whole or in part in their sole
discretion in the Syndicated Community Offering. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "--Stock Pricing." Subject
to the overall maximum purchase limitation, no person, together with any
associate or group of persons acting in concert, will be permitted to subscribe
in the Syndicated Community Offering for more than $200,000 of Common Stock;
provided, however, that shares of Common Stock purchased in the Direct Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to an overall maximum purchase limitation of
1.0% of the shares offered, exclusive of an increase in shares issued pursuant
to an increase in the Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before 12:00 noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who
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indicated an interest and seek their confirmation as to their intent to
purchase. Those indicating an intent to purchase shall execute order forms and
forward them to their selected dealer or authorize the selected dealer to
execute such forms. The selected dealer will acknowledge receipt of the order to
its customer in writing on the following business day and will debit such
customer's account on the third business day after the customer has confirmed
his intent to purchase (the "debit date") and on or before 12:00 noon of the
next business day following the debit date will send order forms and funds to
the Bank for deposit in a segregated account. Although purchasers' funds are not
required to be in their accounts with selected dealers until the debit date in
the event that such alternative procedure is employed once a confirmation of an
intent to purchase has been received by the selected dealer, the purchaser has
no right to rescind his order.
Certificates representing shares of Common Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the Commissioner and FDIC. Such extensions may not be beyond
August 26, 2000. See "--Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the greater of: (1) $200,000
of Common Stock; (2) one-tenth of one percent (.10%) of the
total offering of shares of Common Stock; or (3) fifteen times
the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Common Stock to
be issued by a fraction of which the numerator is the amount
of the Eligible Account Holder's Qualifying Deposit (defined
by the Plan as any deposit account in the Bank with a balance
of $50 or more as of July 31, 1997) and the denominator is the
total amount of Qualifying Deposits of all Eligible Account
Holders, in each case on the Eligibility Record Date, subject
to the overall maximum purchase limitation described in (8)
below;
(3) Each Supplemental Eligible Account Holder may subscribe for
and purchase in the Subscription Offering up to the greater
of: (1) $200,000 of Common Stock; (2) one tenth of one percent
(.10%) of the total offering of shares of Common Stock; or (3)
fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator
is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit (defined by the Plan as any deposit account
in the Bank with a balance of $50 or more as of June 30, 1998)
and the denominator is the total amount of Qualifying Deposits
of all Supplemental Eligible Account Holders, in each case on
the Supplemental Eligibility Record Date, subject to the
overall maximum purchase limitation described in (8) below;
(4) The Employee Plans, including the ESOP, are permitted to
purchase, in the aggregate, up to 10% of the shares of Common
Stock issued in the Conversion, including shares issued in the
event of an increase in the Estimated Price Range of 15%, and
the ESOP intends to purchase 8% of the shares of Common Stock
issued in connection with the Conversion, including shares
issued to the Foundation;
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(5) Trustees, corporators, directors, officers and employees of
the Bank and the Company shall be entitled to purchase up to
30% of the total offering of shares of capital stock, but only
to the extent that shares are available after satisfying the
subscriptions of Eligible Account Holders, Supplemental
Eligible Account Holders and the Tax-Qualified Employee Stock
Benefit Plan;
(6) Persons purchasing shares of Common Stock in the Direct
Community Offering, together with associates of and groups of
persons acting in concert with such persons, may purchase in
the Direct Community Offering up to $200,000 of Common Stock,
subject to the overall maximum purchase limitation described
in (8) below;
(7) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons
acting in concert with such persons, may purchase in the
Syndicated Community Offering up to $200,000 of Common Stock
subject to the overall maximum purchase limitation described
in (8) below and, provided further, that shares of Common
Stock purchased in the Direct Community Offering by any
persons, together with associates of and persons acting in
concert with such persons, will be aggregated with purchases
in the Syndicated Community Offering in applying the $200,000
purchase limitation; and
(8) Eligible Account Holders, Supplemental Eligible Account
Holders and trustees, corporators, directors, officers and
employees may purchase stock in the Direct Community Offering
and Syndicated Community Offering, subject to the purchase
limitations described in (6) and (7) above, provided that,
except for the ESOP, the overall maximum number of shares of
Common Stock subscribed for or purchased in all categories of
the Conversion by any person, together with associates of and
groups of persons acting in concert with such persons, shall
not exceed 1.0% of the shares of Common Stock offered in the
Conversion and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range
of up to 15%.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of depositors of
the Bank or subscribers for Common Stock, both the individual amount permitted
to be subscribed for and the overall maximum purchase limitation may be
increased to up to a maximum of 5% of the Common Stock to be issued at the sole
discretion of the Company and the Bank. If such amount is increased, subscribers
for the maximum amount will be, and certain other large subscribers in the sole
discretion of the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit.
The overall maximum purchase limitation may not be reduced to less than
1.0%, and the individual amount permitted to be subscribed for may not be
reduced by the Bank to less than .10% without the further approval of members or
resolicitation of subscribers. An Eligible Account Holder, Supplemental Eligible
Account Holder, or trustee, corporator, director, officer or employee of the
Bank or the Company may not purchase individually in the Subscription Offering
the overall maximum purchase limit of 1.0% of the shares offered, but may make
such purchase, together with associates of and persons acting in concert with
such person, by also purchasing in other available categories of the Conversion,
subject to availability of shares and the maximum overall purchase limit for
purchases in the Conversion.
The term "acting in concert" is defined in the Plan of Conversion to
mean: knowing participation in a joint activity or interdependent conscious
parallel action toward a common goal whether or not pursuant to an express
agreement; a combination or pooling of voting or other interest in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise; or a person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also in concert with that other party, except that any
Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with any other
Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan or with its director or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the director and
stock held by the plan will be aggregated. The Company and the Bank may
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presume that certain Persons are acting in concert based upon, among other
things, joint account relationships and the fact that such Persons have filed
joint Schedules 13D with the SEC with respect to other companies. When Persons
act together for such a common purpose, their group is deemed to have acquired
their stock.
The term "associate" of a person is defined to mean: any corporation or
organization (other than the Company, the Bank or a majority-owned subsidiary of
the Bank) of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities; any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as director or in a
similar fiduciary capacity except that (i) the term "Associate" does not include
any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee
Stock Benefit Plan in which a person has a substantial beneficial interest or
serves as a director or in a similar fiduciary capacity; and (ii) for purposes
of aggregating total shares that may be held by officers, trustees and
directors, the term "Associate" does not include any Tax-Qualified or
Non-Tax-Qualified Employee Stock Benefit Plan; and any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the Holding Company, the Bank, or any
of its parents or subsidiaries. Trustees and directors are not treated as
associates of each other solely because of their Board membership.
The term "Officer" means the chairman of the board, chief executive
officer, president, any officer at the level of vice president or above, clerk
and the treasurer of the Bank.
For a further discussion of limitations on purchases of a converting
institution's stock at the time of Conversion and subsequent to Conversion, see
"Management of the Bank--Subscriptions of Trustees and Executive Officers,"
"--Certain Restrictions on Purchase or Transfer of Shares After Conversion" and
"Restrictions on Acquisition of the Company and the Bank."
Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would have a claim to receive their pro rata
share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor would
have a claim to receive a pro rata share of any such remaining assets in the
same proportion as the value of such depositor's deposit accounts to the total
value of all deposit accounts in the Bank at the time of liquidation. After the
Conversion, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of the same general priority as the claims of all other
general creditors of the Bank. However, except as described below, their claim
would be solely in the amount of the balance in their deposit account plus
accrued interest. Such depositor would not have an interest in the value or
assets of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Bank as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion. Such
liquidation account will not be reflected as an asset or liability on the
Company's or the Bank's financial statements subsequent to the Conversion.
Additionally, no dividends may be paid to stockholders of the Bank if such
dividends would reduce stockholders' equity in the Bank below the amount of such
liquidation account. Eligible Account Holders and Supplemental Eligible Account
Holders, if they were to continue to maintain their deposit account at the Bank,
would, on a complete liquidation of the Bank, have a claim to an interest in the
liquidation account after payment of all creditors prior to any payment to the
stockholders of the Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including, but not limited to, demand accounts, NOW
accounts, money market deposit accounts, and certificate of deposit accounts,
with a balance of $50 or more held in the Bank on July 31, 1997 and June 30,
1998, respectively. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a claim to a pro rata interest in the total liquidation
account for each of his deposit accounts based on the proportion that the
balance of each such deposit account on the July 31, 1997 Eligibility Record
Date or the June 30, 1998 Supplemental Eligibility Record Date bore to the
balance of all qualifying deposits of all Eligible Account Holders and
Supplemental Eligible Account Holders on such date.
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If, however, at the close of business on the last day of any period for
which the Bank or Company has prepared audited financial statements subsequent
to the effective date of the Conversion ("annual closing date"), the amount in
any deposit account is less than the amount in such deposit account on any other
annual closing date, then such person's interest in the liquidation account
relating to such deposit account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is withdrawn or closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole stockholder of the
Bank.
Tax Aspects
Consummation of the Conversion is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the IRS or an opinion of
counsel with respect to matters of federal income taxation material to the
operations of the Company and the Bank, and an opinion of its independent
auditors with respect to certain matters of Massachusetts commonwealth taxation
material to the operations of the Company and the Bank, to the effect that the
Conversion will not be a taxable transaction to the Company, the Bank, Eligible
Account Holders or Supplemental Eligible Account Holders, except as noted below.
The federal and Massachusetts tax consequences will remain unchanged in the
event that a holding company form of organization is not utilized.
No private ruling has been requested from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, which has been filed with the SEC as an exhibit to
the Company's Registration Statement to the effect that for federal income tax
purposes, among other matters:
1. the Bank's change in form from mutual to stock ownership will
constitute a reorganization under section 368(a)(1)(F) of the
Internal Revenue Code and neither the Bank nor the Company
will recognize any gain or loss as a result of the Conversion;
2. no gain or loss will be recognized by the Bank or the Company
upon the purchase of the Bank's capital stock by the Company
or by the Company upon the purchase of its Common Stock in the
Conversion;
3. no gain or loss will be recognized by Eligible Account Holders
or Supplemental Eligible Account Holders upon the issuance to
them of deposit accounts in the Bank in its stock form plus
their interests in the liquidation account in exchange for
their deposit accounts in the Bank;
4. the tax basis of the depositors' deposit accounts in the Bank
immediately after the Conversion will be the same as the basis
of their deposit accounts immediately prior to the Conversion;
5. the tax basis of each Eligible Account Holder's or
Supplemental Eligible Account Holder's interest in the
liquidation account will be zero;
6. no gain or loss will be recognized by Eligible Account Holders
or Supplemental Eligible Account Holders upon the distribution
to them of nontransferable subscription rights to purchase
shares of the Common Stock, provided that the amount to be
paid for the Common Stock is equal to the fair market value of
such stock; and
7. the tax basis to the stockholders of the Common Stock of the
Company purchased in the Conversion will be the amount paid
therefor and the holding period for the shares of Common Stock
purchased by such persons will begin on the date on which
their subscription rights are exercised.
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Wolf & Company, P.C. has opined, subject to the limitations and qualifications
in its opinion, that: the foregoing tax effects of the Conversion under
Massachusetts law are substantially the same as they are under Federal law.
Certain portions of both the Federal and the state tax opinions are based upon
the opinion of Keller that subscription rights issued in connection with the
Conversion will have no value.
In the opinion of Keller, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common Stock
at a price equal to its estimated fair market value, which will be the same
price as the Purchase Price for the unsubscribed shares of Common Stock. If the
subscription rights granted to eligible subscribers are deemed to have an
ascertainable value, such recipients could be taxed either on the receipt or
exercise of such subscription rights.
Unlike private rulings, an opinion of counsel is 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.
Certain Restrictions on Purchase or Transfer of Shares After Conversion
All shares of Common Stock purchased in connection with the Conversion
by trustees, corporators, directors, officers of the Bank or Company or their
associates will be subject to a restriction that the shares not be sold for a
period of one year following the Conversion, except in the event of the death of
such trustee, corporator, director, officer or associate. Each certificate for
such 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 such restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the restriction that
they may not be sold for a period of one year following the Conversion. The
directors and officers of the Bank or Company will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by
directors, officers (or any person who was an officer or trustee of the Bank
after adoption of the Plan of Conversion) and their associates during the
three-year period following Conversion may be made only through a broker or
dealer registered with the SEC, except with the prior written approval of the
Commissioner. This restriction does not apply, however, to the purchase of
Common Stock pursuant to the Stock-Based Incentive Plan.
Shares purchased by an affiliate of the Company will be subject to the
resale restrictions of Rule 144 under the Securities Act. If the Company meets
the current public information requirements of Rule 144 under the Securities
Act, each affiliate of the Company who complies with the other conditions of
Rule 144 (including those that require the affiliate's sale to be aggregated
with those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of: (i) 1% of the outstanding shares of the Company or (ii)
the average weekly volume of trading in such shares during the preceding four
calendar weeks. Provision may be made in the future by the Company to permit
affiliates to have their shares registered for sale under the Securities Act
under certain circumstances.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the Plan by the
Bank will be final; however, such interpretations have no binding effect on the
Commissioner or the FDIC. The Plan provides that, if deemed necessary or
desirable by the Board of Trustees, the Plan may be substantively amended by the
Board of Trustees as a result of comments from regulatory authorities or
otherwise, prior to the date of mailing of material to the Bank's corporators in
connection with the Special Meeting called to consider the Plan and at any time
thereafter with the concurrence of the Commissioner and the FDIC, if required.
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Completion of the Conversion requires the sale of all shares of the
Common Stock within 24 months following approval of the Plan by the Board of
Trustees of the Bank. If this condition is not satisfied, the Plan will be
terminated and the Bank will continue its business in the mutual form of
organization. The Plan may be terminated by the Board of Trustees at any time
with the approval of the Commissioner.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
General
The Bank's Plan of Conversion provides for the Conversion of the Bank
from the mutual to the stock form of organization and, in connection therewith,
new stock Charter and Bylaws to be approved by the corporators of the Bank
eligible to vote at the Special Meeting. The Plan also provides for the
concurrent formation of a holding company. See "The Conversion--General." As
described below and elsewhere herein, certain provisions in the Company's
Certificate of Incorporation and Bylaws and in its management remuneration
provided for in the Conversion, together with provisions of Delaware corporate
law, may have anti-takeover effects. In addition, the Bank's Charter and Bylaws
and management remuneration provided for in the Conversion may also have
"anti-takeover" effects. Finally, regulatory restrictions may make it difficult
for persons or companies to acquire control of either the Company or the Bank.
Restrictions in the Company's Certificate of Incorporation and Bylaws
General. A number of provisions of the Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential anti-takeover effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise and shares as to which
such person and his affiliates have sole or shared voting or investment power,
but shall not include shares that are subject to a publicly solicited revocable
proxy and that are not otherwise deemed to be beneficially owned by such person
and his affiliates. No Director or officer (or any affiliate thereof) of the
Company shall, solely by reason of any or all of such Directors or officers
acting in their capacities as such, be deemed to beneficially own any shares
beneficially owned by any other Director or officer (or affiliate thereof) nor
will the ESOP or any similar plan of the Company or the Bank or any director
with respect thereto (solely by reason of such director's capacity) be deemed to
beneficially own any shares held under any such plan. The Certificate of
Incorporation of the Company further provides that the provisions limiting
voting rights may only be amended upon the vote of the holders of at least 80%
of the voting power of all then outstanding shares of capital stock entitled to
vote thereon (after giving effect to the provision limiting voting rights).
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Board of Directors. The Board of Directors of the Company is divided
into three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of Directors being
elected each year. The Company's Certificate of Incorporation and Bylaws provide
that the size of the Board shall be determined by a majority of the Whole Board
of Directors. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board, including a vacancy created by an increase in
the number of Directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the Directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the
Company. Directors may be removed by the shareholders only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all then
outstanding shares of capital stock entitled to vote thereon.
In the absence of these provisions, the vote of the holders of a
majority of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by a resolution adopted by a majority of the whole Board of Directors of
the Company. The Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company may be
taken only at an annual or special meeting and prohibits stockholder action by
written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 16,000,000 million shares of Common Stock and 2,000,000 shares of
preferred stock. The shares of Common Stock and preferred stock were authorized
in an amount greater than that to be issued in the Conversion to provide the
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
preferred stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
preferred stock, the Board has the power to the extent consistent with its
fiduciary duty to issue a series of preferred stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board currently has no plans for the
issuance of additional shares, other than the issuance of shares in the
Conversion, including shares contributed to the Foundation, and the issuance of
additional shares upon exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with
Interested Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock entitled to vote thereon to approve certain "Business Combinations" with
an "Interested Stockholder," each as defined therein, and related transactions.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, the approval of the holders of at least 80% of the shares of
capital stock entitled to vote thereon is required for any business combination
involving an Interested Stockholder (as defined below) except (i) in cases where
the proposed transaction has been approved by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Interested
Stockholder and were Directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient. The term "Interested
Stockholder" is defined to include, among others, any individual, a group acting
in concert, corporation, partnership, association or other entity (other than
the Company or its subsidiary) who or which is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
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"Business Combination," which is defined to include: (i) any merger or
consolidation of the Company or any of its subsidiaries with any Interested
Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an
Interested Stockholder or any corporation which is, or after such merger or
consolidation would be, an Affiliate of an Interested Stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or
with any Interested Stockholder or Affiliate of 25% or more of the assets of the
Company or combined assets of the Company and its subsidiary; (iii) the issuance
or transfer to any Interested Stockholder or its Affiliate by the Company (or
any subsidiary) of any securities of the Company (or any subsidiary) in exchange
for any cash, securities or other property the value of which equals or exceeds
25% of the fair market value of the Common Stock of the Company; (iv) the
adoption of any plan for the liquidation or dissolution of the Company proposed
by or on behalf of any Interested Stockholder or Affiliate thereof; and (v) any
reclassification of securities, recapitalization, merger or consolidation of the
Company with any of its subsidiaries which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company or subsidiary owned directly or indirectly, by an
Interested Stockholder or Affiliate thereof. The Trustees and executive officers
of the Bank are purchasing in the aggregate approximately 0.98% of the shares of
the Common Stock to be sold in the Conversion based on the maximum of the
Estimated Price Range. In addition, the ESOP intends to purchase 8% of the
Common Stock issued in connection with the Conversion, including shares issued
to the Foundation. Additionally, if at a meeting of stockholders following the
Conversion stockholder approval of the proposed Stock-Based Incentive Plan is
received, the Company expects to acquire 4% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation, on
behalf of the Stock-Based Incentive Plan and expects to issue options to
purchase up to 10% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, under the Stock-Based Incentive Plan
to directors and executive officers. As a result, directors, executive officers
and employees have the potential to control the voting of approximately 22.1% of
the Company's Common Stock on a diluted basis at the maximum of the Estimated
Price Range, thereby enabling them to prevent the approval of the transactions
requiring the approval of at least 80% of the Company's outstanding shares of
voting stock described herein above.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein), to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the stockholders of the Company, give due
consideration to all relevant factors, including, without limitation, those
factors that directors of any subsidiary (including the Bank) may consider in
evaluating any action that may result in a change or potential change of control
of such subsidiary, and the social and economic effects of acceptance of such
offer on: the Company's present and future customers and employees and those of
its subsidiaries (including the Bank); the communities in which the Company and
the Bank operate or are located; the ability of the Company to fulfill its
corporate objectives as a bank holding company; and the ability of the Bank to
fulfill the objectives of a stock savings bank under applicable statutes and
regulations. By having these standards in the Certificate of Incorporation of
the Company, the Board of Directors may be in a stronger position to oppose such
a transaction if the Board concludes that the transaction would not be in the
best interest of the Company, even if the price offered is significantly greater
than the then market price of any equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
Directors, Director and officer indemnification by the Company and amendment of
the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws may
be amended by a majority of the whole Board of Directors, or by a vote of the
holders of at least 80% (after giving effect to the provision limiting voting
rights) of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
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Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of the Company. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
Director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
Anti-Takeover Effects of the Company's Certificate of Incorporation and Bylaws
and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. Certain
provisions of the Stock-Based Incentive Plan provide for accelerated benefits to
participants in the event of a change in control of the Company or the Bank or a
tender or exchange offer for their stock. See "Management of the Bank--Other
Benefit Plans--Stock-Based Incentive Plan." The Company and the Bank have also
entered into agreements with key officers and intends to establish the Severance
Compensation Plan which will provide such officers and eligible employees with
additional payments and benefits on the officer's termination in connection with
a change in control of the Company or the Bank. See "Management of the
Bank--Employment Agreements," "--Change in Control Agreements" and "--Employee
Severance Compensation Plan." The foregoing provisions and limitations may make
it more difficult for companies or persons to acquire control of the Bank.
Additionally, the provisions could deter offers to acquire the outstanding
shares of the Company which might be viewed by stockholders to be in their best
interests.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws are in the best interest of the Company
and its stockholders. An unsolicited non-negotiated takeover proposal can
seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of the Company and its stockholders to encourage potential acquirors
to negotiate directly with management and that these provisions will encourage
such negotiations and discourage non-negotiated takeover attempts.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(an Interested Stockholder) may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the corporation's
directors who are also officers and certain employee stock plans; (iii) any
business combination with an Interested Stockholder that is approved by the
board of directors and by a two-thirds vote of the outstanding voting stock not
owned by the Interested Stockholder; and (iv) certain business combinations that
are
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proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the board of directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its certificate of incorporation or
bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Restrictions in the Bank's New Charter and Bylaws
Although the Board of Trustees of the Bank is not aware of any effort
that might be made to obtain control of the Bank after Conversion, the Board of
Trustees believes that it is appropriate to adopt certain provisions permitted
by Massachusetts General Laws to protect the interests of the converted Bank and
its stockholders from any hostile takeover. Such provisions may, indirectly,
inhibit a change in control of the Company, as the Bank's sole stockholder.
See "Risk Factors--Anti-Takeover Provisions Which May Discourage Takeover
Attempts."
The Bank's stock Charter will contain a provision whereby the
acquisition of beneficial ownership of more than 10% of the issued and
outstanding shares of any class of equity securities of the Bank by any person
(i.e., any individual, corporation, group acting in concert, trust, partnership,
joint stock company or similar organization), either directly or through an
affiliate thereof, will be prohibited for a period of three years following the
date of completion of the Conversion. In the event shares are acquired in
violation of this provision of the Bank's stock Charter, all shares beneficially
owned by any person in excess of 10% shall be considered "excess shares" and
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matters submitted to
the stockholders for a vote. This limitation shall not apply to any transaction
in which the Bank forms a holding company without a change in the respective
beneficial ownership interests of its stockholders other than pursuant to the
exercise of any dissenter or appraisal rights. In the event that holders of
revocable proxies for more than 10% of the shares of the Common Stock of the
Company seek, among other things, to elect one-third or more of the Company's
Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Bank, the Board of
Trustees of the Bank will be able to assert this provision of the Bank's stock
Charter against such holders. Although the Board of Trustees of the Bank is not
currently able to determine when and if it would assert this provision of the
Bank's stock Charter, the Board, in exercising its fiduciary duty, may assert
this provision if it were deemed to be in the best interests of the Bank, the
Company and its stockholders. It is unclear, however, whether this provision, if
asserted, would be successful against such persons in a proxy contest which
could result in a change in control of the Bank indirectly through a change in
control of the Company.
In addition, stockholders will not be permitted to call a special
meeting of stockholders or to cumulate their votes in the election of Directors.
Furthermore, the Bank's Bylaws provide for the election of three classes of
directors to staggered terms. The staggered terms of the Board of Directors
could have an anti-takeover effect by making it more difficult for a majority of
shares to force an immediate change in the Board of Directors since only
one-third of the Board is elected each year. The purpose of these provisions is
to assure stability and continuity of management of the Bank in the years
immediately following the Conversion.
Finally, the stock Charter provides for the issuance of shares of
preferred stock on such terms, including conversion and voting rights, as may be
determined by the Bank's Board of Directors without stockholder approval.
Although the Bank has no arrangements, understandings or plans at the present
time for the issuance or use of the shares of undesignated preferred stock (the
"Preferred Stock") proposed to be authorized, the Board believes that the
availability of such shares will provide the Bank with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs which may arise. In the event of a proposed merger, tender offer
or other attempt to gain control of the Bank of which management does not
approve, the Board can authorize the issuance of one or more series of Preferred
Stock with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board does not intend
to issue any Preferred Stock except on terms which the Board deems to be in the
best interest of the Bank and its then existing stockholders.
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Regulatory Restrictions
Massachusetts Division of Banks Conversion Regulations. Regulations
issued by the Commissioner provide that for a period of three years following
the date of the completion of the Conversion, no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than ten
percent (10%) of any class of any equity security of the Company without prior
written notice to the Company and the prior written approval of the
Commissioner. Where any person, directly or indirectly, acquires beneficial
ownership of more than ten percent (10%) of any class of any equity security of
the Company without prior written notice to the Company and the prior written
approval of the Commissioner, the securities beneficially owned by such person
in excess of ten percent (10%) shall not be voted by any person or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote, and shall not be counted as outstanding for purposes of determining the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote. The Commissioner may take any further action to enforce these
regulatory restrictions as he deems appropriate.
Change in Bank Control Act. In addition to the foregoing restrictions,
the acquisition of ten percent (10%) or more of the Common Stock outstanding
may, in certain circumstances, be subject to the provisions of the Change in
Bank Control Act. The FDIC has also adopted a regulation pursuant to the Change
in Bank Control Act which generally requires persons who at any time intend to
acquire control of an FDIC-insured state-chartered non-member bank, including a
converted savings bank such as the Bank, to provide 60 days prior written notice
and certain financial and other information to the FDIC.
The 60-day notice period does not commence until the information is
deemed to be substantially complete. Control for the purpose of this Act exists
in situations in which the acquiring party has voting control of at least
twenty-five percent (25%) of any class of the Bank's voting stock or the power
to direct the management or policies of the Bank. However, under FDIC
regulations, control is presumed to exist where the acquiring party has voting
control of at least ten percent (10%) of any class of the Bank's voting
securities if (i) the Bank has a class of voting securities which is registered
under Section 12 of the Exchange Act, or (ii) the acquiring party would be the
largest holder of a class of voting shares of the Bank. The statute and
underlying regulations authorize the FDIC to disapprove a proposed acquisition
on certain specified grounds. In some circumstances, similar filings with the
Commissioner may be required under the Massachusetts Change in Bank Control Act.
Federal Reserve Board Regulations. In the event the Bank does not
qualify to be a QTL, attempts to acquire control of the Bank become subject to
regulations of the FRB under the Change in Bank Control Act.
Massachusetts Banking Law. Massachusetts banking law also prohibits any
"company," defined to include banking institutions as well as corporations, from
directly or indirectly controlling the voting power of 25% or more of the voting
stock of two or more banking institutions without the prior approval of the
Board of Bank Incorporation. 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 Board of Bank
Incorporation. Finally, for a period of three years following completion of a
conversion to stock form, no person may directly or indirectly offer to acquire
or acquire beneficial ownership of more than 10% of any class of equity security
of a converting mutual savings bank without prior written approval of the Board
of Bank Incorporation.
Prior approval of the Commissioner is also required before any action
is taken that causes any stock banking institution to acquire all of the capital
stock of any other stock banking institution. The Commissioner will approve such
a plan of acquisition, following approval by a majority vote of the boards of
directors of the acquiror and the acquiree and a two-thirds approval of the
stockholders of the acquiree, provided the Commissioner finds that competition
among banking institutions will not be unreasonably affected and that public
convenience and advantage will be promoted. Any such company shall engage
directly or indirectly only in such activities as are now or may hereafter be
proper activities for bank holding companies under the BHC Act.
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DESCRIPTION OF CAPITAL STOCK
OF THE COMPANY
General
The Company is authorized to issue 16,000,000 million shares of Common
Stock having a par value of $0.01 per share and 2,000,000 shares of preferred
stock having a par value of $0.01 per share (the "Preferred Stock"). Based on
the sale of Common Stock in connection with the Conversion and issuance of
authorized but unissued Common Stock in an amount equal to 8% of the Common
Stock sold in the Conversion to the Foundation, the Company currently expects to
issue up to 5,998,860 shares of Common Stock (based on the maximum of the
Estimated Price Range, as adjusted by 15%) and no shares of Preferred Stock in
the Conversion. Except for shares issued in connection with the Conversion, the
Company presently does not have plans to issue Common Stock. Each share of the
Company's Common Stock will have the same relative rights as, and will be
identical in all respects with, each other share of Common Stock. Upon payment
of the Actual Purchase Price for the Common Stock, in accordance with the Plan
of Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock of the Company will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the FDIC
or the Mutual Savings Central Fund.
Common Stock
Dividends. The Company can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulations. See "Dividend Policy" and "Regulation and
Supervision." The holders of Common Stock of the Company will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon the Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition of
the Company and the Bank," each holder of Common Stock will be entitled to one
vote per share. Stockholders will not have any right to cumulate votes in the
election of Directors. If the Company issues Preferred Stock, holders of the
Preferred Stock may also possess voting rights. Certain matters require an 80%
stockholder vote (after giving effect to the provision limiting voting rights).
See "Restrictions on Acquisition of the Company and the Bank."
As a Massachusetts-chartered mutual savings bank, corporate powers and
control of the Bank are vested in its Board of Trustees, who elect the officers
of the Bank and who fill any vacancies on the Board of Trustees as it exists
upon Conversion. Subsequent to Conversion, voting rights will be vested
exclusively in the owners of the shares of capital stock of the Bank, which will
be the Company, and voted at the direction of the Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "The Conversion--Liquidation Rights"), all assets of the Bank available for
distribution. In the event of liquidation, dissolution or winding up of the
Company, the holders of its Common Stock would be entitled to receive, after
payment or provision for payment of all of its debts and liabilities, all of the
assets of the Company available for distribution. If Preferred Stock is issued,
the holders thereof may have a priority over the holders of the Common Stock in
the event of liquidation or dissolution.
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Preemptive Rights; Redemption. Holders of the Common Stock of the
Company will not be entitled to preemptive rights with respect to any shares
which may be issued. The Common Stock is not subject to redemption.
Indemnification and Limit on Liability. The Company's Certificate of
Incorporation contains provisions which limit the liability of directors,
officers and employees of the Company and indemnify such individuals. Such
provisions provide that each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the Company shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the Delaware General Corporation Law against all expense, liability and loss
reasonably incurred. Under certain circumstances, the right to indemnification
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition. In addition,
a Director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages except for liability for any breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, under Section 174 of the
Delaware General Corporation, or for any transaction from which the Director
derived an improper personal benefit.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. The Company presently does not have plans to issue Preferred Stock.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
In the event the holding company form of organization is not utilized
in connection with the Conversion, the Bank may offer shares of its common stock
in connection with the Conversion. The following is a discussion of the capital
stock of the Bank.
The stock Charter of the Bank, to be effective upon the Conversion,
authorizes the issuance of capital stock consisting of 16,000,000 million shares
of common stock, par value $1.00 per share, and 2,000,000 shares of preferred
stock, par value $1.00 per share, which preferred stock may be issued in series
and classes having such rights, preferences, privileges and restrictions as the
Board of Directors may determine. Each share of common stock of the Bank will
have the same relative rights as, and will be identical in all respects with,
each other share of common stock. After the Conversion, the Board of Directors
will be authorized to approve the issuance of common stock up to the amount
authorized by the stock charter without the approval of the Bank's stockholders.
Assuming that the holding company form of organization is utilized, all of the
issued and outstanding common stock of the Bank will be held by the Company as
the Bank's sole stockholder. The capital stock of the Bank will represent
non-withdrawable capital, will not be an account of an insurable type, and will
not be insured by the FDIC or the Mutual Savings Central Fund.
Common Stock
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation--Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
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Voting Rights. Immediately after the Conversion, the holders of the
Bank's common stock will possess exclusive voting rights in the Bank. Each
holder of shares of common stock will be entitled to one vote for each share
held. Shareholders shall not be entitled to cumulate their votes for the
election of directors. See "Restrictions on Acquisition of the Company and the
Bank--Anti-Takeover Effects of the Company's Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding
up of the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of the Bank available for distribution in cash or in
kind. If additional preferred stock is issued subsequent to the Conversion, the
holders thereof may also have priority over the holders of common stock in the
event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. Upon receipt by the Bank of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ______________________.
EXPERTS
The financial statements of the Bank as of December 31, 1997, and for
the three years ended December 31, 1997 have been included in this Prospectus in
reliance upon the report of Wolf & Company, P.C., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
Keller has consented to the publication herein of the summary of its
report to the Bank and Company setting forth its opinion as to the estimated pro
forma market value of the Common Stock upon Conversion and its valuation with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for the Bank and Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Bank and
Company. The federal income tax consequences of the Woronoco Savings Charitable
Foundation will be passed upon for the Bank and the Company by Wolf & Company,
P.C. independent certified public accountants who have served as the Bank's and
the Company's independent tax advisors. Muldoon, Murphy & Faucette will rely as
to certain matters of Delaware law on the opinion of Morris, Nichols, Arsht &
Tunnell. Massachusetts commonwealth income tax consequences will be passed upon
by Wolf & Company, P.C. Certain legal matters will be passed upon for Sandler
O'Neill by Silver, Freedman & Taff, L.L.P.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report, which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. The
Conversion Valuation Appraisal Report may also be inspected by depositors
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of the Bank at the offices of the Bank during normal business hours. This
Prospectus contains a description of the material terms and features of all
material contracts, reports or exhibits to the registration statement required
to be described; however, the statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
The Bank has filed an application for approval of conversion with the
Commissioner and the FDIC. This Prospectus omits certain information contained
in that application. The application may be examined at the Office of the
Commissioner, Commonwealth of Massachusetts, Leverett Saltonstall Building, Room
2004, 100 Cambridge Street, Boston, Massachusetts 02202 and 15 Braintree Hill,
Office Park, Braintree, Massachusetts 02184.
The Company has filed with the Office of Thrift Supervision an
Application to form a Holding Company. This Prospectus omits certain information
contained in such Application. Such Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(b) of the Exchange Act, and, upon such
registration, the Company and the holders of its 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,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
Federal Deposit Insurance Corporation under Section 12(b) of the Exchange Act
and, upon such registration, the Bank and the holders of its stock will become
subject to the same obligations and restrictions.
A copy of the Plan of Conversion, Certificate of Incorporation and the
Bylaws of the Company and the stock Charter and Bylaws of the Bank are available
without charge from the Bank. The Bank's main office is located at 31 Court
Street, Westfield, Massachusetts 01085. Its telephone number is (413) 658-9141.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of August 31, 1998 (unaudited) and
December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the Eight Months Ended
August 31, 1998 and 1997 (unaudited) and for the Years
Ended December 31, 1997, 1996 and 1995 31
Consolidated Statements of Changes in Surplus for the Eight
Months Ended August 31, 1998 and 1997 (unaudited) and for
the Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the Eight Months
Ended August 31, 1998 and 1997 (unaudited) and for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
All schedules are omitted because they are not required or applicable, or the
required information is shown in the consolidated financial statements.
The consolidated financial statements of Woronoco Bancorp, Inc. have been
omitted because Woronoco Bancorp, Inc. has not yet issued any stock, has no
assets and no liabilities, and has not conducted any business other than of an
organizational nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Audit Committee
Woronoco Savings Bank
Westfield, Massachusetts
We have audited the consolidated balance sheets of Woronoco Savings Bank and
subsidiaries as of December 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 December 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 financial position of Woronoco Savings
Bank and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Wolf & Company, P.C.
Wolf & Company, P.C.
Boston, Massachusetts
February 27, 1998, except for Note 16 as to which the date
is August 26, 1998
F-2
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
December 31,
August 31, -------------------------------
1998 1997 1996
----------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 11,023 $ 9,246 $ 8,716
Interest-bearing balances 1,900 2,440 1,403
Federal funds sold - - 350
----------- ------------- -------------
Total cash and cash equivalents 12,923 11,686 10,469
Securities available for sale (Notes 2 and 7) 71,482 55,640 61,626
Federal Home Loan Bank stock, at cost (Note 7) 2,984 2,433 2,101
Loans, net (Notes 3 and 7) 265,564 261,723 234,135
Other real estate owned, net (Note 4) 335 381 423
Banking premises and equipment, net (Note 5) 7,270 5,919 3,827
Accrued interest receivable 1,648 1,479 1,427
Prepaid income taxes 818 268 317
Cash surrender value of life insurance (Note 11) 1,818 1,716 1,592
Other assets 1,376 664 791
----------- ------------- -------------
$366,218 $341,909 $316,708
=========== ============= =============
LIABILITIES AND SURPLUS
Deposits (Note 6) $273,567 $262,679 $248,982
Federal Home Loan Bank advances (Note 7) 54,792 41,726 35,441
Mortgagors' escrow accounts 836 647 515
Net deferred tax liability (Note 8) - 452 91
Accrued expenses and other liabilities (Note 11) 3,646 3,073 2,605
----------- ------------- -------------
Total liabilities 332,841 308,577 287,634
----------- ------------- -------------
Commitments and contingencies (Note 9)
Surplus:
Surplus (Note 10) 33,259 30,950 27,932
Net unrealized gain on securities available
for sale, after tax effects of $1,397
and $827 (Notes 2 and 8) - 2,382 1,142
Accumulated other comprehensive income 118 - -
----------- ------------- -------------
Total surplus 33,377 33,332 29,074
----------- ------------- -------------
$366,218 $341,909 $316,708
=========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS
EIGHT MONTHS ENDED AUGUST 31, 1998 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Net
Unrealized
Accumulated Gain on
Other Securities
Comprehensive Comprehensive Available Total
Income Income Surplus For Sale Surplus
------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 23,123 $ (862) 22,261
Net Income 2,335 - 2,335
Change in net unrealized gain on
securities available for sale,
after tax effects - 1,625 1,625
-------- ------- --------
Balance at December 31, 1995 25,458 763 26,221
Net income 2,474 - 2,474
Change in net unrealized gain on
securities available for sale,
after tax effects - 379 379
-------- ------- --------
Balance at December 31, 1996 27,932 1,142 29,074
Net income 3,018 - 3,018
Change in net unrealized gain on
securities available for sale,
after tax effects - 1,240 1,240
-------- ------- --------
Balance at December 31, 1997 30,950 $ 2,382 33,332
=======
Comprehensive income:
Balance at December 31, 1997 $ 2,382
Net income (unaudited) $ 2,309 2,309 2,309
Change in net unrealized gain on
securities available for sale,
after tax effects and reclassification
adjustment (unaudited) (2,264) (2,264) - (2,264)
-------- -------- -------- --------
Comprehensive income (unaudited) $ 45
========
Balance at August 31, 1998 (unaudited) $ 118 $ 33,259 $ 33,377
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,309 $ 2,101 $ 3,018 $ 2,474 $2,335
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 160 120 180 180 210
Provision for losses on other real estate owned 10 - 21 52 65
Charitable contribution in the form of equity
securities 102 549 549 - -
Net (accretion) amortization of investments (9) (7) (12) 15 56
Amortization (accretion) of net deferred loan
fees (costs) 153 97 152 109 (27)
Depreciation and amortization 432 357 550 487 425
Deferred taxes (51) (180) (173) 222 (8)
Gain on sales and disposition of securities, net (1,218) (1,441) (1,895) (751) (578)
Gain on sales of loans, net (290) - - (16) (41)
Gain on sales of property - - (17) - -
Loss (gain) on other real estate owned 5 16 7 (16) 31
Changes in operating assets and liabilities:
Accrued interest receivable (169) (95) (51) (61) (111)
Prepaid income taxes 377 340 49 (495) 178
Accrued taxes and expenses 572 746 469 350 (175)
Other (817) (454) (33) (67) (276)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities 1,566 2,149 2,814 2,483 2,084
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 6,371 6,088 9,416 11,478 7,946
Purchase of securities available for sale (12,658) (5,900) (10,285) (26,608) (6,495)
Proceeds from maturities of securities available for sale 530 1,514 2,461 2,747 -
Proceeds from maturities and calls of securities held
to maturity - - - - 641
Principal payments on mortgage-backed investments 6,516 4,756 7,561 6,183 7,948
Purchase of Federal Home Loan Bank stock (551) (268) (332) (202) -
Loans originated, net of loan payments received (22,954) (18,312) (28,201) (35,574) (26,641)
Proceeds from the sale of loans - - - 830 12,983
Purchases of banking premises and equipment (1,784) (1,512) (2,751) (541) (1,217)
Proceeds on sales of property - - 126 - -
Proceeds from sales of foreclosed real estate 58 82 295 665 326
Purchase of life insurance - - - (1,500) -
---------- ---------- ---------- ---------- ----------
Net cash used by investing activities (24,472) (13,552) (21,710) (42,522) (4,509)
---------- ---------- ---------- ---------- ----------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 10,888 9,962 13,697 17,293 12,833
Net increase (decrease) in mortgagors' escrow accounts 189 374 131 (74) (188)
Net increase (decrease) in Federal Home Loan Bank
advances with maturities of three months or less (6,910) 7,460 6,320 16,000 (7,500)
Proceeds from Federal Home Loan Bank advances with
maturities in excess of three months 50,000 17,000 22,000 19,000 10,000
Repayment of Federal Home Loan Bank advances
with maturities in excess of three months (30,024) (15,023) (22,035) (14,031) (10,028)
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 24,143 19,773 20,113 38,188 5,117
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,237 8,370 1,217 (1,851) 2,692
Cash and cash equivalents at beginning of year 11,686 10,469 10,469 12,320 9,628
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of year $ 12,923 $ 18,839 $ 11,686 $ 10,469 $ 12,320
========== ========== ========== ========== ==========
Supplemental cash flow information:
Interest paid on deposits $ 6,878 $ 6,610 $ 10,192 $ 9,450 $ 8,685
Interest paid on advances 1,866 1,485 2,346 1,535 1,173
Income taxes paid 651 1,701 1,855 1,205
Transfers from loans to other real estate owned 22 61 281 524 272
Transfers from other real estate owned to banking
premises and equipment - - - 41 -
Securitization of loans to mortgage-backed securities 19,068 - - - -
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1998 AND 1997 (UNAUDITED) AND DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Woronoco
Savings Bank (the "Bank") and its wholly-owned subsidiaries Walshingham
Enterprises, Inc., which previously held certain real estate and Woronoco
Security Corporation which engages exclusively in securities transactions.
All significant intercompany balances and transactions have been eliminated
in consolidation.
BUSINESS
The Bank provides a variety of financial services, including trust and
financial management services, mutual funds and various deposit and lending
products to individuals and small businesses through its nine offices in
western Massachusetts. Its primary deposit products are checking, savings
and term certificate accounts and its primary lending products are
residential, commercial mortgage, consumer and home equity loans.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the consolidated balance sheet and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. A material estimate that is particularly susceptible to
significant change in the near term relates to the determination of the
allowance for loan losses.
RECLASSIFICATION
Certain amounts have been reclassified in the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks, interest-bearing balances
with maturities of ninety days or less and federal funds sold.
F-7
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES
Investments are classified as "available for sale" and reflected on the
consolidated balance sheet at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of surplus, net
of tax effects.
Purchase premiums and discounts are amortized to earnings by a method which
approximates the interest method over the terms of the investments.
Declines in the value of investments that are deemed to be other than
temporary are reflected in earnings when identified. Gains and losses on
disposition of investments are recorded on the trade date and determined
using the specific identification method.
LOANS
Loans, as reported, have been reduced by unadvanced loan funds, net deferred
loan costs, and the allowance for loan losses.
Interest on loans is recognized on a simple interest basis and is not
accrued on loans which are identified as impaired or loans which are ninety
days or more past due. Interest income previously accrued on such loans is
reversed against current period interest income. Interest income on all
nonaccrual loans is recognized only to the extent of interest payments
received.
Net deferred loan costs are amortized against income over the contractual
lives of the related loans on the interest method.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses charged to earnings and is maintained at a level considered adequate
by management to provide for reasonably foreseeable loan losses.
The provision and the level of the allowance are evaluated on a regular
basis by management and are based upon management's periodic review of the
collectibility of the loans in light of known and inherent risks in the
nature and volume of the loan portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant change. Ultimately losses may vary from current estimates and
future additions to the allowance may be necessary.
F-8
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES (CONCLUDED)
Loan losses are charged against the allowance when management believes the
collectibility of the loan balance is unlikely. Subsequent recoveries, if
any, are credited to the allowance.
Loans are considered impaired when, based on current information and events,
it is probable that a creditor will be unable to collect the scheduled
payments of principal or interest when due according to the contractual
terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis by either the present value of expected
future cash flows discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the collateral if the
loan is collateral dependent. Substantially all of the Bank's loans which
have been identified as impaired have been measured by the fair value of
existing collateral.
Large groups of smaller balance homogeneous loans that are collectively
evaluated for impairment, and loans that are measured at fair value fall
outside the scope of evaluation for impairment.
OTHER REAL ESTATE OWNED
Other real estate owned includes both formally foreclosed properties and
repossessed properties, whereby the Bank has taken physical possession of
the property without formal foreclosure proceedings.
Foreclosed real estate is initially recorded at the lower of cost or fair
value at the date of acquisition. Costs relating to the development and
improvement of property are capitalized, whereas costs relating to holding
property are expensed.
F-9
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE OWNED (CONCLUDED)
Valuations are periodically performed by management, and an allowance for
losses is established through a charge to earnings if the carrying value of
a property exceeds its fair value less estimated costs to sell.
BANKING PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and improvements and equipment are
stated at cost, less accumulated depreciation and amortization, computed on
the straight-line method over the estimated useful lives of the assets or
the terms of the leases, if shorter.
It is general practice to charge the cost of maintenance and repairs to
earnings when incurred; major expenditures for betterments are capitalized
and depreciated.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
accordingly through the provision for income taxes. The Bank's base amount
of its federal income tax reserve for loan losses for tax purposes is a
permanent difference for which there is no recognition of a deferred tax
liability. However, the loan loss allowance maintained for financial
reporting purposes is treated as a temporary difference with allowable
recognition of a related deferred tax asset, if it is deemed realizable.
PENSION PLAN
The compensation cost of an employee's pension benefit is recognized on the
net periodic pension cost method over the employee's approximate service
period. The aggregate cost method is utilized for funding purposes.
ADVERTISING COSTS
Advertising costs are charged to earnings when incurred.
F-10
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRUST ASSETS
Trust assets held in a fiduciary or agency capacity are not included in
these consolidated financial statements because they are not assets of the
Bank. Trust assets totaled $21,043, $15,496 and $10,446 at August 31, 1998
(unaudited), December 31, 1997 and 1996, respectively.
COMPREHENSIVE INCOME
The Bank adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along with
net income, are components of comprehensive income. The adoption of SFAS
No. 130 had no effect on the Bank's net income or shareholders' equity.
The components of other comprehensive income and related tax effects are as
follows:
<TABLE>
<CAPTION>
Eight Months
Ended
August 31,
1998
------------
(unaudited)
<S> <C>
Unrealized holding losses on available for
sale securities $ (2,628)
Less: Reclassification adjustment for gains
realized in income (964)
------------
Net unrealized gains (3,592)
Tax effect 1,328
------------
$ (2,264)
============
</TABLE>
F-11
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
RECENT ACCOUNTING PRONOUNCEMENT
The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. This Statement standardizes the accounting
for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those
items as assets or liabilities in the balance sheet and measure them at fair
value. If certain conditions are met, an entity may elect to designate a
derivative as follows: a hedge of the exposure to changes in the fair value
of a recognized asset or liability, or of an unrecognized firm commitment
that are attributable to a particular risk. A hedge of the exposure to
variability in the cash flows of a recognized asset or liability, or of a
forecasted transaction, that is attributable to a particular risk. Or, a
hedge of the foreign currency exposure of an unrecognized firm commitment,
an available-for-sale security, a forecasted transaction, or a net
investment in a foreign operation. This Statement generally provides for
matching the timing of a gain or loss recognition on the hedging instrument
with the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or the earnings effect of
the hedged forecasted transaction. The Bank will adopt these disclosure
requirements during the year ended December 31, 2000.
2. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of securities available for
sale, with gross unrealized gains and losses, follows:
<TABLE>
<CAPTION>
August 31, 1998
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Marketable equity
securities $ 19,475 $ 849 $(1,638) $ 18,686
Mortgage-backed:
FHLMC 11,446 444 (15) 11,875
FNMA 37,861 494 (82) 38,273
GNMA 2,513 135 - 2,648
---------- ---------- ---------- -----------
$ 71,295 $1,922 $(1,735) $ 71,482
========== ========== ========== ===========
</TABLE>
F-12
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SECURITIES AVAILABLE FOR SALE (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marketable equity
securities $ 12,602 $ 3,399 $ (274) $ 15,727
Mortgage-backed:
FHLMC 13,765 435 (22) 14,178
FNMA 22,680 234 (119) 22,795
GNMA 2,814 126 - 2,940
---------- ---------- ---------- ----------
$ 51,861 $ 4,194 $ (415) $ 55,640
========== ========== ========== ==========
<CAPTION>
December 31, 1996
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Marketable equity
securities $ 12,103 $ 1,992 $ (250) $ 13,845
Debt Securities:
Corporate 250 - - 250
Mortgage-backed:
FHLMC 16,966 382 (45) 17,303
FNMA 27,401 116 (287) 27,230
GNMA 2,937 61 - 2,998
---------- ---------- ---------- ----------
$ 59,657 $ 2,551 $ (582) $ 61,626
========== ========== ========== ==========
</TABLE>
At August 31, 1998 (unaudited) and December 31, 1997 and 1996, the Bank has
pledged securities available for sale with an amortized cost of $2,063, $997
and $997, and a fair value of $2,072, $992 and $990, respectively, as
collateral against its treasury, tax and loan account and sweep account.
F-13
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
SECURITIES AVAILABLE FOR SALE (CONCLUDED)
Proceeds from the sale of securities available for sale for the eight months
ended August 31, 1998 and 1997 (unaudited) amounted to $6,371 and $6,088,
respectively. Gross gains of $1,221 and $1,198, and gross losses of $72 and
$20, were realized during the eight months ended August 31, 1998 and 1997
(unaudited), respectively.
Proceeds from sales of securities available for sale during the years ended
December 31, 1997, 1996 and 1995 amounted to $9,416, $11,478 and $7,946,
respectively. Gross realized gains of $1,601, $758 and $726, and gross
realized losses of $20, $7 and $157, were realized during the years ended
December 31, 1997, 1996 and 1995, respectively.
During 1995, proceeds from calls of securities held to maturity amounted to
$141 resulting in a gross realized gain of $9.
During 1997, the Bank established a private charitable foundation (the
"Foundation") to provide grants to charitable organizations in the Westfield
area. The Foundation, which is not a subsidiary of the Bank, was funded by
a donation from the Bank of marketable equity securities with a cost basis
and fair value of $235 and $549, respectively, at the date of transfer.
Such securities had been classified as available for sale and, accordingly,
the transfer resulted in the Bank recognizing the unrealized appreciation of
the securities of $314 in the consolidated statement of income.
During the eight months ended August 31, 1998 (unaudited), additional
marketable equity securities with a cost basis and fair value of $33 and
$102, respectively, were transferred from the Bank, resulting in the Bank
recognizing the unrealized appreciation of $69 in the consolidated statement
of income.
F-14
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. LOANS
A summary of the balances of loans follows:
<TABLE>
<CAPTION>
December 31,
August 31, -----------------------
1998 1997 1996
------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Mortgage loans on real estate:
Residential $ 160,615 $ 158,858 $ 156,115
Commercial 21,088 21,757 19,697
Construction 4,150 2,868 1,124
Home equity 64,144 62,227 43,662
------------- ---------- ----------
249,997 245,710 220,598
------------- ---------- ----------
Other loans:
Commercial 4,588 4,319 3,879
Consumer 14,135 14,578 12,366
------------- ---------- ----------
18,723 18,897 16,245
------------- ---------- ----------
Total loans 268,720 264,607 236,843
Less: Allowance for loan losses (2,061) (1,952) (1,911)
Net deferred loan costs 892 934 598
Unadvanced loan funds (1,987) (1,866) (1,395)
------------- ---------- ----------
Loans, net $ 265,564 $ 261,723 $ 234,135
============= ========== ==========
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
--------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 1,952 $ 1,911 $ 1,911 $ 1,838 $ 1,657
Provision for loan losses 160 120 180 180 210
Recoveries 19 20 32 29 46
Loans charged-off (70) (104) (171) (136) (75)
--------- --------- --------- --------- ---------
Balance at end of period $ 2,061 $ 1,947 $ 1,952 $ 1,911 $ 1,838
========= ========= ========= ========= =========
</TABLE>
F-15
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
LOANS (CONCLUDED)
The following is a summary of the impaired and non-accrual loans:
<TABLE>
<CAPTION>
December 31,
August 31, ------------------
1998 1997 1996
--------- -------- --------
(unaudited)
<S> <C> <C> <C>
Total impaired loans with no
valuation allowance $ 893 $ 929 $ 983
======= ======== =======
Non-accrual loans $ 862 $1,159 $ 252
======= ======== =======
</TABLE>
No additional funds are committed to be advanced in connection with impaired
loans.
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
--------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Average recorded investment in
impaired loans $ 888 $ 952 $ 953 $ 753 $ 256
========= ======== ======== ======== ========
Interest income recognized on
a cash basis on impaired loans $ 47 $ 52 $ 57 $ 38 $ 21
========= ======== ======== ======== ========
</TABLE>
The Bank has sold mortgage loans in the secondary mortgage market and has
retained the servicing responsibility and receives fees for the services
provided. Loans sold and serviced for others amounted to $45,511, $29,868
and $32,986 at August 31, 1998 (unaudited), December 31, 1997 and 1996,
respectively. All loans serviced for others were sold without recourse
provisions and are not included in the accompanying consolidated balance
sheets.
F-16
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. OTHER REAL ESTATE OWNED
Other real estate owned consists of the following:
<TABLE>
<CAPTION>
December 31,
August 31, ------------------
1998 1997 1996
--------- -------- --------
(unaudited)
<S> <C> <C> <C>
Real estate acquired in settlement of loans $ 871 $ 727 $ 865
Real estate in possession 12 192 75
--------- -------- --------
883 919 940
Less allowance for losses (548) (538) (517)
--------- -------- --------
$ 335 $ 381 $ 423
========= ======== ========
</TABLE>
An analysis of the allowance for losses on other real estate owned is as
follows:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
--------- -------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 538 $ 517 $ 517 $ 613 $ 1,127
Provision for losses 10 - 21 52 65
Charge-offs - - - (148) (554)
Transfer upon adoption of
SFAS No. 114 (Note 1) - - - - (25)
-------- -------- -------- -------- ---------
Balance at end of period $ 548 $ 517 $ 538 $ 517 $ 613
======== ======== ======== ======== =========
</TABLE>
Expenses applicable to other real estate owned consist of the following:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
--------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net (gain) loss on sales of other
real estate owned $ (5) $ 16 $ 7 $ (16) $ 31
Provision for losses 10 - 21 52 65
Operating expenses, net of rental income 37 50 82 175 93
------- -------- -------- -------- --------
$ 42 $ 66 $ 110 $ 211 $ 189
======= ======== ======== ======== ========
</TABLE>
F-17
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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 follows:
<TABLE>
<CAPTION>
December 31,
August 31, -------------------- Estimated
1998 1997 1996 Useful Lives
---------- --------- --------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Banking premises:
Land $ 560 $ 589 $344
Buildings and improvements 3,792 3,893 3,205 5 - 40 years
Equipment 3,370 2,838 2,348 3 - 10 years
Construction in progress 2,640 1,289 91
---------- --------- ---------
10,362 8,609 5,988
Less accumulated depreciation
and amortization (3,092) (2,690) (2,161)
---------- --------- ---------
$ 7,270 $ 5,919 $3,827
========== ========= ========
</TABLE>
The balance of construction in progress represents costs incurred to date in
connection with expansion of the Bank's main office. As part of the
expansion project, on January 2, 1997, the Bank entered into an agreement
with a builder for expansion work at a cost of up to $3,300.
Depreciation and amortization expense for the eight months ended August 31,
1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996 and
1995 amounted to $432, $357, $550, $487 and $425, respectively.
F-18
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. DEPOSITS
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
December 31,
August 31, ------------------------
1998 1997 1996
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Demand $ 11,657 $ 8,264 $ 7,565
NOW 29,305 25,862 23,845
Money market deposit 24,904 22,234 16,649
Regular 66,474 63,070 62,526
---------- ----------- -----------
Total non-certificate accounts 132,340 119,430 110,585
---------- ----------- -----------
Certificate accounts less than $100,000 116,485 117,855 113,918
Certificate accounts $100,000 or more 24,742 25,394 24,479
---------- ----------- -----------
Total certificate accounts 141,227 143,249 138,397
---------- ----------- -----------
$273,567 $262,679 $248,982
========== ========== ==========
</TABLE>
A summary of certificate accounts, by maturity, is as follows:
<TABLE>
<CAPTION>
August 31, 1998 December 31, 1997 December 31, 1996
------------------------ ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
----------- ----------- ----------- ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Within 1 year $101,857 5.31% $106,334 5.42% $96,237 5.24%
Over 1 year to 3 years 39,336 6.25 36,895 6.26 32,693 5.96
Over 3 years to 5 years 34 2.50 20 2.50 9,467 7.23
----------- ----------- -----------
$141,227 5.54% $143,249 5.63% $138,397 5.54%
=========== =========== ==========
</TABLE>
F-19
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DEPOSITS (CONCLUDED)
Interest on deposits, classified by type, is as follows:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
NOW $ 189 $ 165 $ 253 $ 243 $ 272
Money market deposit 533 272 407 441 499
Regular 1,003 1,110 1,759 1,684 1,707
Certificate accounts 5,151 5,032 7,740 7,045 6,223
--------- --------- ---------- --------- ---------
$6,876 $6,579 $10,159 $9,413 $8,701
========= ========= ========== ========= ========
</TABLE>
F-20
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank of Boston ("FHLB") advances consist of the following:
<TABLE>
<CAPTION>
December 31,
Interest August 31, ----------------------
Maturity Date Rate 1998 1997 1996
- ------------------- -------- ------------ ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
September 23, 1998 5.59% $ 9,000 $ - $ -
October 6, 1998 5.55 4,000 - -
October 15, 1998 5.54 5,000 - -
December 16, 1998 5.56 5,000 - -
January 6, 1999 5.56 10,000 - -
February 8, 1999 4.99 10,000 - -
February 24, 1999 4.89 10,000 - -
January 7, 1998 5.62 - 10,000 -
February 27, 1998 5.73 - 3,000 -
March 9, 1998 5.77 - 4,000 -
March 19, 1998 5.78 - 4,000 -
March 24, 1998 5.77 - 10,000 -
April 15, 1998 5.64 - 5,000 -
January 21, 1997 5.47 - - 5,000
March 3, 1997 5.38 - - 4,000
March 11, 1997 5.44 - - 10,000
March 21, 1997 5.66 - - 10,000
April 17, 1997 5.67 - - 5,000
December 30, 2004 8.51 1,382 1,406 1,441
------------ ---------- ----------
54,382 37,406 35,441
Line of credit 410 4,320 -
------------ ---------- ----------
$54,792 $41,726 $35,441
============ ========== ==========
</TABLE>
The advance due on December 30, 2004 requires monthly principal and interest
payments.
The interest rate on the line of credit adjusts daily. Borrowings under the
line are limited to 2% of the Bank's total assets. All borrowings from the
Federal Home Loan Bank of Boston are secured by a blanket lien on qualified
collateral, defined principally as 75% of the carrying value of first
mortgage loans on owner-occupied residential property and 90% of the market
value of U.S. government and federal agency securities.
Additionally, as a member of the FHLB, the Bank is eligible to borrow
amounts up to the level of qualified collateral maintained.
F-21
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES
Allocation of federal and state income taxes between current and deferred
portions is as follows:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
--------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current tax provision:
Federal $1,041 $ 868 $1,385 $ 927 $ 984
State 233 298 365 433 424
--------- --------- --------- --------- ---------
1,274 1,166 1,750 1,360 1,408
--------- --------- --------- --------- ---------
Deferred tax provision (benefit):
Federal (28) (134) (165) 165 (44)
State (23) (46) (44) 57 36
--------- --------- --------- --------- ---------
(51) (180) (209) 222 (8)
--------- --------- --------- --------- ---------
$1,223 $ 986 $1,541 $1,582 $1,400
======== ======== ======== ======== ========
</TABLE>
The reasons for the differences between the statutory federal income tax
rate and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
--------------------- ----------------------------
1998 1997 1997 1996 1995
--------- --------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 3.9 5.4 4.6 8.0 8.1
Dividends received deduction (2.9) (3.3) (2.6) (3.8) (4.3)
Non-taxable appreciation of securities donated (0.4) (3.5) (2.3) - -
Other, net - (0.7) 0.1 0.8 (0.3)
--------- --------- -------- -------- --------
Effective tax rates 34.6% 31.9% 33.8% 39.0% 37.5%
========= ========= ======== ======== ========
</TABLE>
F-22
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
INCOME TAXES (CONTINUED)
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
August 31, ---------------------
1998 1997 1996
----------- --------- ----------
(unaudited)
<S> <C> <C> <C>
Deferred tax asset:
Federal $ 985 $ 952 $ 930
State 340 316 321
---------- --------- ----------
1,325 1,268 1,251
---------- --------- ----------
Deferred tax liability:
Federal (312) (1,521) (979)
State (86) (199) (363)
---------- --------- ----------
(398) (1,720) (1,342)
---------- --------- ----------
Net deferred tax asset (liability) $ 927 $ (452) $ (91)
========== ========= ==========
</TABLE>
The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
August 31, ------------------
1998 1997 1996
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
Cash basis of accounting $ 20 $ (7) $ (17)
Net unrealized gain on securities
available for sale (69) (1,397) (827)
Charitable donation - - (205)
Depreciation (66) (65) (65)
Deferred income (235) (221) (196)
Allowance for loan losses 838 792 773
Employee benefit plans 451 412 412
Other (12) 34 34
---------- -------- --------
Net deferred tax asset (liability) $ 927 $ (452) $ (91)
========== ======== ========
</TABLE>
F-23
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
INCOME TAXES (CONCLUDED)
A summary of the change in the net deferred tax asset (liability) is as
follows:
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Years Ended December 31,
-------------------- -----------------------------
1998 1997 1997 1996 1995
--------- -------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ (452) $ (91) $ (91) $ 406 $ 1,031
Deferred tax (provision) benefit 51 180 209 (222) 8
Deferred tax effects on net unrealized gain
on securities available for sale 1,328 (250) (570) (275) (633)
-------- -------- -------- -------- ---------
Balance at end of period $ 927 $ (161) $ (452) $ (91) $ 406
======== ======== ======== ======== =========
</TABLE>
There was no valuation allowance for deferred tax assets as of August 31,
1998 and December 31, 1997 and 1996.
The federal income tax reserve for loan losses at the Bank's base year is
approximately $1,551. If any portion of the reserve is used for purposes
other than to absorb loan losses, approximately 150% of the amount actually
used, (limited to the amount of the reserve) would be subject to taxation in
the fiscal year in which used. As the Bank intends to use the reserve, to
absorb only loan losses, a deferred tax liability of approximately $831 has
not been provided.
9. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the consolidated financial
statements.
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, standby letters
of credit, interest rate swap agreements, interest rate cap agreements and
interest rate floor agreements. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The contract or notional
amounts of these instruments reflect the extent of the Bank's involvement in
particular classes of financial instruments.
F-24
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 these
commitments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
For interest rate swap, cap, and floor transactions, the notional amounts do
not represent exposure to credit loss. Rather, the credit loss exposure
relates to the net fair value to be received if such contracts were to be
offset in the marketplace. The Bank controls the credit risk of such
contracts through credit approvals, limits, and monitoring procedures.
LOAN COMMITMENTS
A summary of outstanding loan commitments whose contract amounts represent
credit risk is as follows:
<TABLE>
<CAPTION>
December 31,
August 31, -------------------
1998 1997 1996
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Commitments to grant loans:
Fixed $ 5,136 $ 4,539 $ 4,971
Variable 3,307 1,261 328
Unadvanced funds on lines of credit 53,968 48,324 42,254
Standby letters of credit 87 87 32
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The commitments for lines of
credit may expire without being drawn upon, therefore, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case basis. These
financial instruments are generally collateralized by real estate or other
business assets.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These letters of
credit are primarily issued to support borrowing arrangements and are
generally written for one year terms. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Standby letters of credit are collateralized by
real estate and deposit accounts.
F-25
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
INTEREST RATE SWAP AGREEMENTS
The Bank periodically enters into interest rate swap agreements with the
FHLB to moderate its exposure to interest rate changes and offset deposit
costs. Interest rate swap agreements generally involve the exchange of
fixed and floating-rate interest payment obligations without the exchange of
the underlying principal, or notional, amounts. These transactions are
accounted for using the accrual method. Net interest income resulting from
the differential between exchanging floating and fixed-rate payments is
recorded on a current basis.
The notional principal amount of the Bank's outstanding interest rate swaps
was $5,000 at December 31, 1996. Under the terms of the swap agreement, the
FHLB agreed to pay semi-annual fixed rate payments of 6.635% while the Bank
must pay quarterly floating rate payments. The agreement matured on June
29, 1997 and the original term was three years. Net interest income
resulting from the differential between the floating and fixed-rate interest
payments amounted to $20, $53 and $22 for the years ended December 31, 1997,
1996 and 1995, respectively, and is recorded against interest expense on
deposits.
INTEREST RATE CAP AND FLOOR AGREEMENTS
The Bank periodically enters into interest cap and floor agreements to
moderate its exposure to interest rate changes and offset borrowing costs.
Interest rate cap and floor agreements generally involve the payment of a
premium in return for cash receipts if interest rates rise above or fall
below a specified interest rate level. Payments are based on a notional
principal amount.
During the eight months ended August 31, 1998 (unaudited), the Bank entered
into two interest rate cap agreements. The notional principal amount of the
cap agreements amounted to $10,000. Under the terms of the cap agreements,
the Bank paid premiums of $80 in exchange for future cash paymnents if LIBOR
increases above 6%. Amortization for the eight month period ended August 31,
1998 amounted to $8. The agreements have a term of three years and mature in
May and June 2001.
The notional principal amount of the Bank's interest rate cap was $5,000,
which matured on January 16, 1996. Cash payments received during 1996 and
1995 related to this interest rate cap totaled $12 and $52, respectively,
and are recorded as a credit to interest on advances.
F-26
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
INTEREST RATE CAP AND FLOOR AGREEMENTS (CONCLUDED)
The notional principal amount of the Bank's outstanding interest rate floor
was $10,000 at August 31, 1998 (unaudited) and December 31, 1997 and 1996.
Under the terms of the floor agreement, the Bank paid a premium of $134
during 1996 which is included in other assets and is being amortized over
five years which is the term of the agreement. Amortization for the eight
months ended August 31, 1998 and the years ended December 31, 1997 and 1996
totaled $18, $27 and $16, respectively, and is recorded as interest expense
on advances. If LIBOR falls below 5.75%, the Bank receives cash payments on
a quarterly basis. Cash payments received during the eight months ended
August 31, 1998 (unaudited) and the years ended December 31, 1997 and 1996
totaled $2, $12 and $4, respectively, and are recorded as a credit to
interest on advances.
LEASE COMMITMENTS
Pursuant to the terms of noncancelable lease agreements in effect at
August 31, 1998 (unaudited) and December 31, 1997, future minimum rent
commitments pertaining to banking premises are as follows:
<TABLE>
<CAPTION>
Years Ending August 31, December 31,
December 31, 1998 1997
----------- ----------- -----------
(unaudited)
<S> <C> <C>
1998 $ 47 $ 141
1999 129 129
2000 53 53
2001 53 53
2002 50 50
Thereafter 825 825
----------- -----------
$1,157 $1,251
=========== ===========
</TABLE>
Annual real estate taxes assessed to the leased premises will be added to
the basic rental scheduled above. The leases contain options to extend for
periods from five to twenty-five years. The cost of such rentals is not
included above.
F-27
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
COMMITMENTS AND CONTINGENCIES (CONCLUDED)
LEASE COMMITMENTS (CONCLUDED)
Rent expense for the eight months ended August 31, 1998 and 1997 (unaudited)
and the years ended December 31, 1997, 1996 and 1995 amounted to $94, $72,
$119, $96 and $106, respectively.
CONTINGENCIES
Various legal claims arise from time to time in the ordinary course of
business. In the opinion of management, these claims will have no material
effect on the Bank's consolidated financial position.
10. MINIMUM 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 consolidated 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) to average assets (as
defined). Management believes, as of August 31, 1998 (unaudited) and
December 31, 1997 and 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
As of August 31, 1998 (unaudited) and December 31, 1997 and 1996, the most
recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
F-28
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
MINIMUM REGULATORY CAPITAL REQUIREMENTS (CONCLUDED)
The Bank's actual capital amounts and ratios as of August 31, 1998
(unaudited) and December 31, 1997 and 1996 are also presented in the table.
<TABLE>
<CAPTION>
Minimum
To Be Well
Capitalized Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------- ---------- ------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of August 31, 1998 (unaudited):
--------------------------------
Total Capital to Risk
Weighted Assets $34,530 13.5% $20,477 8.0% $25,596 10.0%
Tier 1 Capital to Risk
Weighted Assets 32,469 12.7 10,238 4.0 15,358 6.0
Tier 1 Capital to Average
Assets 32,469 9.1 10,688 3.0 17,813 5.0
17,813 5.0
As of December 31, 1997:
-----------------------
Total Capital to Risk
Weighted Assets $32,902 15.1% $17,389 8.0% $21,736 10.0%
Tier 1 Capital to Risk
Weighted Assets 30,950 14.2 8,694 4.0 13,042 6.0
Tier 1 Capital to Average
Assets 30,950 9.1 10,225 3.0 17,043 5.0
17,043 5.0
As of December 31, 1996:
-----------------------
Total Capital to Risk
Weighted Assets $29,843 15.7% $15,234 8.0% $19,042 10.0%
Tier 1 Capital to Risk
Weighted Assets 27,932 14.7 7,617 4.0 11,425 6.0
Tier 1 Capital to Average
Assets 27,932 8.9 9,375 3.0 15,626 5.0
15,626 5.0
</TABLE>
F-29
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. PENSION PLANS
DEFINED BENEFIT PLAN
The Bank provides basic and supplemental pension benefits for eligible
employees through the Savings Banks Employees Retirement Association
("SBERA") Pension Plan. Each employee reaching the age of 21 and having
completed at least 1,000 hours of service in one twelve-month period,
beginning with such employee's date of employment, automatically becomes a
participant in the retirement plan. All participants are fully vested after
three years of such service.
Net periodic pension cost consists of the following:
<TABLE>
<CAPTION>
Plan Years Ended October 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 282 $ 270 $ 206
Interest cost on projected benefits 259 244 222
Actual return on plan assets (464) (377) (377)
Amortization of net loss 194 183 216
----- ----- -----
$ 271 $ 320 $ 267
===== ===== =====
</TABLE>
Actuarial assumptions used in accounting were:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Discount rates on benefit obligations 7.25% 7.50%
Rates of increase in compensation levels 6.00 6.00
Expected long-term rates of return on plan assets 8.00 8.00
</TABLE>
According to SBERA, a reconciliation of the funded status of the plan is as
follows:
<TABLE>
<CAPTION>
October 31,
---------- ---------
1997 1996
---------- ---------
<S> <C> <C>
Plan assets at fair value, primarily consisting of U.S.
government securities and equity securities $ 3,399 $ 3,071
Actuarial present value of projected benefit obligation 3,891 3,460
---------- ---------
Projected benefit obligation in excess of plan assets (492) (389)
Unamortized net surplus since adoption of SFAS No. 87 46 50
Unrecognized net gain (561) (657)
---------- ---------
Accrued pension liability $(1,007) $(996)
========= ========
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1997 was $1,975 which was less than the plan assets at fair value.
F-30
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
PENSION PLANS (CONCLUDED)
DEFINED BENEFIT PLAN (CONCLUDED)
Total pension expense for the eight months ended August 31, 1998 and 1997
(unaudited) and the years ended December 31, 1997, 1996 and 1995 amounted to
$292, $192, $336, $386 and $294, respectively.
DEFINED CONTRIBUTION PLAN
In addition to the defined benefit plan, the Bank has a 401(k) plan. Each
employee reaching the age of 21 and having completed at least 1,000 hours of
service in one twelve month period, beginning with such employee's date of
hire, automatically becomes a participant in the plan. The plan provides
for voluntary contributions by participating employees up to 15% of their
compensation, subject to certain limits based on federal tax laws.
Presently, the Bank does not make matching contributions.
TRUSTEES' RETIREMENT PLAN
During 1996, the Board of Trustees voted to adopt a Trustee's Indexed Fee
Continuation Program effective as of January 1, 1997. Under the terms of
the plan, Trustees are eligible to participate in the plan upon election to
the Board of Trustees and the retirement benefits vest over a 10 year
period. The retirement benefit for any plan year is determined by the
performance of the insurance contracts, as defined in the plan. During,
1996, the Bank purchased life insurance contracts for $1,500. Plan expenses
for eight months ended August 31, 1998 and 1997 (unaudited) and the year
ended December 31, 1997 were $15, $17 and $50, respectively.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Bank has entered into a Split Dollar Life Insurance Arrangement with its
President and Chief Executive Officer intended to provide supplemental
retirement benefits. The Bank pays the annual premiums and records its
share of the cash surrender value in other assets.
12. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to officers,
trustees and their affiliates amounting to approximately $1,448, $1,579 and
$1,448 at August 31, 1998 (unaudited), and December 31, 1997 and 1996,
respectively.
F-31
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
RELATED PARTY TRANSACTIONS (CONCLUDED)
An analysis of the activity of these loans is as follows:
<TABLE>
<CAPTION>
Eight Months
Ended Years Ended
August 31, December 31,
----------- ---------------------------
1998 1997 1996
----------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Balance at beginning of period $1,579 $1,448 $1,922
Additions 196 416 290
Repayments (327) (285) (764)
---------- --------- ---------
Balance at end of period $1,448 $1,579 $1,448
========= ======== ========
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of estimated fair values of all financial instruments
where it is practicable to estimate such values. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the
instrument. Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Bank.
The following methods and assumptions were used by the Bank in estimating
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts of cash and short-term
-------------------------
instruments approximate fair values.
Securities available for sale: Fair values for securities available
-----------------------------
for sale are based on quoted market prices.
Federal Home Loan Bank stock: The carrying value of Federal Home Loan
----------------------------
Bank stock approximates fair value based on the redemption provisions
of the Federal Home Loan Bank of Boston.
F-32
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans receivable: Fair values for performing loans are estimated using
----------------
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for non-performing loans are estimated using
underlying collateral values, where applicable.
Deposit liabilities: The fair values of non-certificate accounts are,
-------------------
by definition, equal to the amount payable on demand at the reporting
date which is their carrying amounts. Fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank advances: The fair values of the Bank's
-------------------------------
borrowings are estimated using discounted cash flow analyses based on
the Bank's current incremental borrowing rates for similar types of
borrowing arrangements.
Accrued interest: The carrying amounts of accrued interest approximate
----------------
fair value.
Loan commitments: Fair values for loan commitments are based on fees
----------------
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit
standing, and are not significant since fees charged are not material.
Interest rate swap, cap, and floor agreements: The fair value of
---------------------------------------------
interest rate swap, cap, and floor agreements are obtained from dealer
quotes. These values represent the estimated amount the Bank would
receive or pay to terminate agreements taking into consideration
current interest rates.
F-33
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
The carrying or notional amounts and estimated fair values of the Bank's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
August 31, 1998 1997 1996
----------------------- --------------------- ---------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
---------- ---------- ---------- --------- ---------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $12,923 $12,923 $11,686 $11,686 $10,469 $10,469
Securities available for sale 71,482 71,482 55,640 55,640 61,626 61,626
Federal Home Loan Bank
stock 2,984 2,984 2,433 2,433 2,101 2,101
Loans, net 265,564 267,157 261,723 263,564 234,135 232,947
Accrued interest receivable 1,648 1,648 1,479 1,479 1,427 1,427
Financial liabilities:
Deposits 273,567 274,330 262,679 263,383 248,982 250,043
Federal Home Loan Bank
advances 54,792 54,956 41,726 41,835 35,441 35,540
<CAPTION>
Notional Fair Notional Fair Notional Fair
Amount Value Amount Value Amount Value
---------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other:
Interest rate swap
agreement $ - $ - $ - $ - $5,000 $(23)
Interest rate floor
agreement 10,000 139 10,000 102 10,000 167
Interest rate cap
agreements 10,000 41 -- -- -- --
</TABLE>
16. PLAN OF CONVERSION (UNAUDITED)
On August 26, 1998, the Board of Trustees of Bank approved a Plan of
Conversion, as amended, for Woronoco Savings Bank ("Plan"). The Plan
provides for the conversion of the Bank from a state-chartered mutual
savings bank to a state-chartered stock savings bank. It is currently
intended that all of the stock of the Bank will be held by a holding
company, Woronoco Bancorp, Inc. (the "Company"), a Delaware corporation.
The Plan is subject to the approval of the Bank's Corporators and various
regulatory agencies.
F-34
<PAGE>
WORONOCO SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
PLAN OF CONVERSION (CONCLUDED)
As part of the Conversion, the Bank will establish a liquidation account for
the benefit of eligible and supplemental eligible account holders. 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
and supplemental eligible account holder will be entitled to receive
balances for accounts then held.
In addition, pursuant to the Plan of Conversion, the Company intends to
establish a charitable foundation and the Bank an Employees' Stock Ownership
Plan. Also, the Company and Bank each intend to enter into employment
agreements, change in control agreements and severance agreements with
certain offices.
Subsequent to the Conversion, the Company and the Bank may not declare or
pay dividends on and the Company may not repurchase any of its shares of
common stock if the effect thereof would cause stockholders' equity to be
reduced below applicable regulatory capital maintenance requirements or if
such declaration, payment or repurchase would otherwise violate regulatory
requirements.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold. If the Conversion is not completed, all costs will be
expensed. As of August 31, 1998, no offering costs have been incurred.
F-35
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Woronoco Bancorp, Inc., Woronoco Savings Bank or Sandler O'Neill &
Partners, Inc. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of Woronoco Bancorp, Inc. or Woronoco Savings Bank
since any of the dates as of which information is furnished herein or since the
date hereof.
------------------------------
TABLE OF CONTENTS
Page
----
Summary of the Conversion and the Offerings..........................
Selected Consolidated Financial and Other Data of the Bank...........
Risk Factors.........................................................
Woronoco Bancorp, Inc. ..............................................
Woronoco Savings Bank................................................
Woronoco Savings Charitable Foundation...............................
Regulatory Capital Compliance........................................
Use of Proceeds......................................................
Dividend Policy......................................................
Market for the Common Stock..........................................
Capitalization.......................................................
Pro Forma Data.......................................................
Comparison of Valuation and Pro Forma Information
with No Foundation..................................................
Woronoco Savings Bank Consolidated Statements of Income..............
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..........................................
Business of the Company..............................................
Business of the Bank.................................................
Federal and State Taxation...........................................
Regulation and Supervision...........................................
Management of the Company............................................
Management of the Bank...............................................
The Conversion.......................................................
Restrictions on Acquisition of the
Company and the Bank..............................................
Description of Capital Stock of the Company..........................
Description of Capital Stock of the Bank.............................
Transfer Agent and Registrar.........................................
Experts..............................................................
Legal and Tax Opinions...............................................
Additional Information...............................................
Woronoco Savings Bank Index to Consolidated
Financial Statements.............................................
-----------------------------
Until _________, 1999 or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
Up to 5,554,500 Shares
(Anticipated Maximum, as Adjusted)
[LOGO]
Woronoco Bancorp, Inc.
(Proposed Holding Company for
Woronoco Savings Bank)
COMMON STOCK
(par value $0.01 per share)
__________
PROSPECTUS
__________
Sandler O'Neill & Partners, Inc.
__________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Massachusetts filing fee...................................... $ 5,000
SEC filing(1)................................................. 16,677
OTS holding company filing fee................................ 2,000
NASD filing fee(1)............................................ 6,499
AMEX listing fee(1)........................................... 27,500
Printing, postage and mailing................................. 350,000
Legal fees and expenses....................................... 225,000
Accounting fees and expenses.................................. 80,000
Appraisers' fees and expenses (including
business plan)............................................ 31,000
Marketing fees and selling commissions(1)..................... 628,000
Underwriter's expenses (including counsel's fees)............. 50,000
Conversion agent fees and expenses............................ 20,000
Transfer agent fees and expenses.............................. 10,000
Certificate printing.......................................... 5,000
Telephone, temporary help and other equipment................. 10,000
Miscellaneous................................................. 21,324
----------
TOTAL......................................................... $1,488,000
==========
</TABLE>
______________________
(1) Unless otherwise noted, based upon the registration and issuance of
5,998,860 shares at $10.00 per share.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof)
<PAGE>
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full
by the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (ii) in any suit by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or
(iv) for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Woronoco Savings Bank and Sandler O'Neill &
Partners, L.P.
1.2 Draft Form of Agency Agreement between Woronoco Savings Bank and Sandler
O'Neill & Partners, L.P.*
2.1 Amended Plan of Conversion (including the Stock Charter and Stock Bylaws
of Woronoco Savings Bank)
3.1 Certificate of Incorporation of Woronoco Bancorp, Inc.
3.2 Bylaws of Woronoco Bancorp, Inc.
3.3 Stock Charter and Stock Bylaws of Woronoco Savings Bank
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Woronoco Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Wolf & Company, P.C. re: State Tax Matters
10.1 Form of Woronoco Savings Bank Employee Stock Ownership Plan Trust
Agreement
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Employment Agreement between Woronoco Savings Bank and certain
executive officers
10.4 Form of Employment Agreement between Woronoco Bancorp, Inc. and certain
executive officers
10.5 Form of Change in Control Agreement between Woronoco Savings Bank and
certain executive officers
10.6 Form of Woronoco Savings Bank Employee Severance Compensation Plan
10.7 Form of Woronoco Savings Bank Supplemental Executive Retirement Plan
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.0 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of Woronoco Savings Charitable Foundation Gift Instrument
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Westfield, Commonwealth
of Massachusetts, on November 13, 1998.
Woronoco Bancorp, Inc.
By: /s/ Cornelius D. Mahoney
-------------------------------
Cornelius D. Mahoney
Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Cornelius D. Mahoney Chairman of the Board, President November 13, 1998
- ------------------------------ and Chief Executive Officer
Cornelius D. Mahoney (principal executive officer)
/s/ Debra L. Murphy Senior Vice President and Chief November 13, 1998
- ------------------------------ Financial Officer
Debra L. Murphy (principal accounting and
financial officer)
/s/ James A. Adams Director November 13, 1998
- ------------------------------
James A. Adams
/s/ William G. Aiken Director November 13, 1998
- ------------------------------
William G. Aiken
/s/ Paul S. Allen Director November 13, 1998
- ------------------------------
Paul S. Allen
/s/ Francis J. Ehrhardt Director November 13, 1998
- ------------------------------
Francis J. Ehrhardt
/s/ Joseph M. Houser, Jr. Director November 13, 1998
- ------------------------------
Joseph M. Houser, Jr.
/s/ Joseph P. Keenan Director November 13, 1998
- ------------------------------
Joseph P. Keenan
/s/ Asher Nesin Director November 13, 1998
- ------------------------------
Asher Nesin
/s/ Richard L. Pomeroy Director November 13, 1998
- ------------------------------
Richard L. Pomeroy
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Norman H. Storey Director November 13, 1998
- ------------------------------
Norman H. Storey
/s/ Ann V. Schultz Director November 13, 1998
- ------------------------------
Ann V. Schultz
/s/ D. Jeffrey Templeton Director November 13, 1998
- ------------------------------
D. Jeffrey Templeton
/s/ Director
- ------------------------------
Paul Tsatsos
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on November 13, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
WORONOCO BANCORP, INC.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
1.1 Engagement Letter between Woronoco Savings Bank and Sandler O'Neill &
Partners, L.P.
1.2 Draft Form of Agency Agreement between Woronoco Savings Bank and Sandler
O'Neill & Partners, L.P.*
2.1 Amended Plan of Conversion (including the Stock Charter and Stock Bylaws
of Woronoco Savings Bank)
3.1 Certificate of Incorporation of Woronoco Bancorp, Inc.
3.2 Bylaws of Woronoco Bancorp, Inc.
3.3 Stock Charter and Stock Bylaws of Woronoco Savings Bank
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Woronoco Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Wolf & Company, P.C. re: State Tax Matters
10.1 Form of Woronoco Savings Bank Employee Stock Ownership Plan Trust
Agreement
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Employment Agreement between Woronoco Savings Bank and certain
executive officers
10.4 Form of Employment Agreement between Woronoco Bancorp, Inc. and certain
executive officers
10.5 Form of Change in Control Agreement between Woronoco Savings Bank and
certain executive officers
10.6 Form of Woronoco Savings Bank Employee Severance Compensation Plan
10.7 Form of Woronoco Savings Bank Supplemental Executive Retirement Plan
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
24.0 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of Woronoco Savings Charitable Foundation Gift Instrument
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.1
[Sandler O'Neill letterhead appears here]
September 16, 1998
Mr. Cornelius D. Mahoney
President and Chief Executive Office
Woronoco Savings Bank
31 Court Street
Westfield, Massachusetts 01086
Dear Mr. Mahoney:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), is pleased to act as
an independent financial advisor to Woronoco Savings Bank (the "Bank") in
connection with the Bank's proposed conversion from mutual to stock form (the
"Conversion"), including the offer and sale of certain shares of the common
stock of the proposed new holding company for the Bank (the "Holding Company")
to the Bank's eligible account holders in a Subscription Offering, to members of
the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 2
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 5% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 3
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and one-quarter percent (1.25%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
Offering and in the Direct Community Offering, excluding in each case
shares purchased by (i) any employee benefit plan of the Holding
Company or the Bank established for the benefit of their respective
directors, officers and employees, and (ii) any director, officer or
employee of the Holding Company or the Bank or members of their
immediate families; and
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm (other than Sandler O'Neill) under any selected
dealers agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement, (b)
any sponsoring dealer's fees, and (c) a management fee to Sandler
O'Neill of one and one-
quarter percent (1.25%). Any fees payable to Sandler O'Neill for
common stock sold by Sandler O'Neill under any such agreement shall be
limited to an aggregate of one and one quarter percent (1.25%) of the
Actual Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 4
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses (to a maximum of $50,000)
incurred in connection with its engagement hereunder, regardless of whether the
Conversion is consummated, including, without limitation, legal fees,
advertising, promotional, syndication, and travel expenses; provided, however,
-------- -------
that Sandler O'Neill shall document such expenses to the reasonable satisfaction
of the Bank. The provisions of this paragraph are not intended to apply to or
in any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
- -------
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
POST-CONVERSION GENERAL ADVISORY SERVICES
- -----------------------------------------
If the Conversion is consummated, Sandler O'Neill agrees to act as an
independent financial advisor to the Holding Company and its subsidiaries in
connection with the Holding Company's general strategic planning ("General
Advisory Services"). In connection with such General Advisory Services, we
would expect to work with the Holding Company's management, its counsel,
accountants and other advisors to assess the Holding Company's strategic
alternatives and help implement a tactical plan to enhance the value of the
Holding Company. We anticipate that our activities would include, as
appropriate, those activities outlined in Exhibit A hereto. Sandler O'Neill
shall provide such services at the Holding Company's request for a period of one
year following the completion of the Conversion. The Holding Company shall not
be required to pay any additional fees to Sandler O'Neill in connection with
such services rendered during such
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 5
year; provided, however, that the Holding Company shall reimburse Sandler
-------- -------
O'Neill for its reasonable out-of-pocket expenses incurred in connection with
providing such services. Thereafter, if both parties wish to continue the
relationship, the parties will enter into a separate advisory services agreement
on terms and conditions to be negotiated at such time. Notwithstanding the above
the Bank and Holding Company are under no obligation to receive or request such
services.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 6
or not the Conversion is consummated). As used in this paragraph, the term
"Confidential Information" shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by
Sandler O'Neill, (ii) was available to Sandler O'Neill on a non-confidential
basis prior to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes
available to Sandler O'Neill on a non-confidential basis from a person other
than the Bank who is not otherwise known to Sandler O'Neill to be bound not to
disclose such information pursuant to a contractual, legal or fiduciary
obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses) as they are incurred, including
expenses incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party; provided, however,
-------- -------
that the Bank and the Holding Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense (i) arises out of
or is based upon any untrue statement of a material fact or the omission of a
material fact required to be stated therein or necessary to make not misleading
any statements contained in any proxy statement or prospectus (preliminary or
final), or any amendment or supplement thereto, or any of the applications,
notices, filings or documents related thereto made in reliance on and in
conformity with written information furnished to the Bank by Sandler O'Neill
expressly for use therein, or (ii) is primarily attributable to the gross
negligence, willful misconduct or bad faith of Sandler O'Neill. If the
foregoing indemnification is unavailable for any reason, the Bank and the
Holding Company agree to contribute to such losses, claims, damages, liabilities
and expenses in the proportion that its financial interest in the Conversion
bears to that of Sandler O'Neill.
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 7
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement shall
be in form and content satisfactory to Sandler O'Neill, the Bank and the Holding
Company and their respective counsel and shall contain standard indemnification
provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to December
31, 1999.
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to proceed
with the formation of the Holding Company but determines to proceed with the
Conversion and substitute the common stock of the Bank for the common stock of
the Holding Company, all of the provisions of this letter relating to the common
stock of the Holding Company will be deemed to pertain to the common stock of
the Bank on the same terms and conditions that such provisions pertain to the
common stock of the Holding Company and all of the references in this letter to
the Holding Company shall be deemed to refer to the Bank or shall have no
effect, as the context of the reference requires.
<PAGE>
Mr. Cornelius D. Mahoney
September 16, 1998
Page 8
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
--------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
Woronoco Savings Bank
By: /s/ Mr. Cornelius D. Mahoney
--------------------------------
Mr. Cornelius D. Mahoney
President and Chief Executive Officer
cc: Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
<PAGE>
EXHIBIT A
GENERAL ADVISORY SERVICES
- --------------------------------------------------------------------------------
1. A review and analysis of the Holding Company's current business and
financial characteristic, including its operating strategies, balance sheet
composition, historical operating performance, branch structure and market
share, and the Holding Company's competitive position relative to selected
peer groups;
2. Creation of a base case financial model to serve as a benchmark for
analyzing alternative strategies and market environments;
3. An analysis of the impact on the franchise value of altering the Holding
Company's dividend policy, implementing a stock repurchase program, or
changing the asset mix or other operating activities;
4. An analysis of the Holding Company's acquisition resources, objectives and
capacity to compete for acquisition opportunities;
5. A summary of recent merger and acquisition trends in the financial services
industry, including tactics employed by others and typical terms and values
involved;
6. A review of other strategic alternatives which could provide long-term
benefits and enhanced value to the Holding Company;
7. A review of the Holding Company's advance defensive preparation plans,
including a comprehensive financial valuation and an analysis of stock
ownership and trading activities;
8. A review with the Board of Directors of the Holding Company of Sandler
O'Neill's findings, with periodic updates as may be requested;
9. Ongoing general advice and counsel to management and the Board of Directors
of the Holding Company with respect to strategic and tactical issues; and
10. Rendering such other financial advisory and investment banking services as
may from time to time be agreed upon by Sandler O'Neill and the Holding
Company.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P. APPEARS HERE]
SANDLER O'NEILL
September 8, 1998
Mr. Cornelius D. Mahoney
President and Chief Executive Office
Woronoco Savings Bank
31 Court Street
Westfield, Massachusetts 01086
Dear Mr. Mahoney:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), is pleased to act as
conversion agent to Woronoco Savings Bank (the "Bank") in connection with the
Bank's proposed conversion from mutual to stock form (the "Conversion"). This
letter is to confirm the terms and conditions of our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Subscription Services
Each of these services is further described in Appendix A to this agreement.
<PAGE>
Mr. Cornelius D. Mahoney
September 8, 1998
Page 2 SANDLER O'NEILL
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$20,000. This fee is based upon a total number of unconsolidated accounts of
approximately 47,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Bank, which shall be non-
refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses; provided, however, that Sandler
-------- -------
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
<PAGE>
Mr. Cornelius D. Mahoney
September 8, 1998
Page 3 SANDLER O'NEILL
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan which
require changes in Sandler O'Neill's services. If a substantial expense results
from any such change, the parties shall negotiate an equitable adjustment in the
fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with agreement and the performance hereof
unless caused by or arising out of its own bad faith or gross negligence; (d)
will not be obliged to take any legal action hereunder which might in its
judgment involve any expense or liability, unless it shall have been furnished
with reasonable indemnity satisfactory to it; and (e) may rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telex, telegram, or other document or security delivered to it
and in good faith believed by it to be genuine and to have been signed by the
proper party or parties.
<PAGE>
Mr. Cornelius D. Mahoney
September 8, 1998
Page 4 SANDLER O'NEILL
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Bank will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from Sandler O'Neill's bad faith or
gross negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: Woronoco Savings Bank
31 Court Street
Westfield, Massachusetts 01086
Attention: Cornelius D. Mahoney
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
<PAGE>
Mr. Cornelius D. Mahoney
September 8, 1998
Page 5 SANDLER O'NEILL
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
--------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
Woronoco Savings Bank
By: /s/ Cornelius D. Mahoney
-------------------------------------
Cornelius D. Mahoney
President and Chief Executive Officer
cc: Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
<PAGE>
APPENDIX A
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Order Form/Request Card Preparation
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing
the conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the offering
period.
IV. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-1
<PAGE>
EXHIBIT 2.1
AMENDED
PLAN OF CONVERSION
FOR
WORONOCO SAVINGS BANK
1. INTRODUCTION.
This Amended Plan of Conversion (the "Plan") provides for the conversion of
Woronoco Savings Bank (the "Bank") from a state-chartered mutual to a state-
chartered capital stock institution. The Board of Trustees has carefully
considered the alternatives available to the Bank with respect to its corporate
structure and has determined that a mutual to stock conversion as described in
this Plan is in the best interests of the Bank, its depositors and the
communities served by the Bank. The Board of Trustees believes that the decline
in mutuality is placing mutual savings associations, such as the Bank, at a
disadvantage to the increasing base of stock thrift and commercial Bank
institutions. The restructuring of the Bank into the capital stock form of
organization will enable the Bank to expand the Bank's franchise, compete more
effectively with commercial Banks and other financial institutions for new
business opportunities, and as a stock institution, to increase its equity
capital base and access the capital markets when needed. The business purposes
of the Conversion are to provide the Bank with equity capital which will enable
it to increase its reserves and net worth to support future lending and
operational growth and branching activities and to increase its ability to
render services to the communities it serves.
The Board of Trustees of the Bank currently contemplates that all of the
stock of the Bank shall be held by a business corporation (the "Holding
Company") organized under the laws of the State of Delaware and that the Holding
Company will issue and sell its capital stock pursuant to this Plan. The use of
the Holding Company, if so utilized, would provide greater organizational and
operating flexibility. Shares of capital stock of the Bank will be sold to the
Holding Company and the Holding Company will offer the Conversion Stock upon the
terms and conditions set forth herein in a Subscription Offering to the Eligible
Account Holders, Supplemental Eligible Account Holders and any Tax-Qualified
Employee Stock Benefit Plan established by the Bank or Holding Company, in the
respective priorities set forth in this Plan. Any shares of Conversion Stock not
subscribed for by the foregoing classes of persons will be offered for sale to
certain members of the public either directly by the Bank or the Holding Company
through a Direct Community Offering or a Syndicated Community Offering or
through an underwritten firm commitment public offering or through a combination
thereof. In the event that the Bank decides not to utilize the Holding Company
in conversion, Conversion Stock of the Bank, in lieu of the Holding Company,
will be sold as set forth above and in the respective priorities set forth in
this Plan. In addition to the foregoing, the Bank and the Holding Company
intend to provide employment or severance agreements to certain management
<PAGE>
employees and certain other benefits to the Trustees, officers and employees of
the Bank as described in the Prospectus for the Conversion Stock.
In furtherance of the Bank's commitment to its community, this Plan
provides for the establishment of a charitable foundation as part of the
Conversion. The charitable foundation is intended to complement the Bank's
existing community reinvestment activities in a manner that will allow the
Bank's local community to share in the growth and profitability of the Holding
Company and the Bank over the long term. Consistent with the Bank's goal, the
Holding Company intends to donate to the charitable foundation immediately
following the Conversion a number of shares of its authorized but unissued
Common Stock in an amount up to 8% of the common stock issued in the Conversion.
For these reasons, the Board of Trustees, on August 26, 1998, unanimously
adopted this Plan to convert the Bank from a mutual form of organization to a
stock form of organization.
The deposit accounts of the Bank's depositors will not be affected by the
Conversion provided for in this Plan. Each deposit account holder in the
converted Bank, prior to conversion, shall receive, without payment, a
withdrawable account or accounts in the converted Bank equal in withdrawable
amount to the withdrawable value of such account holder's account or accounts in
the Bank prior to conversion. All deposit accounts in the Bank following the
Conversion will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC") and the Depositors Insurance Fund of the Mutual Savings
Central Fund (the "DIF") to the maximum amount permitted by law. The stock to
be issued in the Conversion, however, will not be insured by the FDIC, the DIF
or any other insurer. The Bank, as chartered in the stock form following the
Conversion, will succeed to all of the presently existing rights, interests,
duties and obligations of the Bank to the extent provided by law, including, but
not limited to, all of its rights to and interests in its assets and properties,
both real and personal.
This Plan, which has been adopted by the Bank's Board of Trustees by a
unanimous vote, must also be approved by the affirmative vote of two-thirds of
the Corporators present and voting at a special meeting of the Corporators
called to consider the Plan and, if required by the FDIC, upon a determination
that a majority of Corporators are "independent," as determined by the FDIC,
then by the affirmative vote of a majority of all independent Corporators of the
Bank. Prior to the submission of this Plan to the Corporators for their
consideration, the Plan must be approved by the Commissioner of Banks of the
Commonwealth of Massachusetts (the "Commissioner") and reviewed without
objection by the FDIC.
2
<PAGE>
2. DEFINITIONS.
As used in this Plan, the following terms have the meanings indicated
below:
Acting in Concert. The term "Acting in Concert" means: (a) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (b) a
combination or pooling of voting or other interest in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(c) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also in concert with that other party, except that any Tax-
Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with any other Tax-
Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan or with its director or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the director and
stock held by the plan will be aggregated. The Holding Company and the Bank may
presume that certain Persons are acting in concert based upon, among other
things, joint account relationships and the fact that such Persons have filed
joint Schedules 13D with the SEC with respect to other companies. When Persons
act together for such a common purpose, their group is deemed to have acquired
their stock.
Actual Purchase Price. The term "Actual Purchase Price" means the per
---------------------
share price at which the Conversion Stock is ultimately sold in accordance with
the terms hereof.
Affiliate. An Affiliate of, or a person "affiliated" with, a specified
---------
person, is a person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
Aggregate Purchase Price. The term "Aggregate Purchase Price" means the
------------------------
total sum paid for all Shares of Conversion Stock.
Associate. The term "Associate," when used to indicate a relationship with
---------
any person, means (a) any corporation or organization (other than the Holding
Company, the Bank or a majority-owned subsidiary of the Bank) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10% or more of any class of equity securities; (b) any trust or other
estate in which such person has a substantial beneficial interest or as to which
such person serves as trustee or in a similar fiduciary capacity except that (i)
for the purposes of Sections 5 and 6 hereof, the term "Associate" does not
include any Non-Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a director or in a similar fiduciary capacity; and
(ii) for purposes of aggregating total shares that may be held by Officers and
Trustees the term
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<PAGE>
"Associate" does not include any Tax-Qualified or Non-Tax-Qualified Employee
Stock Benefit Plan; and (c) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
director, trustee or officer of the Holding Company, the Bank, or any of its
parents or subsidiaries.
Bank. The term "Bank" means the Woronoco Savings Bank.
----
Bank Personnel. The term "Bank Personnel" means trustees, officers and
--------------
employees of the Bank.
Broker-Dealer. The term "Broker-Dealer" means any person who engages
-------------
either for all or part of such person's time, directly or indirectly, as agent,
broker or principal, in the business of offering, buying, selling or otherwise
dealing or trading in securities issued by another person.
Commissioner. The term "Commissioner" means Commissioner of the
------------
Massachusetts Division of Banks.
Conversion. The term "Conversion" means the change in the form of the Bank
----------
from the mutual form to the capital stock form by the adoption of an amendment
to the Charter of the Bank to authorize the issuance of capital stock in
accordance with the regulations of the Commissioner and to otherwise conform to
the requirements of a Massachusetts stock savings bank and the issuance of the
capital stock of the Bank in accordance with this Plan.
Conversion Regulations. The term "Conversion Regulations" means Title 209,
----------------------
Chapter 33.00, Subpart A of the Code of Massachusetts Regulations and the
applicable regulations of the Federal Deposit Insurance Corporation, but only to
the extent such regulations do not conflict with Title 209, Chapter 33.00,
Subpart A of the Code of Massachusetts Regulations.
Conversion Stock or Shares. The terms "Conversion Stock" or "Shares" mean
--------------------------
the common stock initially issued by the Bank or Holding Company in connection
with the Conversion.
Corporators. The term "Corporators" means the corporators of the Bank as
-----------
determined by the mutual Bylaws of the Bank.
Direct Community Offering. The term "Direct Community Offering" means the
-------------------------
offering of Conversion Stock to the Local Community with preference given to
natural persons residing in the Local Community.
4
<PAGE>
Eligible Account Holder. The term "Eligible Account Holder" means any
-----------------------
person holding a Qualifying Deposit in the Bank as of the Eligibility Record
Date.
Eligibility Record Date. The term "Eligibility Record Date" means July 31,
-----------------------
1997, the record date set by the Bank for determining Eligible Account Holders.
Estimated Price Range. The term "Estimated Price Range" means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Trustees of the
Bank within which the aggregate amount of Common Stock sold in the Conversion
will fall. The Estimated Price Range will be within the estimated pro forma
market value of the Conversion Stock as determined by the Independent Appraiser
prior to the Subscription Offering and as it may be amended from time to time
thereafter.
FDIC. The term "FDIC" means the Federal Deposit Insurance Corporation.
----
Foundation. The term "Foundation" means a charitable foundation that
----------
will qualify as an exempt organization under Section 501(c)(3) of the Internal
Revenue Code, the establishment and funding of which is contemplated by
Section 3A herein.
Holding Company. The term "Holding Company" means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
Bank to be issued upon its conversion to stock form unless the Holding Company
form of organization is not utilized. Shares of common stock of the Holding
Company will be issued in the Conversion in a Subscription, Direct Community,
Syndicated Community, or underwritten firm commitment public offering, or
through a combination thereof.
Independent Appraiser. The term "Independent Appraiser" means the firm
---------------------
employed by the Bank to prepare an appraisal of the pro forma market value of
the Bank which will be used as the basis for determining the price of the
Conversion Stock.
Local Community. The term "Local Community" means all counties in which
---------------
the Bank has its home office or a branch office.
Officer. The term "Officer" means the chairman of the board, chief
-------
executive officer, president, any officer of the level of vice president or
above, clerk, and the treasurer of the Bank.
Order Form. The term "Order Form" means any form together with attached
----------
cover letter, sent by the Bank to any Participant or Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Subscription and Community Offerings.
5
<PAGE>
Person. The term "Person" means an individual, a corporation, a
------
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts ("IRA") and KEOGH Accounts), any unincorporated
organization or similar association, a government or political subdivision or a
group acting in concert, and the Tax-Qualified Employee Stock Benefit Plan.
Plan. The term "Plan" means this Plan of Conversion as adopted by the
----
Board of Trustees of the Bank and approved by the Commissioner.
Prospectus. The term "Prospectus" means the offering circular or
----------
prospectus by which the Common Stock of the Holding Company is being offered.
Purchase Price. The term "Purchase Price" means the price of the
--------------
Conversion Stock, as offered in the Conversion.
Qualifying Deposit. The term "Qualifying Deposit" means the balance of a
------------------
deposit account of any type offered by the Bank (including, but not limited to,
savings accounts, NOW account deposits, certificates of deposit, demand
deposits, money market deposits and deposits made pursuant to IRA/Keogh Plans)
of $50 or more in the Bank at the close of business as of the Eligibility Record
Date or the Supplemental Eligibility Record Date, whichever may be the case.
Deposit accounts with total deposit balances of less than $50 shall not
constitute a Qualifying Deposit.
SEC. The term "SEC" means the Securities and Exchange Commission.
---
Special Meeting. The term "Special Meeting" means the meeting of the
---------------
Corporators, and any adjournments thereof, called for the specific purpose of
submitting the Plan to such Corporators for vote and approval.
Subscription Offering. The term "Subscription Offering" means the offering
---------------------
of shares of capital stock, through nontransferable Subscription Rights issued
to Eligible Account Holders, Supplemental Eligible Account Holders, the Tax-
Qualified Employee Stock Benefit Plan and Trustees, Officers and Employees.
Supplemental Eligible Account Holder. The term "Supplemental Eligible
------------------------------------
Account Holder" means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit in the Bank as of the Supplemental Eligibility Record Date
except officers, trustees, corporators and their associates.
6
<PAGE>
Supplemental Eligibility Record Date. The term "Supplemental Eligibility
------------------------------------
Record Date" means June 30, 1998, the record date set by the Bank for
determining Supplemental Eligible Account Holders of the Bank.
Syndicated Community Offering. The term "Syndicated Offering" means the
-----------------------------
offering of Conversion Stock not subscribed for in the Subscription Offering, if
any, to certain members of the general public and/or through a syndicate of
registered broker-dealers.
Tax-Qualified Employee Stock Benefit Plan. The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank, such as an employee stock ownership plan, stock
bonus plan, profit-sharing plan or other plan, which, with any related trust,
meets the requirements to be "qualified" under section 401 of the Internal
Revenue Code of 1986, as amended.
Trustee. The term "Trustee" refers to the trustees of the Bank.
-------
3. PROCEDURE FOR CONVERSION.
After adoption of the Plan by the Board of Trustees of the Bank, the Plan
will be submitted, together with all other requisite material in an application
for conversion (the "Application"), to the Commissioner for approval and to the
FDIC with all other requisite material for non-objection. The Bank must also
apply to the Internal Revenue Service for a tax ruling or receive an opinion
from counsel which provides that the Conversion would not result in a taxable
reorganization of the Bank under the Internal Revenue Code of 1986, as amended,
and with respect to the federal tax consequences of the conversion.
Following a determination by the Commissioner that the Application is
complete, the Bank will publish a public announcement of its application to
convert in newspapers having general circulation in each community in which an
office of the Bank is located, or in such other locations as may be satisfactory
to the Commissioner. Three such announcements shall be published, the first
being as close to the date of the determination of the completion of the
application as may be practical, the second during the next week, and the final
notice during the third week. Such notice shall also be posted in each office
of the Bank for at least 21 days.
The Commissioner will review the Bank's Application. If the Commissioner
finds the Conversion is fair to depositors, the Bank's deposits will be
adequately insured, that other Banks will not be adversely affected and the
public's access to credit within the Bank's community will not be adversely
affected, he shall approve the Plan.
Notice to all Corporators of the Special Meeting must be in a form
previously approved by the Commissioner and include other requisite material and
must be given not less than seven
7
<PAGE>
days prior to the date of the meeting. After approval of the Conversion by the
Commissioner, the adoption of the Plan and the establishment of the Foundation
will be submitted to the Corporators at the Special Meeting called to consider
each such matter. The Plan must be approved by two-thirds of the Corporators
present and voting at the meeting. The establishment of the Foundation must be
approved by two-thirds of the Corporators present and voting at the meeting,
unless a lesser amount is permitted by the Commissioner and the FDIC. If the
establishment of the Foundation is not approved as provided herein, the Bank may
proceed with the consummation of the Conversion without the Foundation subject
to applicable regulatory approval.
If the Corporators approve the Plan, and the Commissioner authorizes the
sale of Conversion Stock pursuant to this Plan, Conversion Stock will be sold as
provided herein. The Conversion Stock to be issued pursuant to this Plan will
be offered in a Subscription Offering to Eligible Account Holders, Supplemental
Eligible Account Holders and any Tax-Qualified Employee Stock Benefit Plan and
as set forth in Section 5 of this Plan after such Corporator approval or, if
permitted by the Commissioner, after approval of the Application for Conversion
provided that any such offer and sale shall be conducted upon approval of the
Plan by Corporators at the Special Meeting. If feasible, any Conversion Stock
remaining after such purchases will then be offered to the general public
through a Direct Community Offering as provided in Section 6 of this Plan. The
sale of all Conversion Stock ordered in the Subscription Offering may be
consummated simultaneously on the date the Direct Community Offering is
completed, or, if there is no Direct Community Offering, as soon as practicable
following expiration of the Subscription Offering.
The Board of Trustees of the Bank intends to take all necessary steps to
form the Holding Company, including the filing of any necessary applications to
the appropriate regulatory authorities which will govern the activities of the
Holding Company. The Bank will be a wholly-owned subsidiary of the Holding
Company unless the Holding Company is not utilized in the Conversion.
If the Holding Company is utilized, upon Conversion the Bank will issue its
capital stock to the Holding Company, and the Holding Company will issue and
sell the Conversion Stock in accordance with this Plan. The Holding Company
will make timely applications for any requisite regulatory approvals, including
an application to register as a bank or savings and loan holding company, and
the filing of a Registration Statement to register the sale of the Conversion
Stock with the SEC.
The Board of Trustees of the Bank also intends to take all necessary steps
to establish the charitable foundation and to fund such charitable foundation in
the manner set forth in Section 3A hereof, subject to the approval of
Corporators.
8
<PAGE>
Upon the issuance of the Conversion Stock, the Holding Company will
purchase from the Bank all of the capital stock of the Bank to be issued by the
Bank in the Conversion in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Bank believes that the
Conversion proceeds will greatly enhance the Bank's ability, among other things,
(i) to expand its franchise through increased lending, (ii) to diversify
products offered to customers and (iii) to establish new branch locations.
The Board of Trustees of the Bank may determine for any reason at any time
prior to the issuance of the Conversion Stock not to utilize a holding company
form of organization in the Conversion. If the Board of Trustees of the Bank
determines not to complete the Conversion utilizing a holding company form of
organization, the capital stock of the Bank will be issued and sold in
accordance with the Plan. In such case, the Holding Company's Registration
Statement will be withdrawn from the SEC, the Bank will take steps necessary to
complete the conversion from the mutual to the stock form of organization,
including filing any necessary documents with the Commissioner, the DIF and the
FDIC and will issue and sell the Conversion Stock in accordance with this Plan.
In such event, any subscriptions or orders received for Conversion Stock of the
Holding Company shall be deemed to be subscriptions or orders for Conversion
Stock of the Bank, and the Bank shall take such steps as permitted or required
by the FDIC, the Commissioner, the DIF and the SEC.
The Conversion Stock will not be insured by the FDIC, the DIF or any other
federal or state government agency or authority. The Bank shall not loan funds
or otherwise extend credit to any Person to purchase shares of the Conversion
Stock.
3A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the Bank intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code ( the "Foundation") and to
donate to the Foundation from authorized, but unissued, shares of Common Stock
of the Holding Company in an amount up to 8% of the number of shares of Common
Stock sold in the Conversion. The Foundation is being formed in connection with
the Conversion in order to complement the Bank's existing community reinvestment
activities and to share with the Bank's local community a part of the Bank's
financial success as a locally headquartered, community minded, financial
services institution. The funding of the Foundation with Common Stock of the
Holding Company accomplishes this goal as it enables the community to share in
the growth and profitability of the Holding Company and the Bank over the long-
term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation
9
<PAGE>
will annually distribute total grants to assist charitable organizations or to
fund projects within its local community of not less than 5% of the average fair
value of Foundation assets each year. In order to serve the purposes for which
it was formed and maintain its Section 501(c)(3) qualification, the Foundation
may sell, on an annual basis, a limited portion of the Common Stock contributed
to it by the Holding Company.
The board of directors of the Foundation will be comprised of individuals
who are officers and/or trustees of the Bank. The board of directors of the
Foundation will be responsible for establishing the polices of the Foundation
with respect to grants or donations, consistent with the stated purposes of the
Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Commissioner and, if applicable, the FDIC and
the DIF. The establishment and funding of the Foundation as part of the
Conversion is also subject to the approval of the Corporators by the affirmative
vote of two-thirds of the Corporators present and voting at the Special Meeting,
unless a lesser amount is permitted by the Commissioner and the FDIC. In the
event the Corporators approve this Plan, but not the Foundation, the Bank may
determine to complete the Conversion without the establishment of the Foundation
and may do so without amending this Plan or obtaining any further vote of the
Corporators. Failure of the Corporators to approve the Foundation may
materially affect the pro forma market value of the Bank. In such an event, the
Bank may establish a new Estimated Price Range and commence a resolicitation of
subscribers.
4. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.
The total number of shares of Conversion Stock which will be issued in
connection with the Conversion will be determined by the Board of Trustees of
the Bank or the Board of Directors of the Holding Company, if the holding
company form of organization is utilized, immediately prior to the commencement
of the Subscription Offering; provided, that the Board of Trustees or the Board
of Directors may elect to increase or decrease the number of shares of
Conversion Stock to be offered in the Subscription and Direct Community Offering
depending upon market and financial conditions, with the approval of the
Commissioner and FDIC and DIF, if necessary. In particular, the total number of
shares may be increased by up to 15% of the number of shares offered in the
Subscription and Direct Community Offering if the Estimated Price Range is
increased subsequent to the commencement of the Subscription and Direct
Community Offering to reflect changes in market and financial conditions and the
Actual Purchase Price in the aggregate is not more than 15% above the maximum of
the Estimated Price Range.
An Independent Appraiser shall be employed by the Bank to provide it with
an independent valuation of the estimated pro forma market value of the
Conversion Stock to be
10
<PAGE>
issued in the Conversion as required by the Conversion Regulations. The Trustees
of the Bank shall thoroughly review and analyze the methodology and fairness of
the independent appraisal. The valuation will be made by a written report to the
Bank, contain the factors upon which the valuation was made and conform to
procedures adopted by the Commissioner and the FDIC. The valuation shall contain
an estimated range of aggregate prices for the Conversion Stock, which range
shall reflect the anticipated pro forma market value of the Conversion Stock to
be issued in the Conversion. The maximum price shall be no more than 15% above
the estimated pro forma market value, and the minimum price shall be no more
than 15% below the estimated pro forma market value. The number of shares of
Conversion Stock to be issued and the purchase price per share may be increased
or decreased by the Bank. In the event that the aggregate purchase price of the
Conversion Stock is below the minimum of the Estimated Price Range, or
materially above the maximum of the Estimated Price Range, resolicitation of
purchasers may be required, provided that up to a 15% increase above the maximum
of the Estimated Price Range will not be deemed material so as to require a
resolicitation. Any such resolicitation shall be effected in such manner and
within such time as the Bank shall establish, with the approval of the
Commissioner and FDIC and DIF, if required. Up to a 15% increase in the number
of shares to be issued which is supported by an appropriate change in the
estimated pro forma market value of the Holding Company will not be deemed to be
material so as to require a solicitation of subscriptions.
All Shares to be sold in the Conversion shall be sold at a uniform price
per share. The Independent Appraiser shall evaluate the pro forma market value
of the Conversion Stock to be issued in the Conversion, which value shall be
included in the Prospectus (as described in Section 8 of this Plan) filed with
the Commissioner. The Independent Appraiser shall also present at the close of
the Subscription Offering a valuation of the pro forma market value of the
Conversion Stock to be issued in the Conversion. The Aggregate Purchase Price of
the Conversion Stock to be sold by the Bank shall be adjusted to reflect any
required changes in the pro forma market value of the Bank. If, as a result of
such adjustment, the aggregate Purchase Price is not within the Estimated Price
Range, the Bank shall obtain an amendment to the Commissioner's approval. If
appropriate, the Commissioner will condition his approval by requiring a
resolicitation of subscribers.
The price per share for each share of Conversion Stock when multiplied by
the number of shares of Conversion Stock, shall be equivalent to the pro forma
market value of the Conversion Stock to be issued in the Conversion in
accordance with the valuation furnished by the Independent Appraiser.
11
<PAGE>
5. SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS,
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS AND TAX-QUALIFIED EMPLOYEE STOCK
BENEFIT PLAN
A. CATEGORY NO. 1: ELIGIBLE ACCOUNT HOLDERS
(a) Each Eligible Account Holder shall receive, as first priority and
without payment, non-transferable Subscription Rights to purchase shares of
Conversion Stock in the amount equal to the greater of: $200,000 worth of
Conversion Stock offered in the Conversion, but which may be increased to 5.0%
of the Conversion Stock offered or decreased to 0.10% of the Conversion Stock
offered; one-tenth of one percent of the total offering of shares; or fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of capital stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder, and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders.
(b) In the event that subscriptions for Conversion Stock are received from
Eligible Account Holders upon exercise of Subscription Rights pursuant to
paragraph (a) in excess of the number of Shares available for subscription, the
Conversion Stock available for purchase will be allocated among the subscribing
Eligible Account Holders so as to permit each subscribing Eligible Account
Holder, to the extent possible, to purchase a number of Shares sufficient to
make his total allocation of Conversion Stock equal to the lesser of 100 Shares
or the number of Shares subscribed for by such Eligible Account Holder. Any
Shares remaining after such allocation will be allocated among the subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion which the amount of each Eligible Account Holder's Qualifying Deposit
bears to the total amount of the Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated on the same principle (one or more times as
necessary) among those Eligible Account Holders whose subscriptions are still
not fully satisfied until all available Shares have been allocated or all
subscriptions are satisfied.
(c) Nontransferable subscription rights held by Eligible Account Holders
who are also Trustees, Corporators or Officers of the Bank and their Associates,
will be subordinated to those of other Eligible Account Holders to the extent
they are attributable to increased deposits during the one-year period preceding
the Eligibility Record Date.
12
<PAGE>
B. CATEGORY NO. 2: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(a) Each Supplemental Eligible Account Holder shall receive, as second
priority and without payment, nontransferable Subscription Rights to purchase
shares of Conversion Stock equal to the amount equal to the greater of $200,000
worth of Conversion Stock offered in the Conversion, but which may be increased
to 5.0% of the Conversion Stock offered or decreased to 0.10% of the Conversion
Stock offered; one-tenth of one percent of the total offering of shares; or
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of capital stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder, and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders.
(b) In the event that subscriptions for Conversion Stock are received from
Supplemental Eligible Account Holders upon exercise of Subscription Rights
pursuant to paragraph (a) in excess of the number of Shares available for
subscription, the Conversion Stock available for purchase will be allocated
among the subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of Shares sufficient to make his total allocation of
Conversion Stock equal to the lesser of 100 Shares or the number of Shares
subscribed for by such Supplemental Eligible Account Holder. Any Shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proposition which the amount of each Supplemental Eligible Account Holder's
Qualified Deposit bears to the total of the Qualifying Deposits of all
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by any one or more
Supplemental Eligible Account Holders, the excess shall be reallocated (one or
more times as necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available Shares have been allocated or all subscriptions satisfied.
(c) Subscription rights received pursuant to Section 5B shall be
subordinated to all rights received by Eligible Account Holders to purchase
Conversion Stock.
(d) Subscription rights received by an Eligible Account Holder pursuant to
Section 5A shall be applied in partial satisfaction of the subscription rights
to be received as a Supplemental Eligible Account Holder pursuant to this
Section 5B.
C. CATEGORY NO. 3: TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN
The Tax-Qualified Employee Stock Benefit Plan shall receive, without
payment, as a third priority, after the satisfaction of the subscriptions of
Eligible Account Holders and Supplemental Eligible Account Holders, non-
transferable Subscription Rights to purchase up to
13
<PAGE>
8% of the shares of Conversion Stock issued in the Conversion. If, after the
satisfaction of subscriptions of Eligible Account Holders and Supplemental
Eligible Account Holders, a sufficient number of shares are not available to
fill the subscriptions by such plan, the subscription by such plan shall be
filled to the maximum extent possible. If all the Conversion Stock offered in
the Subscription Offering are purchased by Eligible Account Holders and
Supplemental Eligible Account Holders, then the Tax-Qualified Employee Stock
Benefit Plan may purchase shares in the open market following consummation of
the Conversion or directly from the Holding Company through authorized but
unissued shares. A Tax-Qualified Employee Stock Benefit Plan shall not be deemed
to be an Associate or Affiliate of, or a Person Acting in Concert with, any
Trustee, Director or Officer of the Holding Company or the Bank. Notwithstanding
any provision contained herein to the contrary, the Bank may make scheduled
discretionary contributions to a Tax-Qualified Employee Stock Benefit Plan;
provided, that such contributions do not cause the Bank to fail to meet its
regulatory capital requirements.
D. CATEGORY NO. 4: DIRECTORS, TRUSTEES, OFFICERS AND EMPLOYEES
Directors, Trustees, Corporators, Officers and employees of the Holding
Company and the Bank shall be entitled to purchase up to 30% of the total
offering of shares of capital stock, but only to the extent that shares are
available after satisfying the subscriptions of Eligible Account Holders,
Supplemental Eligible Account Holders and the Tax-Qualified Employee Stock
Benefit Plan. The shares shall be allocated among Directors, Trustees,
Corporators, Officers and employees on an equitable basis such as by giving
weight to the period of service, compensation and position of the individual,
subject to the 5% limitation on the amount of shares which may be purchased by
any Person, together with any Associate or group of persons Acting in Concert.
However, Directors, Trustees, Corporators and Officers of the Bank and the
Holding Company shall not be deemed to be Associates or Persons Acting in
Concert solely as a result of their board membership, status or employment.
6. DIRECT COMMUNITY OFFERING.
Conversion Stock which remains unsubscribed after the exercise of
Subscription Rights pursuant to the Subscription Offering pursuant to Section 5
shall be offered for sale to the general public through a Direct Community
Offering, with preference given to natural persons residing in the Bank's Local
Community. The Direct Community Offering, if any, may commence simultaneously
with the Subscription Offering, subject to approval of the Commissioner, or may
commence during or after the commencement of the Subscription Offering, as the
Board so determines. The right to subscribe for shares of Conversion Stock in
the Direct Community Offering is subject to the right of the Bank and Holding
Company to accept or reject such subscriptions in whole or in part. Stock being
sold in the Direct Community Offering will be offered and sold in a manner that
will achieve the widest distribution of the Conversion Stock. Purchases by
Persons and their Associates in this phase of the offering are limited to
$200,000 of
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Conversion Stock issued in the Conversion, or a percentage of the total offering
not to exceed 5% of the total offering of shares. In making the Direct Community
Offering, the Bank will give preference to natural persons residing in the Local
Community. Orders accepted in the Direct Community Offering shall be filled up
to a maximum of 2% of the total offering and thereafter remaining shares shall
be allocated on an equal number of shares basis per order until all orders have
been filled.
If any Conversion Stock remains unsold after the close of the Subscription
and Direct Community Offerings, the Bank may use the services of broker-dealers
to sell such unsold shares in a Syndicated Community Offering.
7. LIMITATIONS ON PURCHASES.
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 5A and 5B, the following limitations
shall apply to all purchases of shares of Conversion Stock:
(a) The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person,
together with any Associate or group or persons Acting in Concert, shall not
exceed 1% of the Conversion Stock sold (the "Maximum Overall Purchase
Limitation"), except for Tax-Qualified Employee Stock Benefit Plans which may
subscribe for up to 8% of the Conversion Stock issued and except for certain
Eligible Account Holders and Supplemental Eligible Account Holders which may
subscribe for or purchase shares in accordance with Sections 5A and 5B herein,
respectively; provide, however, that Trustees, Directors and Officers of the
Bank and the Holding Company shall not be deemed to be Associates or Persons
Acting In Concert solely as a result of their board membership or employment.
THIS MAXIMUM OVERALL PURCHASE LIMITATION MAY BE INCREASED CONSISTENT WITH THE
CONVERSION REGULATIONS IN THE SOLE DISCRETION OF THE HOLDING COMPANY AND THE
BANK SUBJECT TO ANY REQUIRED REGULATORY APPROVAL.
(b) A minimum of 25 Shares must be purchased by each person purchasing
Conversion Stock to the extent Shares are available, provided, however, that
such minimum number of Shares will be reduced if the price per Share times such
minimum number of Shares exceeds $500.
(c) The maximum number of Shares which may be purchased, in their
individual capacity, in the Subscription and Direct Community Offering in the
Conversion by Trustees, Directors, Corporators and Officers, and their
associates, of the Bank and the Holding Company, in the aggregate shall not
exceed thirty percent (30%) of the total number of Shares. Each
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Director, Trustee, Corporator and Officer will be subject to the same purchase
limitations as other Eligible Account Holders and Supplemental Eligible Account
Holders.
8. MANNER OF EXERCISING RIGHTS; ORDER FORMS.
(a) Promptly after the Commissioner has declared the Prospectus referred
to in paragraph (b) of this Section 8 effective, Order Forms approved by the
Commissioner for the exercise of the Subscription Rights provided for in this
Plan will be sent to all Eligible Account Holders, Supplemental Eligible Account
Holders and the Tax-Qualified Employee Benefit Plan at their last known address
appearing in the records of the Bank.
(b) Each Order Form will be preceded or accompanied by a Prospectus which
must be approved by the Commissioner. Such Prospectus shall describe the Bank,
the Holding Company and the Conversion Stock being offered and will contain all
the information required by the Commissioner and all applicable laws and
regulations as necessary to enable the recipients of the Order Forms to make
informed investment decisions regarding the purchase of Conversion Stock. The
Bank may, in lieu of mailing a Prospectus to each Eligible Account Holder and
Supplemental Eligible Account Holder, mail a notice and information statement to
each such person with a request form to be returned to the Bank by a reasonable
date certain to request Subscription or Direct Community Offering materials.
(c) The Order Forms will contain or will be accompanied by, among other
things, the following:
(i) An explanation of the rights and privileges granted under this Plan
to each class of persons granted Subscription Rights pursuant to Section 5 of
this Plan with respect to the purchase of Conversion Stock;
(ii) A specified time by which Order Forms must be received by the Bank
for purposes of exercising the Subscription Rights of Eligible Account Holders
and Supplemental Eligible Account Holders under this Plan, as provided in
Section 10 of this Plan;
(iii) A statement that the Aggregate Purchase Price at which the
Conversion Stock will ultimately be purchased in the Conversion has not been
determined as of the date of mailing of the Order Form, but that such price will
be within the range of prices which will be stated in the Order Form;
(iv) The amount which must be returned with the Order Form to subscribe
for Conversion Stock. Such amount will be equal to the Purchase Price multiplied
by the number of Shares subscribed for in accordance with the terms of this
Plan;
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(v) Instructions concerning how to indicate on such Order Form the
extent to which the recipient elects to exercise Subscription Rights under this
Plan, the name or names in which the Shares subscribed for are to be registered,
the address to which certificates representing such Shares are to be sent and
the alternative methods of payment for Conversion Stock which will be permitted;
(vi) Specifically designated blank spaces for dating and signing the
Order Form;
(vii) An acknowledgment that the recipient of the Order Form has received,
prior to signing the Order Form, the Prospectus referred to in paragraph (b) of
this Section 8;
(viii) A statement that the Subscription Rights provided for in this Plan
are nontransferable, will be void after the specified time referred to in
paragraph (c)(ii) above and can be exercised only by delivery of the Order Form,
properly completed and executed, to the Bank, together with the full required
payment (in the manner specified in Section 9 of this Plan) for the number of
Shares subscribed for prior to such specified time;
(ix) Provision for certification to be executed by the recipient of the
Order Form to the effect that, as to any Shares which the recipient elects to
purchase, such recipient is purchasing such Shares for his own account only and
has no present agreement or understanding regarding any subsequent sale or
transfer of such Shares; and
(x) A statement to the effect that the executed Order Form, once
received by the Bank, may not be modified or amended by the subscriber without
the consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
9. PAYMENT FOR CONVERSION STOCK.
(a) Full payment for all Shares subscribed for must be received by the
Bank, together with properly completed and executed order forms therefor, prior
to the expiration time, which will be specified on the Order Forms, unless such
date is extended by the Bank; provided, however, that if the Tax-Qualified
Employee Stock Benefit Plan subscribes for Conversion Stock during the
Subscription Offering, such plan will not be required to pay for shares at the
time they subscribe but may pay for such shares of Conversion Stock subscribed
for by such plan at the Actual Purchase Price upon consummation of the
Conversion, provided that there is in force from time of its subscription until
the consummation of the Conversion, a loan commitment to lend to the Tax-
Qualified Employee Stock Benefit Plan, at such time, the aggregated purchase
price of the shares for which it subscribed.
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(b) If it is determined that the Aggregate Purchase Price should be
greater than the amount stated in the Order Forms, upon compliance with such
requirements as may be imposed by the Commissioner (which may include
resolicitation of votes for approval of this Plan by Corporators) each Person
who subscribed for Shares will be permitted to withdraw their Subscription and
have their payment for Shares returned to them in whole or in part, with
interest, or to make payment to the Bank of the additional amount necessary to
pay for the Shares subscribed for by him at the Actual Purchase Price in the
manner and within the time prescribed by the Bank.
(c) If the Aggregate Purchase Price is outside the range of prices
established by the Independent Appraiser referred to in Section 4 of this Plan
and set forth in the Prospectus referred to in Section 8 of this Plan, the Bank
will apply for an amendment to the Commissioner's approval of this Plan and
comply with such requirements as the Commissioner may then establish.
(d) Payment for Shares ordered for purchase by Eligible Account Holders
and Supplemental Eligible Account Holders will be permitted to be made in any of
the following manners:
(i) In cash, if delivered in person;
(ii) By check, bank draft or money order, provided that checks will only
be accepted subject to collection;
(iii) By appropriate authorization of withdrawal the subscriber's deposit
account at the Bank. The Order Forms will contain appropriate means by which
authorization of such withdrawals may be made. For purposes of determining the
withdrawable balance of such accounts, such withdrawals will be deemed to have
been made upon receipt of appropriate authorization therefor, but interest at
the rates applicable to the accounts from which the withdrawals have been deemed
to have been made will be paid by the Bank on the amounts deemed to have been
withdrawn until the date on which the Conversion is consummated, at which date
the authorized withdrawal will actually be made. Such withdrawals may be made
upon receipt of Order Forms authorizing such withdrawals, but interest will be
paid by the Bank on the amounts withdrawn as if such amounts had remained in the
accounts from which they were withdrawn until the date upon which the sales of
Conversion Stock pursuant to exercise of Subscription Rights are actually
consummated. Interest will be paid by the Bank at not less than the rate per
annum being paid by the Bank on its passbook accounts at the time the
Subscription Offering commences, on payments for Conversion Stock received in
the Subscription Offering in cash or by check or negotiable order of withdrawal
from the date payment is received until consummation or termination of the
Conversion. The Bank shall be entitled to invest all amounts
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paid for subscriptions in the Subscription Offering for its own account until
completion or termination of the Conversion.
(iv) Wire transfers as payment for Shares ordered for purchase will not
be permitted or accepted as proper payment.
(e) Orders for Common Stock submitted by subscribers which aggregate
$50,000 or more must be paid by official bank or certified check, a check issued
by a NASD-registered broker-dealer or by withdrawal authorization from a deposit
account of the Bank.
(f) Payments for the purchase of Conversion Stock in the Subscription
Offering will be permitted through authorization of withdrawals from certificate
accounts at the Bank without early withdrawal penalties. If the remaining
balances of the certificate accounts after such withdrawals are less than the
minimum qualifying balances under applicable regulations, the certificates
evidencing the accounts will be canceled upon consummation of the Conversion,
and the remaining balances will thereafter earn interest at the rate provided
for in the certificates in the event of cancellation.
10. EXPIRATION OF PURCHASE RIGHTS; UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS;
INSUFFICIENT PAYMENT.
(a) All Subscription Rights provided for in this Plan, including, without
limitation the Subscription Rights of all persons whose Order Forms are returned
by the United States Post Office as undeliverable, will expire on a specified
date as described in the Prospectus which shall be not less than twenty (20)
days following the date on which Order Forms are first mailed to Eligible
Account Holders, provided that the Bank shall have the power to extend such
expiration time in its discretion.
(b) In those cases in which the Bank is unable to locate particular
persons granted Subscription Rights under this Plan, and cases in which Order
Forms (1) are returned as undeliverable by the United States Post Office, (2)
are not received back by the Bank or are received by the Bank after the
expiration date specified thereon, (3) are defectively filled out or executed or
(4) are not accompanied by the full required payment for the Conversion Stock
subscribed for (including cases in which deposit accounts from which withdrawals
are authorized are insufficient to cover the amount of the required payment),
the Subscription Rights of the person to whom such rights have been granted will
lapse as though such person failed to return the completed Order Form within the
time period specified thereon.
(c) The Bank may, but will not be obligated to, waive any irregularity on
any Order Form or require the submission of corrected Order Forms or the
remittance of full payment for
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Shares subscribed for by such date as it may specify, and all interpretations by
the Bank of terms and conditions of this Plan and of the Order Forms will be
final.
11. PERSONS IN NONQUALIFIED STATES OR IN FOREIGN COUNTRIES.
Subject to the following sentence, the Holding Company will make reasonable
efforts to comply with the securities laws of all states of the United States in
which Eligible Account Holders and Supplemental Eligible Account Holders
entitled to subscribe for Conversion Stock pursuant to this Plan reside.
However, no such person will be offered any Subscription Rights or sold any
Conversion Stock under this Plan who resides in a foreign country or who resides
in a state of the United States with respect to which the Bank determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise. No payments will be made in lieu of the granting
of Subscription Rights to such persons.
12. VOTING RIGHTS AFTER CONVERSION.
Following Conversion, voting rights with respect to the Bank will be held
and exercised exclusively by the holders of the capital stock of the Bank; the
Holding Company, if utilized, shall own all of the issued and outstanding stock
of the Bank.
13. ESTABLISHMENT OF A LIQUIDATION ACCOUNT.
(a) The Liquidation Account shall be maintained by the Bank for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
who continue to maintain deposit accounts at the Bank. The Bank will, at the
time of Conversion, establish a "Liquidation Account" in an amount equal to the
net worth of the Bank set forth in its latest statement of financial condition
contained in its final Prospectus. The function of the Liquidation Account is to
establish a priority on liquidation and, except as provided for in this Section
13, shall not operate to restrict the use or application of any of the net worth
accounts of the Bank.
(b) The Liquidation Account shall be maintained by the Bank for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
who continue to maintain deposit accounts at the Bank. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a separate inchoate
interest in the Liquidation Account in relation to each deposit account making
up a Qualifying Deposit. Such inchoate interests are referred to herein as
"Subaccount Balances." For deposit accounts in existence on the Eligibility
Record Date and the Supplemental Eligibility Record Date, separate Subaccount
Balances shall be determined on the basis of the Qualifying Deposits in such
deposit accounts on each such date.
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(c) Each initial Subaccount Balance in the Liquidation Account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be an
amount determined by multiplying the amount in the Liquidation Account by a
fraction the numerator of which is the amount of Qualifying Deposits in such
deposit account on the Eligibility Record Date and/or Supplemental Eligibility
Record Date and the denominator of which is the total amount of all Qualifying
Deposits of Eligible Account Holders and Supplemental Account Holders on the
corresponding record date. For deposit accounts in existence at both dates,
separate Subaccounts shall be determined on the basis of the Qualifying Deposits
in such deposit accounts on such record dates.
(d) Each initial Subaccount Balance in the Liquidation Account shall never
be increased, but will be subject to downward adjustment as follows. If the
balance in the deposit account to which a Subaccount Balance relates, at the
close of business on any annual fiscal year closing date of the Bank subsequent
to the corresponding record date, is less than either (a) the lesser of the
deposit balance in such account at the close of business on any other annual
fiscal year closing date subsequent to the Eligibility Record Date or
Supplemental Eligibility Record Date, or (b) the amount of the Qualifying
Deposit as of the Eligibility Record Date or Supplemental Eligible Record Date,
then the Subaccount Balance for such deposit account shall be adjusted by
reducing such Subaccount Balance in an amount proportionate to the reduction in
such account balance. In the event of such downward adjustment, the Subaccount
Balance shall not be subsequently increased, notwithstanding any increase in the
deposit balance of the related deposit account. If any account is closed, its
related Subaccount Balance shall be reduced to zero upon such closing.
(e) In event of a complete liquidation of the converted Bank (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall receive from the Liquidation Account a liquidation distribution in
the amount of the then current adjusted Subaccount Balances for deposit accounts
then held, before any liquidation distribution may be made to any holders of the
conversion stock of the converted Bank. No merger, consolidation, purchase of
bulk assets with assumption of deposit accounts and other liabilities, or
similar transactions, in deposit accounts and other liabilities, which the
converted Bank is not the surviving institution, will be deemed to be a complete
liquidation for this purpose, and, in any such transaction, the Liquidation
Account shall be assumed by the surviving institution.
14. TRANSFER OF DEPOSIT ACCOUNT.
Each deposit account in the Bank at the time of the Conversion will
constitute, without payment or further action by the account holder, a
withdrawable deposit account in the converted Bank equivalent in withdrawable
amount to the withdrawable value, and subject to the same terms and conditions
(except as to voting and liquidation rights) as such deposit account in the Bank
at the time of the Conversion.
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15. RESTRICTION ON TRANSFER OF CONVERSION STOCK OF OFFICERS, DIRECTORS,
TRUSTEES AND CORPORATORS.
(a) All Conversion Stock purchased by Officers, Directors, Trustees or
Corporators either directly from the Bank (by subscription or otherwise) or from
an underwriter of such Shares will be subject to the restriction that no such
Shares shall be sold for a period of one year following the date of purchase of
such Shares, except in the event of the death or substantial disability (as
determined by the Commissioner) of the Officer, Director, Trustee or Corporator
to whom such Shares were initially sold under the terms of this Plan or upon the
written approval of the Commissioner.
(b) With respect to all Conversion Stock subject to restriction on
subsequent disposition pursuant to the above paragraph, each of the following
provisions shall apply:
(i) Each certificate representing such Shares shall bear the following
legend prominently stamped on its face giving notice of such restriction on
transfer:
The shares represented by this certificate may not be sold by the
registered holder hereof for a period of not less than one year from the date of
issuance hereof, except in the event of the death of the registered holder or
substantial disability (as determined by the Commissioner) of the Officer,
Director, Trustee, or Corporator to whom such Shares were initially sold under
the terms of this Plan or upon the written approval of the Commissioner.
(ii) Instructions will be given to the transfer agent for the converted
Bank or the Holding Company not to recognize or effect any transfer of any
certificates representing such Shares, or any change of record ownership thereof
in violation of such restriction on transfer;
(iii) Any capital stock of the Holding Company issued in respect of a
stock dividend, stock split or otherwise in respect of ownership of outstanding
Shares subject to restrictions on transfer hereunder will be subject to the same
restrictions as are applicable to the Conversion Stock in respect of which such
Shares are issued.
16. RESTRICTION ON STOCK PURCHASES BY OFFICERS, DIRECTORS, TRUSTEES AND
CORPORATORS OF THE CONVERTED BANK.
For a period of three years following the Conversion, no Officer, Director,
Trustee or Corporator of the converted Bank or any of their Associates shall,
without the prior written approval of the Commissioner, purchase capital stock
of the Bank or the Holding Company directly from the Bank or the Holding
Company.
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17. AMENDMENT AND TERMINATION OF THE PLAN.
This Plan may be substantively amended by the Board of Trustees of the Bank
in its sole discretion as a result of comments from regulatory authorities or
otherwise, at any time prior to the date material is sent to the Corporators in
connection with the meeting called to consider this Plan, and at any time
thereafter with the concurrence of the Commissioner and if necessary, the FDIC.
This Conversion may be terminated by the Trustees of the Bank at any time prior
to the Special Meeting called to consider this Plan and at any time thereafter
with the concurrence of the Commissioner.
By adoption of the Plan, the Corporators of the Bank authorize the Board of
Trustees to amend or terminate the Plan under the circumstances set forth in
this Section.
18. TIME PERIOD FOR COMPLETION OF CONVERSION.
The Conversion shall be completed within 24 months from the date this Plan
is approved by the Board of Trustees of the Bank.
19. EXPENSES OF CONVERSION.
The Bank and Holding Company shall use its best efforts to assure that the
expenses incurred in connection with the Conversion shall be reasonable.
20. REGISTRATION UNDER SECURITIES EXCHANGE ACT OF 1934.
The Holding Company shall register its Conversion Stock under the
Massachusetts General Laws and the Securities Exchange Act of 1934, as amended,
concurrently with or promptly following the Conversion, provided that either or
both such registrations are required under applicable law.
21. MARKET FOR CONVERSION STOCK.
The Bank and Holding Company shall use its best efforts to (i) encourage
and assist a market maker to establish and maintain a market for the Conversion
Stock and/or (ii) list or quote the shares on a national or regional securities
exchange or on the Nasdaq Stock Market.
22. CONVERSION STOCK NOT INSURED.
The Conversion Stock will not be covered by deposit insurance.
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23. NO LOANS TO PURCHASE CAPITAL STOCK.
The Bank shall not loan funds or otherwise extend credit to any Person to
purchase Conversion Stock in connection with the Conversion.
24. RESTRICTIONS ON ACQUISITION OF THE BANK OR BANK STOCK.
Current Massachusetts regulations provide that for a period of three years
following completion of the Conversion, no Person, or group of Persons Acting In
Concert, shall directly, or indirectly, offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Bank without prior written notice to the Bank and the prior approval of the
Commissioner. However, approval is not required for purchases directly from the
Bank or the underwriters or selling group acting on its behalf with a view
towards public resale, or for purchases not exceeding one percent per annum of
the shares outstanding, or for the acquisition of securities by one or more Tax-
Qualified Employee Stock Benefit Plan of the Bank, provided that the plan or
plans do not have beneficial ownership in the aggregate of more than 25% of any
class of equity security of the Bank. Civil penalties may be imposed by the
Commissioner for willful violation or assistance of any violation. Where any
person directly or indirectly, acquires beneficial ownership of more than ten
percent of any class of equity security of the Bank within such three-year
period without the prior approval of the Commissioner, stock of the Bank
beneficially owned by such person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote.
25. STOCK CHARTER AND BYLAWS.
As part of the Conversion, an amended Stock Charter and Bylaws will be
adopted to authorize the Bank to operate as a Massachusetts-chartered stock
savings bank. By approving the Plan, the Corporators of the Bank will thereby
approve the amended Stock Charter and Bylaws of the Bank. Prior to completion
of the Conversion, the proposed Stock Charter and Bylaws of the Bank may be
amended in accordance with the provisions and limitations for amending the Plan
under Section 17 herein. The effective date of the adoption of the Stock
Charter and Bylaws of the Bank shall be the date of the issuance of the
Conversion Stock, which shall be the date of consummation of the Conversion.
26. COPY OF APPLICATION.
The Bank shall maintain a copy of its Application for Conversion filed with
the Commissioner in its main Banking office for public inspection until
consummation of the conversion.
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27. CONDITIONS TO CONVERSION
The conversion of the Bank pursuant to this Plan is expressly conditioned
upon the following:
(a) Prior receipt by the Bank of either rulings of the United States
Internal Revenue Service and the Massachusetts taxing authorities, or opinions
of counsel or independent auditors, substantially to the effect that the
conversion will not result in any adverse federal or state tax consequences to
Eligible Account Holders or to the Bank and the Holding Company before or after
the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion
pursuant to this Plan; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
28. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Commissioner and FDIC.
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EXHIBIT I
CHARTER
FOR
WORONOCO SAVINGS BANK
SECTION 1. CORPORATE TITLE. The full corporate title of the Bank is
"Woronoco Savings Bank."
SECTION 2. OFFICE. The main office of the Bank shall be located in
Westfield, in the County of Hampden, Commonwealth of Massachusetts, or such
other location as the Board of Directors may lawfully designate, subject to the
requirements of Chapter 167C, Section 2 of the Massachusetts General Laws.
SECTION 3. POWERS. The Bank is a capital stock savings bank chartered
under Chapter 168 of the Massachusetts General Laws and has and may exercise all
the express, implied and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto.
SECTION 4. DURATION. The duration of the Bank is perpetual.
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Bank has authority to issue is eighteen million
(18,000,000), of which sixteen million (16,000,000) shall be common stock, par
value $1.00 per share, and two million (2,000,000) shall be serial preferred
stock, par value $1.00 per share. The shares may be issued by the Bank from
time to time as approved by its Board of Directors without the approval of its
stockholders except as otherwise provided in this Section 5, or subject to
applicable law. The consideration for the issuance of the shares shall be paid
in full before their issuance and shall not be less than the stated value per
share and otherwise shall comply with all requirements set forth in Chapter 172,
Section 24 Subsection C of the Massachusetts General Laws. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the Bank. The consideration for the shares shall be cash,
tangible or intangible property, labor or services actually performed for the
Bank or any combination of the foregoing. In the absence of actual fraud in the
transaction, the value of such property, labor or services, as determined by the
Board of Directors of the Bank, shall be conclusive. Upon payment of such
consideration such shares shall be deemed to be fully paid and nonassessable. In
the case of a stock dividend, that part of the surplus of the Bank which is
transferred to stated capital upon the issuance of the shares as a stock
dividend shall be deemed to be the consideration for their issuance.
A description of the different classes and series of the Bank's capital
stock and a statement of the designations, and the relative rights, preferences
and limitations of the shares of each class of and series of capital stock are
as follows:
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A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections hereto) the holders of the common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund or retirement fund or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends; but only when and as
declared by the Board of Directors.
Subject to Section 6 of this Charter in the event of any liquidation,
dissolution or winding up of the Bank, after there shall have been paid to or
set aside for the holders of any class having preference over the common stock
in the event of liquidation, dissolution or winding up the full preferential
amounts which they are respectively entitled, the holders of the common stock,
and of any class or series of stock entitled to participate therewith in whole
or in part, as to distribution of assets, shall be entitled after payment or
provision for payment of all debts and liabilities of the Bank, to receive the
remaining assets of the Bank available for distribution, in cash or in kind, in
proportion to their holdings.
Each share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. SERIAL PREFERRED STOCK. Subject to the approval of the provisions of
any series of preferred stock by the Commissioner of Banks of the Commonwealth
of Massachusetts (the "Commissioner"), if required by law, the Board of
Directors of the Bank is authorized by resolution or resolutions from time to
time adopted, to provide for the issuance of serial preferred stock in series
and to fix and state the voting powers, designations, preferences and relative
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof, including,
but not limited to, determination of any of the following:
(1) The distinctive serial designation and the number of shares
constituting such series;
(2) The dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(3) The voting powers, full or limited, if any, of shares of such series;
(4) Whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
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(5) The amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding
up of the Bank;
(6) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price or prices at
which such shares may be redeemed or purchased through the application
of such fund;
(7) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Bank
and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof,
if any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(8) The price or other consideration for which the shares of such series
shall be issued; and
(9) Whether the shares of such series which are converted shall have the
status of authorized but unissued shares of serial preferred stock and
whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Any such resolution shall become effective when the Bank files with the
Secretary of State of the Commonwealth of Massachusetts a certificate of
establishment of preferred stock, signed under the penalties of perjury of the
president or any vice president and by the clerk, assistant clerk, secretary or
assistant secretary of the Bank, setting forth a copy of the resolution of the
Board of Directors.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Bank
shall not be entitled to preemptive rights with respect to shares of the Bank
which may be issued.
SECTION 7. REPURCHASE OF SHARES. The Bank may from time to time, pursuant
to authorization by the Board of Directors of the Bank and without action by the
stockholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Bank in such a manner, upon such terms, and in such
amounts as the board of directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Bank outstanding at the time of the purchase or
acquisition in question or as are imposed by law or by regulation or order of
the Commissioner.
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SECTION 8. LIQUIDATION ACCOUNT. The Bank shall establish and maintain a
liquidation account for the benefit of its deposit account holders as of July
31, 1997 ("Eligible Account Holders") and its deposit account holders as of June
30, 1998 ("Supplemental Eligible Account Holders"). In the event of a complete
liquidation of the Bank it shall comply with such rules and regulations of the
Commissioner with respect to the amount and the priorities on liquidation of
each of the Bank's Eligible Account Holder's and Supplemental Eligible Account
Holder's inchoate interests in the liquidation account to the extent it is still
existence; provided, however, that an Eligible Account Holder's and Supplemental
Eligible Account Holder's inchoate interest in the liquidation account shall not
entitle such Eligible Account Holder or Supplemental Eligible Account Holder to
any voting rights at meetings of the Bank's stockholders.
SECTION 9. CERTAIN PROVISIONS APPLICABLE FOR THREE YEARS. Notwithstanding
anything contained in the Bank's charter or bylaws to the contrary, for a period
of three years from the date of consummation of the conversion of the Bank from
mutual to stock form, the following provisions shall apply.
A. BENEFICIAL OWNERSHIP LIMITATION. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than ten
percent (10%) of any class of any equity security of the Bank without prior
written notice to the Bank and the prior written approval of the Commissioner.
This limitation shall not apply to a transaction in which the Bank forms a
holding company without a change in the respective beneficial ownership
interests of its stockholders other than pursuant to the exercise of any
dissenter and appraisal rights, the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by an employee
stock benefit plan.
In the event shares are acquired in violation of this Section 9, all shares
beneficially owned by any person in excess of ten percent (10%) shall be
considered "excess shares" and shall not be counted as shares entitled to vote,
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to the stockholders for a vote, and shall not be counted
as outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the Bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for
value.
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(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a combination
or pooling of voting or other interests in the securities of an issuer
for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangements, whether written or
otherwise.
SECTION 10. CERTAIN REQUIREMENTS FOR BUSINESS COMBINATIONS. In addition
to any affirmative vote required by law or this Charter, the vote of
stockholders of the Bank required to approve any Business Combination (as
defined below) shall be as set forth in this Section 10.
A. None of the following Business Combinations shall be consummated
without the affirmative vote of the holders of at least eighty percent (80%) of
the shares entitled to vote thereon ("Voting Stock"):
1. any merger or consolidation of the Bank with or into (a) any
Interested Shareholder or (b) any other corporation or entity (whether or not
itself an Interested Shareholder) which is, or after each merger or
consolidation would be, an Affiliate of an Interested Shareholder;
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate of any Interested Shareholder of assets
of the Bank having an aggregate Fair Market Value of $100,000 or more;
3. the issuance or transfer by the Bank (in one transaction or a
series of transactions) of any securities of the Bank to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange for cash,
securities or other property (or a combination thereof) having an aggregate Fair
Market Value of $100,000 or more, other than the issuance of securities upon the
conversion of any class or series of stock or securities convertible into stock
of the Bank which were not acquired by such Interested Shareholder or such
Affiliate from the Bank;
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Bank proposed by or on behalf of an Interested Shareholder or
any Affiliate of any Interested Shareholder; or
5. any reclassification of securities (including any reverse stock
split), or any recapitalization of the Bank, or any merger or consolidation of
the Bank or any other transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which in any such case (a) has the effect,
directly or indirectly of increasing the proportionate share of the outstanding
shares of any class or series of stock of the Bank which is directly or
indirectly beneficially owned
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by any Interested Shareholder or any Affiliate of any Interested Shareholder or
(b) would have the effect of increasing such proportionate share upon conversion
of any class or series of stock or securities convertible into stock of the
Bank.
B. The provisions of paragraph A hereof shall not be applicable to any
Business Combination in respect of which the conditions specified in either of
the following subparagraphs 1 and 2 are met. Any such Business Combination shall
require the affirmative vote of only the holders of a majority of the Voting
Stock.
1. Such Business Combination shall have been approved by a majority
of the Disinterested Directors, or
2. All of the following conditions relating to minimum price and
consideration for stock shall have been met:
(a) Common Stock. The aggregate amount of the cash and the Fair
------------
Market Value as of the "Consummation Date" of any consideration other than cash
to be received by holders of the common stock of the Bank in such Business
Combination shall be at least equal to the higher of the following:
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such common stock beneficially owned by the Interested
Shareholder which were acquired beneficially by such Interested Shareholder
within the two-year period immediately prior to the Announcement Date or in the
transaction in which it became an Interested Shareholder, whichever is higher;
or
(ii) the Fair Market Value per share of such common stock on the
Announcement Date or the Determination Date, whichever is higher; or
(b) Other Stock. The aggregate amount of the cash and the Fair
-----------
Market Value as of the Consummation Date of any consideration other than cash to
be received per share by holders of shares of any class or series of outstanding
Voting Stock other than common stock shall be at least equal to the highest of
the following (it being intended that the requirements of this subparagraph (b)
shall be required to be met with respect to every class and series of such
Voting Stock, whether or not the Interested Shareholder beneficially owns any
shares of a particular class or series of such Voting Stock):
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class or series of Voting Stock beneficially owned by
the Interested Shareholder which were acquired beneficially by such Interested
Shareholder within the two-year period immediately prior to the Announcement
Date or in the transaction in which it became an Interested Shareholder,
whichever is higher;
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(ii) the highest preferential amount per share to which the
holders of shares of such class or series of Voting Stock are entitled in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Bank; or
(iii) the Fair Market Value per share of such class or series
of Voting Stock on the Announcement date or the determination Date, whichever is
higher; and
(c) Form of Consideration. The consideration to be received by
---------------------
holders of a particular class or series of outstanding Voting Stock shall be in
cash or in the same form as was previously paid in order to acquire beneficially
shares of such class or series of Voting Stock that are beneficially owned by
the Interested Shareholder and, if the Interested Shareholder beneficially owns
shares of any class or series of Voting Stock that were acquired with varying
forms of consideration, the form of consideration to be received by the holders
of such class or series of Voting Stock shall be either cash or the form used to
acquire beneficially the largest number of shares of such class or series of
Voting Stock beneficially acquired by it prior to the Announcement Date; and
(d) Prohibited Conduct. After the Determination Date, and prior to
------------------
the Consummation Date:
(i) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at regular dates
therefor the full amount of any dividends (whether or not cumulative), payable
on any class or series having a preference over the common stock of the Bank as
to dividends, or upon liquidation;
(ii) there shall have been no reduction in the annual rate of
dividends paid on the common stock of the Bank (except as necessary to reflect
any division of the common stock) except as approved by a majority of the
Disinterested Directors; and there shall have been an increase in such annual
rate of dividends as necessary to prevent any such reduction in the event of any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the common stock, unless the failure so to
increase such annual rate was approved by a majority of the Disinterested
Directors;
(iii) an Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as part of the
transaction in which it became an Interested Shareholder; and
(iv) after an Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax credits or
other tax advantages provided by the Bank, whether in anticipation of or in
connection with such Business Combination or otherwise; and
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(e) Informational Requirements. A proxy or information statement
---------------------------
describing the proposed Business Combination and complying with the then current
regulatory requirements shall be mailed to holders of Voting Stock at least 30
days prior to the shareholder vote on such Business Combination (whether or not
such proxy or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
C. For the purpose of this Section 10:
1. The term "Business Combination" shall mean any transaction that
is referred to in any one or more subsections I through 5 of paragraph A hereof.
2. A "person" shall mean any individual, firm, corporation or other
entity.
3. "Interested Shareholder" shall mean any person (other than the
Bank) who or which:
a. is the beneficial owner, directly or indirectly, of more
than ten percent (10%) of the combined voting power of the then outstanding
shares of Voting Stock;
b. is an Affiliate of the Bank and at any time within the two-
year period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of ten percent (10%) or more of the combined voting
power of the then outstanding shares of Voting Stock; or
c. is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock that were at any time within
the two-year period immediately prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not involving
a public offering within the meaning of the Securities Act of 1933.
4. A person shall be a "Beneficial Owner" of any Voting Stock:
a. which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
b. which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or-options, or otherwise, or (ii) the right to vote or direct the vote
pursuant to any agreement, arrangement or understanding; or
c. which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or
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understanding for the purpose of acquiring, holding, voting or disposing of any
shares of Voting Stock.
5. For the purposes of determining whether a person is an Interested
Shareholder pursuant subparagraph 3 of this paragraph C, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of subparagraph 4 of this paragraph C.
6. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934.
7. "Subsidiary" means any corporation more than fifty percent (50%)
of whose outstanding stock having ordinary voting power in the election of
directors is owned, directly or indirectly, by the Bank or by a Subsidiary
thereof or by the Bank and one or more Subsidiaries thereof; provided, however,
that for the purposes of the definition of Interested Shareholder set forth in
subparagraph 3 of this paragraph C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Bank.
8. "Disinterested Director" means any member of the Board of
Directors of the Bank who is unaffiliated with, and not a nominee of, the
Interested Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, the
Interested Shareholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
9. "Fair Market Value" means:
a. in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape on the New York Stock Exchange,
or, if such stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or, if such stock is not listed on any such
exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, of a share of such stock. Such price
shall be the higher of (1) the closing sales price or bid quotation with respect
to a share of such stock during the 30-day period preceding the date in question
on the National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as determined
by a majority of the Disinterested Directors in good faith; and (2) in the case
of stock of any class or series which is not traded on any United States
registered securities exchange nor in the over-the-counter market or in the case
of property other than cash or stock, the fair market value of such
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property on the date in question as determined by a majority of the
Disinterested Directors in good faith.
10. In the event of any Business Combination in which the Bank
survives, the phrase "any consideration other than cash" as used in subparagraph
2.a. of paragraph B hereof shall include the shares of common stock and/or the
shares of any class or series of outstanding Voting Stock other than common
stock of the Bank retained by the holders of such shares.
11. "Announcement Date" means the date of first public announcement
of the proposed Business Combination.
12. "Consummation Date" means the date of consummation of a Business
Combination.
13. "Determination Date" means the date on which the Interested
Shareholder became an Interested Shareholder.
D. A majority of the Disinterested Directors of the Bank shall have the
power and duty to determine, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance with this
Section 10, including, without limitation, (i) whether a person is an Interested
Shareholder, (ii) the number of shares of Voting Stock beneficially owned by a
person, (iii) whether a person is an Affiliate or Associate of another person,
(iv) whether the requirements of paragraph B hereof have been met with respect
to any Business Combination, and (v) whether the assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Bank or any subsidiary in any
Business Combination has, an aggregate Fair Market Value of $100,000 or more.
The good faith determination of a majority of the Disinterested Directors on
such matters shall be conclusive and binding for all purposes of this Section
10.
E. Nothing contained in this Section 10 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
F. This Section 10 may be amended only by the vote of holders of two-
thirds of the Voting Stock, unless the amendment is approved by a majority of
the Disinterested Directors, in which event it may be amended by the vote of
holders of a majority of the Voting Stock.
SECTION 11. STANDARDS FOR BOARD OF DIRECTORS EVALUATION OF OFFERS. The
Board of Directors of the Bank, when evaluating any offer of another person (as
defined in Section 10 hereof) to (i) make a tender or exchange offer for any
equity security of the Bank, (ii) merge or consolidate the Bank with another
institution, or (iii) purchase or otherwise acquire all or substantially all of
the properties and assets of the Bank, shall, in connection with the exercise of
its judgment in determining what is in the best interests of the Bank and its
stockholders, give due consideration to all relevant factors, including without
limitation the social and economic
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effects of acceptance of such offer on (a) its depositors, borrowers and
employees and on the communities in which the Bank operates or is located and
(b) the ability of the bank to fulfill the objectives of a Massachusetts-
chartered co-operative bank under applicable statues and regulations.
SECTION 12. DIRECTORS. The Bank shall be under the direction of a Board
of Directors. The number of directors, as stated in the Bank's Bylaws, shall not
be less than seven (7) or more than twenty-five (25).
The Board of Directors or the stockholders may adopt, alter, amend or
repeal the Bylaws of the Bank. Such action by the Board of Directors shall
require the affirmative vote of at least two-thirds of the directors then in
office at a duly constituted meeting of the Board of Directors called expressly
for such purpose. Such action by the stockholders shall require the affirmative
vote of at least two-thirds of the total votes eligible to be cast by
stockholders at a duly constituted meeting of stockholders called expressly for
such purpose.
SECTION 13. AMENDMENT OF CHARTER. No amendment, addition, alteration,
change or repeal of this Charter shall be made, unless such is first proposed by
the Board of Directors of the Bank and thereafter approved by the stockholders
by the affirmative vote of at least two-thirds of the total votes eligible to be
cast at a legal meeting. Any amendment, addition, alteration, change or repeal
so acted upon shall be effective on the date it is filed with the Secretary of
State of the Commonwealth of Massachusetts or on such other date as the
Secretary of the Commonwealth may specify.
SECTION 14. CUMULATIVE VOTING LIMITATION. Stockholders shall not be
permitted to cumulate their votes for the election of directors.
SECTION 15. CALL FOR SPECIAL MEETINGS. Special meeting of stockholders
relating to changes in control of the Bank or amendments to its charter shall be
called only by the Chairperson of the Board upon direction of a majority of the
Board of Directors.
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EXHIBIT II
BYLAWS
OF
WORONOCO SAVINGS BANK
ARTICLE I
ORGANIZATION
The name of this Bank shall be "Woronoco Savings Bank" (the "Bank"). Its
main office shall be in Westfield, County of Hampden, Commonwealth of
Massachusetts, or such other location as the Board of Directors may designate,
subject to applicable law. The Bank shall conduct the business of a savings bank
and shall have and may exercise all the powers, privileges and authority now or
hereafter conferred by applicable law.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders for
election of directors and other purposes shall be held in ____________________
_________________________ of each year at such time and place as shall be fixed
by the Board of Directors. The purposes for which the annual meeting is to be
held, in addition to those prescribed by law, by the Charter or by these Bylaws,
may be specified by the Board of Directors. If no annual meeting has been held
on the date fixed above, a special meeting in lieu thereof may be held, or there
may be action by unanimous written consent of the stockholders on matters to be
voted on at the annual meeting, and such special meeting or written consent
shall have for the purposes of these Bylaws or otherwise all the force and
effect of an annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meeting of the stockholders for any
purpose or purposes may be called at any time only by the chairperson of the
board or the president at the direction of a majority of the directors then in
office unless otherwise provided by law.
SECTION 3. NOTICE OF MEETINGS. A written notice of all regular and
special meetings of stockholders shall state the place, date, hour and purposes
of such meetings and a brief statement of the nature of the business to be acted
upon at such meeting, and shall be given by the clerk or an assistant clerk (or
other person authorized by these Bylaws or by law) by mailing notice thereof, at
least seven days before the meeting, to each stockholder as of the record date
for the meeting. Such notice shall be published in one or more newspapers in the
city or town wherein the main office of the Bank is located. When any
stockholders' meeting, either annual or special, is adjourned for thirty (30)
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than thirty days or of the business
to be transacted thereat, other than an announcement at the meeting at which
such adjournment is taken.
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SECTION 4. QUORUM. The holders of a majority of all stock issued,
outstanding, and entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If a quorum is not present, a
majority of the shares so represented may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to constitute less than a
quorum.
SECTION 5. VOTING AND PROXIES. Stockholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the books
of the Bank, and no vote for a fractional share. Stockholders may vote either in
person or by written proxy dated not more than six months before the meeting
named therein. No proxy shall be valid after the final adjournment of such
meeting. Proxies shall be filed with the clerk of the meeting, or of any
adjournment thereof, before being voted. Except as otherwise limited therein,
proxies shall entitle the persons authorized thereby to vote at any adjournment
of such meeting, but they shall not be valid after final adjournment of such
meeting. A proxy with respect to stock held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Bank receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a stockholder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden or proving invalidity shall rest on the challenger.
SECTION 6. ACTION OF MEETING. When a quorum is present, any matter before
the meeting shall be decided by vote of the holders of a majority of the shares
of stock voting on such matter, except where a larger vote is required by law,
by the Charter or by these Bylaws. Any election by stockholders shall be
determined by a plurality of the votes cast, except where a larger vote is
required by law, by the Charter or by these Bylaws. No ballot shall be required
for any election unless requested by a stockholder entitled to vote in the
election. The Bank shall not directly or indirectly vote any share of its own
stock, provided however, that no provision of these Bylaws shall be construed to
limit the voting rights and powers relating to shares of stock held pursuant to
a plan which is intended to be an "employee stock ownership plan" as defined in
section 409A of the Internal Revenue Code, as now or hereafter in effect.
SECTION 7. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than ten percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
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Unless otherwise prescribed by the Act or regulations of the Commissioner,
the duties of such inspectors shall include: determining the number of shares
and the voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The business and affairs of the Bank shall be managed
by a Board of Directors who may exercise all the powers of the Bank except as
otherwise provided by law, by the Charter or by these Bylaws.
SECTION 2. COMPOSITION AND TERM. The Board of Directors shall be composed
of: (i) those persons serving as trustees of the Bank immediately prior to the
effective date of these Bylaws until the respective expiration dates of their
terms and until their successors are elected and qualified; and (ii) as such
terms expire, those persons who are elected as directors from time to time as
provided herein. Three-fourths (3/4) of the directors shall be citizens of the
Commonwealth of Massachusetts and resident therein. The directors shall be
elected, in such manner as is provided herein, by their stockholders at their
annual meeting or at a special meeting called for the purpose. The Board of
Directors shall consist of not less than seven (7) nor more than twenty-five
(25) individuals, the exact number to be fixed from time to time by a two-thirds
vote of the stockholders at an annual meeting or special meeting in lieu
thereof, and until determined by the stockholders at the first annual meeting of
the converted Bank shall consist of thirteen (13) individuals. The Board of
Directors shall be divided into three classes as nearly equal in number as
possible. The appropriate class of directors shall be elected annually by the
holders of the Bank's common and voting preferred stock, if any. Except as
otherwise provided in these Bylaws, the members of each class shall be elected
for a term of three years and until their successors are elected and qualified.
A Director shall be eligible for reelection.
Upon the election of Directors, the Clerk of the Bank shall send forthwith
the names and addresses of all persons elected as Directors to the Commissioner
of Banks of the Commonwealth of Massachusetts, and to the extent the same are
made available by the Bank, the Clerk shall transmit to a person who has not
theretofore held the office of Director a copy of the laws relating to savings
banks.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this Bylaw at the same place as the
annual meeting of stockholders, or the special meeting held in lieu thereof,
following such meeting of stockholders. The Board of Directors may provide, by
resolution, the time and place for the holding of regular meetings without
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other notice than such resolution. The Board of Directors shall meet at least
once in each calendar month at a place or places fixed from time to time by the
Board of Directors.
SECTION 4. QUALIFICATION. Each director shall have such qualifications as
are required by applicable law. Each director shall own, in his own right and
free of any lien or encumbrance, common stock of the Bank or of a company owning
seventy-five percent of the stock of the Bank, having a par value or a fair
market value on the date the person became a director of not less than one
thousand dollars. Any director who ceases to be the owner of the required number
of shares of stock, or who becomes in any other manner disqualified, shall
vacate his office forthwith. Each director, when appointed or elected, shall
take an oath that he or she will faithfully perform the duties of his or her
office and that he or she is the owner, in his or her own right and free from
any lien or encumbrance, of the amount of stock required by this section. The
oath shall be taken before a Notary Public or Justice of the Peace, who is not
an officer of such Bank, and a record of the oath shall be made a part of the
records of such Bank.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the president or the clerk, if requested
in writing by at least three (3) directors. The persons authorized to call
special meetings of the Board of Directors may fix the place for holding any
special meeting of the Board of Directors elected by such persons.
SECTION 6. NOTICE. Notice of any special meeting shall be given to each
director in person or by telephone or sent to his business or home address by
telegram at least 24 hours in advance of the meeting or by written notice mailed
to his business or home address at least five days in advance of such meeting.
Such notice shall be deemed to be delivered when deposited in the mail so
addressed, with postage thereon prepaid if mailed, or when delivered to the
telegraph company if sent by telegram. Any director may waive notice of any
meeting by a writing filed with the clerk of the meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting except
where a director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time.
When any Board of Directors' meeting either regular or special is adjourned for
30 days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted thereat, other than an announcement at the meeting at which such
adjournment is taken.
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SECTION 8. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by governing law, by the
Charter or by these Bylaws.
SECTION 9. ACTION BY CONSENT. Any action required or permitted to be
taken by the Board of Directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the main office of the Bank addressed to
the chairperson of the board or the president. Unless otherwise specified
therein such resignation shall take effect upon receipt thereof by the
chairperson of the board or the president.
SECTION 11. REMOVAL. Any director may be removed, but only for cause, at
the special meeting of stockholders by the affirmative vote of at least two-
thirds (2/3) in number of shares of the stockholders present in person or
represented by proxy at such meeting and entitled to vote or the election of
such director; provided, however, that notice of intention to act upon such
matter shall have been given in the notice calling such meeting.
SECTION 12. VACANCIES. Any vacancy occurring on the Board of Directors as
a result of resignation, removal or death may be filled by the affirmative vote
of a majority of the remaining directors. A director elected to fill such a
vacancy shall be elected to serve until the next election of directors by the
stockholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the Board of Directors for a
term of office continuing until the next election of directors by the
stockholders.
SECTION 13. COMPENSATION. The members of the Board of Directors and the
members of either standing or special committees may be allowed such
compensation as the Board of Directors may determine.
SECTION 14. PRESUMPTION OF ASSENT. A director of the Bank who is present
at a meeting of the Board of Directors at which action on any Bank matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the clerk of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the clerk of the Bank within five days after the
date of the meeting. Such right to dissent shall not apply to a director who
voted in favor of such action.
SECTION 15. HONORARY DIRECTORS. Persons who have served as a director of
the Bank, including in its previous mutual form of organization, for ten (10)
years or more may be continued as Honorary Directors and may, subject to
applicable provisions of law, be elected for an indefinite term at any Annual
Meeting or Special Meeting of the Stockholders, or until such a meeting of the
Stockholders is held, may be elected by the Board of Directors. Such Honorary
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Director (i) shall not be deemed to be an officer or member of the Board of
Directors of the Bank; (ii) shall not receive compensation; (iii) shall not be
required to attend meetings; (iv) shall not be authorized or required to perform
any duties of a director; (v) shall not be entitled to vote; and (vi) shall not
be included in determining the number of directors present or in determining a
quorum.
SECTION 16. COMMITTEES. The Board of Directors may elect committees and
may delegate thereto some or all of its powers except those which by law, by the
Charter, or by these Bylaws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these Bylaws for the Board of Directors. All members of
such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time,
subject to any applicable requirements of law. Any committee to which the Board
of Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
SECTION 17. EXECUTIVE COMMITTEE. The Board of Directors shall elect an
Executive Committee of the Bank which shall have and may exercise those powers
of the directors which may be lawfully delegated in the management and direction
of the business and affairs of the Bank, and which are not otherwise provided
for in these Bylaws. The Executive Committee shall elect a Chairperson and
choose a Clerk who need not be a member of said Committee and the Clerk, or in
his absence a Clerk Pro Tempore, shall keep a true record of all proceedings,
which record shall always be open to inspection by any director. The Executive
Committee shall recommend for presentation to and consideration by the
directors: (i) an annual budget of income and expense from computations
presented by the Chief Executive Officer which budget, if adopted, shall not be
exceeded in total as to expenditures without approval of the directors; (ii) an
annual budget of income and expense from computations presented by the Chief
Executive Officer which budget, if adopted, shall not be exceeded in total as to
expenditures without prior approval of the Executive Committee; (iii) annual
salary review for the senior officers of the Bank; and (iv) such other budget or
salary matters which may arise. The Executive Committee shall make a written
report of its actions and recommendations to the directors for their approval.
SECTION 18. AUDIT COMMITTEE. The directors shall annually, and in
accordance with all applicable provisions of law, elect from their members an
Audit Committee consisting of not less than three (3) directors, who shall not
be operating officers of the Bank or members of the Executive Committee. Unless
and until the Board of Directors otherwise directs, the Audit Committee shall be
elected at the first meeting of the Board of Directors in each fiscal year. The
Audit Committee may exercise the powers and shall perform the duties required by
applicable provisions of law.
At least once during each twelve (12) months following their election, the
Audit Committee shall have an audit made of the Balance Sheet of the Bank and
other such financial statements as it may prescribe. The audit shall be made by
an independent Certified Public Accountant in
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accordance with generally accepted auditing standards. Within thirty (30) days
of its election, the Audit Committee shall appoint such Certified Public
Accountant and written notice thereof shall be given to the Commissioner of
Banks by the Audit Committee. The Accountant shall report in writing to the
Audit Committee the results of the audit. At the next meeting of the directors
thereafter, the Audit Committee shall render a report which shall be read and
signed by the Committee stating the nature, extent and results of the audit and
whether it accepts the Accountant's report. The Audit Committee shall file with
the Commissioner of Banks a copy of the Accountant's report within thirty (30)
days after its receipt and maintain another copy with the records of the Bank.
At least semi-annually, the Audit Committee shall report to the directors
that they have reviewed the financial report of the Treasurer and, to the best
of their knowledge and belief, that it presents fairly the Bank's financial
position, results of operations and changes in surplus at the beginning of the
period, the results of operations, income, expenses, interest on deposits,
gains, losses and taxes for such period and surplus remaining at the end of the
period. A copy of the Financial Report shall be signed by the Committee and
filed with the records of the Bank. A quorum shall be a majority of the members
of the Committee, except if their number constitutes an equal number then a
quorum will be one-half (1/2) thereof.
SECTION 19. NOMINATING COMMITTEE. The chairperson of the board shall
appoint a nominating committee for selecting nominees for election as directors.
Except in the case of a management nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the Clerk at least 20 days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the Clerk of the Bank at least five days prior to the date of the
annual meeting. Upon delivery such nominations shall be posted in a conspicuous
place in each office of the Bank. Ballots bearing the names of all persons
nominated by the nominating committee and by shareholders shall be provided for
use at the annual meeting. However, if the nominating committee shall fail or
refuse to act at least twenty days prior to the annual meeting, nominations for
directors may be made at the annual meeting by any shareholder entitled to vote
and shall be voted upon.
SECTION 20. REPORT ON TRANSACTIONS. At intervals of not more than two
months each, the treasurer or any other officer designated by the Board of
Directors shall submit to a meeting of the Board of Directors a written report,
over his signature, for the period running from the closing date of the last
report to a date not more than eighteen days prior to the date of the meeting at
which the report is submitted. Such report shall be filed with the records of
the meeting and shall be retained for a period of six years from the date of the
meeting; such report shall cover the transactions required by Chapter 172,
Section 16 of the Massachusetts General Laws.
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ARTICLE IV
OFFICERS
SECTION 1. ENUMERATION. The officers of the Bank shall consist of a
president, a treasurer, a clerk or secretary, and such other officers, including
a chairperson of the board, one or more vice presidents and such other officers
as the Board of Directors may determine as necessary for the management of the
Bank.
SECTION 2. ELECTION. The clerk or secretary shall be elected by the
stockholders at their annual meeting or at a special meeting of the stockholders
duly called for the purpose. The president shall be elected by and from the
Board of Directors and shall be the chairperson thereof unless the board
delegates a director in lieu of the president to be chairperson. The Board of
Directors shall elect the treasurer and such other officers as may be required
or permitted by law or these Bylaws. Other officers may be chosen by the Board
of Directors at such first meeting of the Board of Directors or at any other
meeting.
SECTION 3. QUALIFICATION. No officer need be a stockholder. Any two
offices may be held by any person. The clerk shall be a resident of the
Commonwealth of Massachusetts unless the Bank has a resident agent appointed for
the purpose of service of process. Any officer shall be required by the Board of
Directors to give bond for the faithful performance of his or her duties in such
amount as determined by the Board of Directors.
SECTION 4. TENURE. Except as otherwise provided by law, by the Charter or
by these Bylaws, the president and treasurer shall hold office until the first
meeting of the Board of Directors following the next annual meeting of
stockholders and until their respective successors are chosen and qualified. The
clerk shall hold office until the next annual meeting of stockholders and until
his or her successor is chosen and qualified. All other officers shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of stockholders and until their successors are chosen and
qualified, or for such shorter term as the Board of Directors may fix at the
time such officers are chosen. Any officer may resign by delivering his written
resignation to the Bank at its main office addressed to the president, clerk and
such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The Board of Directors may authorize the Bank to enter into an
employment contract with any officer in accordance with governing law or
regulation, but no such contract right shall impair the right of the Board of
Directors to remove any officer at any time in accordance with section 5 of this
Article IV.
SECTION 5. REMOVAL. The Board of Directors may remove any officer with or
without cause by a vote of two-thirds of the entire number of directors then in
office; provided, however, that such removal, other than for cause, shall be
without prejudice to the contract rights, if any, of the persons involved.
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SECTION 6. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall preside at all meetings of the directors. In the absence of the Chairman
of the Board the President shall preside, and in the absence of the President a
Vice President, who is a director, shall preside. In the absence of all the
foregoing, a President Pro Tempore chosen by the directors shall preside.
SECTION 8 CHIEF EXECUTIVE OFFICER. The chief executive officer shall,
subject to the direction of the Board of Directors, have general supervision and
control of the Bank's business.
SECTION 9 PRESIDENT AND VICE PRESIDENTS. The president shall have such
powers and shall perform such duties as the Board of Directors may from time to
time designate and shall serve as the chief executive officer of the Bank. Any
vice president shall have such powers and shall perform such duties as the Board
of Directors may from time to time designate. The designation "Vice President"
shall include the titles of "Executive Vice President," "Senior Vice President,"
"Assistant Vice President," and "Associate Vice President."
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The treasurer shall,
subject to the direction of the Board of Directors and the Executive Committee,
have general charge of the financial affairs of the Bank and shall cause to be
kept accurate books of account. He or she shall have custody of all funds,
services and valuable documents of the Bank, except as the Board of Directors
may otherwise provide. Any assistant treasurer shall have such powers and
perform such duties as the Board of Directors may from time to time designate.
The designation "Assistant Treasurer" shall include the titles of "Vice
Treasurer," "Assistant Vice Treasurer," "Associate Treasurer," and "Associate
Assistant Treasurer."
SECTION 11. CLERK AND ASSISTANT CLERKS. The clerk shall keep a record of
the meetings of stockholders and meetings of the Board of Directors. In the
absence of the clerk from any meeting of stockholders, an assistant clerk if one
be elected, otherwise a Clerk Pro Tempore designated by the person presiding at
the meeting, shall perform the duties of the clerk.
SECTION 12. OTHER POWERS AND DUTIES. Subject to these Bylaws, each
officer of the Bank shall have in addition to the duties and powers specifically
set forth in these Bylaws, such duties and powers as are customarily incident
to, his office, and such duties and powers as may be designated from time to
time by the Board of Directors.
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ARTICLE V
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the Bank in such form as may from time to
time be prescribed by the Board of Directors. Such certificate shall be signed
by the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the Bank. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Bank with the same effect as if
he were such officer at the time of its issue.
SECTION 2. TRANSFERS. Subject to any restrictions on transfer, shares of
stock may be transferred on the books of the Bank by the surrender to the Bank's
transfer agent of the certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed with transfer stamps
(if necessary) affixed, and with such proof of the authenticity of signature as
the transfer agent may reasonably require.
SECTION 3. RECORD HOLDERS. Except as may be otherwise required by law, by
the Charter or by these Bylaws, the Bank shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, include the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Bank in accordance
with the requirements of these Bylaws. It shall be the duty of each stockholder
to notify the Bank of his post office address.
SECTION 4. RECORD DATE. The Board of Directors may fix in advance a time
of not more than sixty days preceding the date of any meeting of stockholders,
or the date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the Bank after the record date. Without fixing such
record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period. If no record date is fixed
and the transfer books are not closed, (a) the record date for determining
stockholders having the right to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, and (b) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors-acts with respect thereto.
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SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 6. ISSUANCE OF CAPITAL STOCK. The Board of Directors shall have
the authority, subject to applicable law, to issue or reserve for issue from
time to time the whole or any part of the capital stock of the Bank which may be
authorized from time to time, to such persons or organizations, for such
consideration whether cash, property, services or expenses, and on such terms as
the Board of Directors may determine, including without limitation the granting
of options, warrants, or conversion or other rights to subscribe to said capital
stock.
SECTION 7. DIVIDENDS. Subject to applicable law, the Charter and these
Bylaws, the Board of Directors may from time to time declare, and the Bank may
pay, dividends on the outstanding shares of its capital stock.
ARTICLE VI
DEPOSITS
Deposits of any type permitted by law may be received by the Bank on such
terms and subject to such limitations as are from time to time provided by law
and the rules, regulations and Bylaws of the Bank, but any deposit may be
refused by the Bank for any legal reason. Each depositor shall sign a statement
signifying assent to the rules, regulations and Bylaws of the Bank then in force
or as thereafter added or amended. All rules, regulations and Bylaws of the
Bank and all additions and amendments thereto from time to time in effect shall
be binding on all depositors and on all other persons dealing with the Bank
whether or not such statement is signed.
ARTICLE VII
WITHDRAWALS
SECTION 1. GENERAL PROVISIONS. Deposits and interest may be withdrawn
only in accordance with law, rules, and regulations whether upon written order
of the depositor or otherwise, and such payment shall discharge the liability of
the Bank to all persons to the extent of such payment.
SECTION 2. DEMAND. All authorized withdrawals may be made on demand
except when notice of withdrawal or limitation of withdrawal is required by law,
rules, regulations or agreement.
SECTION 3. WITHDRAWALS TO DEPOSITORS AND OTHERS. Withdrawals by written
orders, signed by the depositor requesting payment to himself or to one or more
other persons, may be honored by the Bank and any such payment shall discharge
the liability of the Bank to all persons to the extent of such payment.
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SECTION 4. INCONSISTENT DEPOSITS. No agreement with a depositor which is
inconsistent with law, rules, regulations, or the Bylaws shall be valid.
SECTION 5. DEPOSIT BOOKS. The deposit book (sometimes called "passbook")
when issued, must be presented to the Bank when making withdrawals, but this
provision shall not apply to payments made pursuant to dividend orders or other
classes of accounts for which no deposit book shall have been issued or required
under the authority of applicable law, rules, or regulations.
SECTION 6. NOTICE ACCOUNT. All withdrawals are subject to the provisions
of laws applicable at the time that a depositor may at any time be required to
give written notice, not exceeding ninety (90) days, of his intention to
withdraw the whole or any part of his deposit, or to apply for a loan on his
deposit, or that in the event of a usual demand for withdrawals, the
Commissioner of Banks, or the Executive Committee with the approval of the
Commissioner, may require a depositor to give written notice, not exceeding six
(6) months, of this intention to withdraw.
SECTION 7. PAYMENT ON BEHALF OF DECEASED DEPOSITORS. Deposits standing in
the name of a deceased person or a minor may be paid to the surviving spouse or
next of kin of a deceased depositor, or to either parent of a minor depositor,
in other manners as prescribed by law.
ARTICLE VIII
INTEREST
SECTION 1. PAYMENT. The Bank may pay interest on deposit accounts in
accordance with applicable law. Rates of interest may vary based on the type of
account or on the terms and conditions applicable to the account. The Bank by
its Bylaws, may provide that fractional parts of a dollar shall not be included
in principal in computing interest, and may provide that interest shall not be
paid on deposits of less than ten dollars ($10.00).
SECTION 2. PAYMENT DATE. Interest shall be payable on the last business
day of each month and as recommended from time to time by the Executive
Committee, subject to ratification by the Board of Directors.
ARTICLE IX
CERTAIN OTHER OPERATING PROVISIONS
SECTION 1. TRANSFER. Deposits or accounts may be transferred by the owner
to one or more other persons, subject to applicable provisions of law, and a
charge therefor may be imposed as the Board of Directors from time to time may
prescribe, provided at such charge shall not exceed the maximum amount permitted
by law. No transfer shall be valid as against the Bank until recorded on the
books of the Bank.
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SECTION 2. INVESTMENTS AND LOANS. Funds of the Bank shall be loaned or
invested in such manner, upon such terms and conditions, in such amounts and at
such rates of interest, as from time to time may be authorized or approved by
the Board of Directors or appropriate officers of the Bank in accordance with
applicable provisions of law.
SECTION 3. ATTORNEYS. The president may appoint one or more attorneys to
examine titles to property offered as security for loans and to prepare papers
of a legal nature required in connection therewith. The Board of Directors or
the president may approve the appointment of the same or such other attorneys in
general or special matters, as from time-to time the board or such officer may
deem necessary or advisable.
SECTION 4. EXECUTION OF INSTRUMENTS. All conveyances of real estates and
all assignments, extensions, discharges and releases in whole or in part of
mortgages, and all other instruments to which the Bank may be a party, shall be
executed by the president, the treasurer or by such other officer or officers as
from time to time may be authorized by the Board of Directors.
SECTION 5. CHARGES ON OVERDUE PAYMENT. The Board of Directors shall fix
the rate of charges to be imposed upon delinquent payments due the Bank within
the limits prescribed by law and shall determine the circumstances under which
and the periods in which such charges may be waived by the president, a vice
president, the treasurer or other officer authorized by the Board of Directors.
SECTION 6. BANKING HOURS. The Bank shall be open on such days and hours
as the directors may direct and in accordance with laws, rules and regulations.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Bank shall be the twelve months ending
December 31 of each year. The Bank shall be subject to an annual audit as of the
end of its fiscal year by independent public accountants appointed by the Board
of Directors.
SECTION 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Bank.
SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the Bank in
the ordinary course of its business without Board of Directors action may be
executed on behalf of the Bank by the president, any vice president, the
treasurer or any other officer, employee, or agent of the Bank as the Board of
Directors may authorize.
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SECTION 4. STANDARD OF LIABILITY. A director shall not be held
responsible or liable for any losses except such losses as may occur through his
or her own willful misconduct or default, or such director's gross negligence.
SECTION 5. INDEMNIFICATION. The Bank shall indemnify each director or
officer of the Bank, and may (in the discretion of the Board of Directors)
indemnify each non-officer employee, to the fullest extent now or hereafter
permitted by law against all expenses (including attorneys' fees and
disbursements), judgments, fees and amounts paid in settlement actually and
reasonably incurred by him or her in connection with any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative in 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 the Bank or of a subsidiary of the Bank, or is or was a director,
custodian, administrator, committeeman or fiduciary of any employee benefit plan
established and maintained by the Bank or by a subsidiary of the Bank, or is or
was serving another enterprise in any such capacity at the written request of
the Bank. To the extent authorized at any time by the Board of Directors of the
Bank, the Bank 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 by the Bank 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 shall be adjudicated to be not
entitled to indemnification under this section or applicable laws. In no event,
however, shall the Bank indemnify any director, officer, or other person
hereunder with respect to any matter as to which he or she 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 the Bank. In the event that
a proceeding is comprised or settled so as to impose any liability or obligation
upon an officer or upon a non-officer employee, no indemnification shall be
provided to said officer or to said non-officer employee with respect to a
matter if this Bank has obtained an opinion of counsel that with respect to said
matter said officer or said non-officer employee did not act in good faith in
the reasonable belief that his action was in the best interests of the Bank.
The Bank may purchase and maintain 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 the Bank or any such director,
officer or other person in any capacity, or arising out of any status, whether
or not the Bank would have the power to indemnify such person against such
liability by law or under the provisions of this Section 5. The provisions of
this Section 5 shall be applicable to persons who shall have ceased to be
directors, officers or employees of the Bank, and shall inure to the benefit of
the heirs, executors and administrators of persons entitled to indemnify
hereunder. Nothing herein shall be deemed to limit the Bank's authority to
indemnify any person pursuant to any contract or otherwise.
SECTION 6. VOTING OF SECURITIES. Unless otherwise provided by the Board
of Directors, the president, any vice president or the treasurer may waive
notice of and act on behalf of the Bank, or appoint another person or persons to
act as proxy or attorney in fact for the Bank with
14
<PAGE>
or without discretionary power and/or power of substitution, at any meeting of
stockholders or shareholders of any other organization, any of whose securities
are held by the Bank.
SECTION 7. RESIDENT AGENT. The Board of Directors may appoint a resident
agent upon whom legal process may be served in any action or proceeding against
the Bank. Said resident agent shall be either an individual who is a resident of
and has a business address in Massachusetts or a corporation organized under the
laws of any other state of the United States, which has qualified to do business
in, and has an office in, Massachusetts.
SECTION 8. BANK RECORDS. The original, or attested copies, of the
Charter, Bylaws and records of all meetings of the directors or stockholders and
the stock and transfer records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each, shall
be kept in Massachusetts at the main office of the Bank, or at an office of its
transfer agent, clerk or resident agent.
SECTION 9. CHARTER. All references in these Bylaws to the Charter shall
be deemed to refer to the Charter of the Bank, as amended and in effect from
time to time.
SECTION 10. AMENDMENTS. These Bylaws may be altered, amended or repealed
as provided in the Charter.
SECTION 11. EFFECTIVE DATE. These Bylaws shall become effective on the
date of the conversion of the Bank to a Massachusetts-chartered stock form
savings bank.
ARTICLE XI
CONVEYANCES, FORECLOSURES, ETC.
SECTION 1. GENERAL AUTHORITY. The President, any Vice President, the
Treasurer, and any Assistant Treasurer are authorized and empowered severally to
execute, acknowledge, and deliver in the name and on behalf of the Bank,
whenever authorized by the Executive Committee by general or specific vote, all
deeds and conveyances of real estate, all assignments, extension, releases and
discharges of mortgages, and all assignments and transfers of bonds and other
securities; and in connection with any of the foregoing, said officers are
authorized and empowered severally to release or assign the interest of the Bank
in any policy of insurance held by it.
SECTION 2. FORECLOSURES AND MORTGAGES. In the event of a breach of
condition of any mortgage held by the Bank, the President, any Vice President,
the Treasurer, and any Assistant Treasurer are authorized and empowered
severally in the name and on behalf of the Bank, whenever authorized by the
Executive Committee by general or specific vote, to make entry for the purpose
of taking possession of the mortgaged property or of foreclosing such mortgage,
and to perform any and all acts necessary or proper to consummate such
foreclosure and effect the due execution of any power of sale contained in such
mortgage, including the execution,
15
<PAGE>
acknowledgment and delivery of all deeds and instruments of conveyance to the
purchaser and the execution of all affidavits and certificates required by law
or deemed necessary by any such officers.
ARTICLE XII
EMERGENCY PREPAREDNESS
In order to provide for continuation of services and/or to minimize the
period of interruption of services in the event of attack upon the United
States, or in the event of fire, flood, hurricane, or damage from civil
disturbances and/or other disasters, the Chief Executive Officer, with the
approval of the Executive Committee, shall establish, maintain, and update the
Emergency Preparedness Plan.
ARTICLE XIII
ELECTRONIC BRANCHES AND FUNDS TRANSFER
Electronic branches and funds transfer procedures, in accordance with
provisions of Massachusetts General Laws, Chapter 167B, and subject to all
applicable rules and regulations, may be established by the Bank from time to
time subject to the approval of the Board of Directors.
16
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
WORONOCO BANCORP, INC
FIRST: The name of the Corporation is Woronoco Bancorp, Inc. (hereinafter
-----
sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eighteen million (18,000,000)
consisting of:
1. Two million (2,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Sixteen million (16,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly
or indirectly, by a person who, as of any record date for the
determination of
<PAGE>
stockholders entitled to vote on any matter, beneficially owns
in excess of 10% of the then-outstanding shares of Common
Stock (the "Limit"), be entitled, or permitted to any vote in
respect of the shares held in excess of the Limit. The number
of votes which may be cast by any record owner by virtue of
the provisions hereof in respect of Common Stock beneficially
owned by such person beneficially owning shares in excess of
the Limit shall be a number equal to the total number of votes
which a single record owner of all Common Stock beneficially
owned by such person would be entitled to cast, (subject to
the provisions of this Article FOURTH) multiplied by a
fraction, the numerator of which is the number of shares of
such class or series which are both beneficially owned by such
person and owned of record by such record owner and the
denominator of which is the total number of shares of Common
Stock beneficially owned by such person owning shares in
excess of the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in
Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect
on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by
reason
2
<PAGE>
of an agreement, contract, or other arrangement with
this Corporation to effect any transaction which is
described in any one or more of clauses 1 through 5
of Section A of Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), or upon the
exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or
shared voting or investment power with respect
thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall
not be deemed to be the beneficial owner of any
voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such
person nor any such Affiliate is otherwise deemed the
beneficial owner); or
(3) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned
person or any of its Affiliates acts as a
partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of any shares of capital stock of
this Corporation; and provided further, however,
that: (1) no Director or Officer of this Corporation
(or any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned
by any other such Director or Officer (or any
Affiliate thereof); and (2) neither any employee
stock ownership or similar plan of this Corporation
or any subsidiary of this Corporation, nor any
trustee with respect thereto or any Affiliate of such
trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof,
to beneficially own any Common Stock held under any
such plan. For purposes only of computing the
percentage of beneficial ownership of Common Stock of
a person, the outstanding Common Stock shall include
shares deemed owned by such person through
3
<PAGE>
application of this subsection but shall not include
any other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options,
or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then
outstanding and shall not include any Common Stock
which may be issuable by this Corporation pursuant to
any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
c. The "Limit" shall mean 10% of the then-outstanding shares
of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect
to: (i) the number of shares of Common Stock beneficially
owned by any person; (ii) whether a person is an affiliate of
another; (iii) whether a person has an agreement, arrangement,
or understanding with another as to the matters referred to in
the definition of beneficial ownership; (iv) the application
of any other definition or operative provision of the section
to the given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common
Stock in excess of the Limit (or holds of record Common Stock
beneficially owned by any person in excess of the Limit)
supply the Corporation with complete information as to:
(i) the record owner(s) of all shares beneficially owned by
such person who is reasonably believed to own shares in excess
of the Limit; and (ii) any other factual matter relating to
the applicability or effect of this section as may reasonably
be requested of such person.
4
<PAGE>
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority
of the votes (after giving effect, if required, to the
provisions of this Section C) entitled to be cast by the
holders of shares of capital stock of the Corporation entitled
to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining any
quorum requirement or any requirement for stockholder consent
or approval shall be deemed to refer to such majority or other
proportion of the votes (or the holders thereof) then entitled
to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and
on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and
binding upon the Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each such
remaining provision (or portion thereof) of this Section C
remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders
owning an amount of stock over the Limit, notwithstanding any
such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
5
<PAGE>
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SIXTH:
-----
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
6
<PAGE>
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
-------
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
------
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or
any Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash,
7
<PAGE>
securities or other property (or a combination thereof) having
an aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value of
the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant to
an employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more of
paragraphs 1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
8
<PAGE>
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by the holders of Common Stock in such
Business Combination shall at least be equal to the higher
of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of
its Affiliates for any shares of Common Stock
acquired by it: (i) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date"); or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this
Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be
at least equal to the highest of the following (it being
intended that the requirements of this subparagraph (b)
shall be required to be met with respect to every such
class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares
of a particular class of Voting Stock):
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<PAGE>
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any
shares of such class of Voting Stock acquired by it:
(i) within the two-year period immediately prior to
the Announcement Date; or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of
such class of Voting Stock. If the Interested Stockholder
has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration
to be received per share by holders of shares of such
class of Voting Stock shall be either cash or the form
used to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject
to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar
event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding stock
having preference over
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<PAGE>
the Common Stock as to dividends or liquidation; (2) there
shall have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors; and
(ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any
reverse stock split), recapitalization, reorganization or
any similar transaction which has the effect of reducing
the number of outstanding shares of the Common Stock,
unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors, and
(3) neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements
of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the rules or
regulations thereunder) shall be mailed to stockholders of
the Corporation at least 30 days prior to the consummation
of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting
in concert, a corporation, a partnership, an association, a
joint venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group formed for the
11
<PAGE>
purpose of acquiring, holding or disposing of securities or
any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who
or which:
a. is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting
Stock; or
b. is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding
Voting Stock; or
c. is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year
period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act
of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in
effect on the date of filing of this Certificate of
Incorporation.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by
the Corporation; provided, however, that for the purposes of
the definition of Interested Stockholder set forth in
Paragraph 2 of this Section C, the term "Subsidiary" shall
mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the
Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder
and was a member of the Board of Directors prior to the time
that the Interested
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<PAGE>
Stockholder became an Interested Stockholder, and any Director
who is thereafter chosen to fill any vacancy of the Board of
Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in connection
with his or her initial assumption of office is recommended
for appointment or election by a majority of Disinterested
Directors then on the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of
the stock during the 30-day period immediately preceding
the date in question of a share of such stock on the
National Association of Securities Dealers Automated
Quotation System or any system then in use, or, if such
stock is admitted to trading on a principal United States
securities exchange registered under the Securities
Exchange Act of 1934, as amended, Fair Market Value shall
be the highest sale price reported during the 30-day
period preceding the date in question, or, if no such
quotations are available, the Fair Market Value on the
date in question of a share of such stock as determined by
the Board of Directors in good faith, in each case with
respect to any class of stock, appropriately adjusted for
any dividend or distribution in shares of such stock or
any stock split or reclassification of outstanding shares
of such stock into a greater number of shares of such
stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of
shares of such stock; and
b. in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as
determined by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of such
stock or any stock split or reclassification of outstanding
shares of such stock into a greater number of shares of such
stock or any combination or reclassification of outstanding
shares of such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this
13
<PAGE>
Article EIGHTH shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings institution to fulfill the objectives of a
stock form savings institution under applicable statutes and regulations.
14
<PAGE>
TENTH:
-----
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable
15
<PAGE>
period shall be twenty days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid
also the expenses of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder
(but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not
met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought
by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article TENTH or otherwise shall
be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
16
<PAGE>
ELEVENTH: A Director of this Corporation shall not be personally liable to
--------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- ---------------------------------
Siobain Perkins Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
17
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 26th day of October
1998.
/s/ Siobain Perkins
------------------------------------
Siobain Perkins
Incorporator
18
<PAGE>
EXHIBIT 3.2
WORONOCO BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for
<PAGE>
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
2
<PAGE>
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a
brief description of the business 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 the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The Officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible
3
<PAGE>
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she shall so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be
thirteen (13). The Board of Directors shall annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
5
<PAGE>
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
-------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
6
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
7
<PAGE>
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
8
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen but
any Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him by the Board of Directors and which
are delegated to him or her by the Board of Directors by resolution of the Board
of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer shall have general responsibility
for the management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of President and Chief Executive Officer or which are delegated to
him or her by the Board of Directors. Subject to the direction of the Board of
Directors, the President and Chief Executive Officer shall have power to sign
all stock certificates, contracts and other instruments of the Corporation which
are authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise
9
<PAGE>
the powers usually incident to their respective offices and/or such other duties
and powers as may be properly assigned to them by the Board of Directors, the
Chairman of the Board or the President. A Vice President or Vice Presidents may
be designated as Executive Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
10
<PAGE>
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
11
<PAGE>
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
12
<PAGE>
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
13
<PAGE>
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of October 26, 1998, the date of incorporation
of Woronoco Bancorp, Inc.
14
<PAGE>
Exhibit 4.0
<TABLE>
<S> <C>
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
</TABLE>
WORONOCO BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
WORONOCO BANCORP, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, Woronoco Bancorp, Inc. has caused this certificate
to be executed by the facsimile signatures of its duly authorized officers and
has caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [SEAL]
President Secretary
<PAGE>
WORONOCO BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - __________ custodian__________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint_____________________________________________ Attorney to transfer the
said stock on the books of the within-named Corporation with full power of
substitution in the premises.
DATED ________________________ ___________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: _________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0
____________, 1998
Board of Directors
Woronoco Bancorp, Inc.
31 Court Street
Westfield, Massachusetts 01086-0978
Re: The issuance of up to 5,998,860 shares of
Woronoco Bancorp, Inc. Common Stock
Lady and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of the Woronoco Savings Bank (the "Bank"), a
Massachusetts savings bank, from the mutual to the stock form of ownership (the
"Conversion"), and the related subscription offering, direct community offering
and syndicated community offering (the "Offerings") by Woronoco Bancorp, Inc.,
(the "Company"), a Delaware corporation and the proposed holding company for the
Bank, of up to 4,830,000 shares of its common stock, par value $.01 per share
("Common Stock") (5,554,500 shares if the estimated valuation range is increased
up to 15% to reflect changes in market and financial conditions following
commencement of the Offerings) and the issuance of 386,400 shares of Common
Stock to Woronoco Savings Charitable Foundation (the "Foundation"), a privately-
owned charitable foundation formed by the Company, (444,360 shares if the
estimated valuation range is increased up to 15% to reflect changes in market
and financial conditions following commencement of the Offerings) pursuant to a
gift instrument.
We understand that the Company will contribute funds to a wholly-owned
subsidiary of the Company (the "Subsidiary") which Subsidiary will lend to the
trust for the Bank's Employee Stock Ownership Plan (the "ESOP") the funds the
ESOP trust will use to purchase shares of Common Stock for which the ESOP trust
subscribes pursuant to the Offerings and, for purposes of rendering the opinion
set forth in paragraph 2 below, we assume that: (a) the Board of Directors of
the Company (the "Board") has duly authorized the capital contribution to the
Subsidiary for purposes of making a loan to the ESOP trust (the "Loan"); (b) the
Board of Directors of the Subsidiary has duly authorized the Loan to the ESOP
trust; (c) the ESOP serves a valid corporate purpose for the Company; (d) the
Loan will be made at an interest rate and on other terms that are fair to the
Subsidiary; (e) the terms of the Loan will be set forth in customary
<PAGE>
Board of Directors
Woronoco Bancorp, Inc.
____________, 1998
Page 2
and appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP trust to the Subsidiary as a result of
the Loan; and (f) the closing for the Loan and for the sale of Common Stock to
the ESOP trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof and the contribution by the Company to the Subsidiary of the
funds sufficient to make the Loan.
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on October 27, 1998 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as initially filed with the Securities and Exchange Commission on
November __, 1998 and as amended on ____________, 1998 (the "Registration
Statement"); a consent of the sole incorporator of the Company; the Plan of
Conversion, as amended; the gift instrument whereby shares will be granted to
the Foundation; the ESOP trust agreement and the ESOP Loan agreement;
resolutions of the Board concerning the organization of the Company, the
Offerings and designation of a pricing committee of the Board (the "Pricing
Committee"), and the form of stock certificate approved by the Board to
represent shares of Common Stock. We have also been furnished a certificate of
the Delaware Secretary of State certifying the Company's good standing as a
Delaware corporation. Capitalized terms used but not defined herein shall have
the meaning given them in the Certificate of Incorporation.
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law upon which opinion we
believe we are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell which opinion is in form satisfactory to us.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP trust) and the shares to be granted to a charitable foundation to be
established by the Company in connection with the Conversion will be duly
authorized and, when such shares are sold and paid for or granted (in the case
of the Foundation) in accordance with the terms set forth in the prospectus
which is included in the Registration Statement and such resolution of the
Pricing Committee or, in the case of the
<PAGE>
Board of Directors
Woronoco Bancorp, Inc.
____________, 1998
Page 3
Foundation, in accordance with the gift instrument and certificates representing
such shares in the form provided to us are duly and properly issued, will be
validly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We assume no obligation to advise you of any events that occur subsequent
to the date of this opinion.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
Exhibit 5.1
11/10/98 Draft
--------------
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with (i) the conversion of Woronoco Savings Bank, a
Massachusetts chartered savings bank (the "Bank"), from the mutual form of
ownership to stock form of ownership (the "Conversion"), (ii) the subscription
and community offering (the "Offering"), in connection with the Conversion, by
Woronoco Bancorp, Inc., a Delaware corporation (the "Company"), of up to
5,554,500 shares of its common stock, par value $.01 per share (the "Common
Stock"), and (iii) the sale of up to 444,360 shares of Common Stock (the
"Foundation Shares") to Woronoco Savings Charitable Foundation, a Delaware non-
stock corporation (the "Foundation"), pursuant to the Charitable Gift to
Woronoco Savings Charitable Foundation dated as of ________________ ___, 1998 by
the Company (the "Gift Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of incorporation (the
"Certificate of Incorporation"), its bylaws, the Registration Statement filed
with the Securities and Exchange Commission in connection with the Offering (the
"Registration Statement"), including the prospectus constituting a part thereof
(the "Prospectus"), a consent of the sole incorporator of the Company,
resolutions of the Board of Directors of the Company (the "Board") concerning,
inter alia, the organization of the
- ----- ----
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
Company, the Offering and the designation of a Pricing Committee of the Board
(the "Pricing Committee"), the form of stock certificate approved by the Board
to represent shares of Common Stock, the Foundation's certificate of
incorporation (the "Foundation Certificate of Incorporation"), its bylaws, a
consent of the sole incorporator of the Foundation, and the Gift Instrument. We
have also obtained a certificate of the Delaware Secretary of State as to the
Company's and the Foundation's good standing as Delaware corporations.
Capitalized terms used but not defined herein shall have the meanings given them
in the Certificate of Incorporation.
We understand that a wholly-owned subsidiary of the Company (the
"Subsidiary") will loan to the Bank's Employee Stock Ownership Plan (the "ESOP")
the funds the ESOP will use to purchase the shares of Common Stock for which the
ESOP has subscribed as part of the Offering. The Subsidiary will receive the
funds necessary to make such loan by way of a capital contribution by the
Company to the Subsidiary (the "Capital Contribution"). In this regard, we have
assumed, for purposes of rendering the opinion set forth in paragraph 2 below,
that: (a) the board of directors of the Subsidiary has duly authorized the loan
to the ESOP (the "Loan"); (b) the Loan serves a valid corporate purpose of the
Subsidiary and the Capital Contribution serves a valid corporate purpose of the
Company; (c) the Loan will be made at an interest rate and on other terms that
are fair to the Subsidiary; (d) the terms of the Loan will be set forth in
customary and appropriate documents including, without limitation, a promissory
note representing the indebtedness of the ESOP to the Subsidiary as a result of
the Loan; and (e) the Capital Contribution, the closing for the Loan and for the
sale of Common Stock to the ESOP will be held after the closing for the sale of
the other shares of Common Stock sold in the Offering and the receipt by the
Company of the proceeds thereof.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the Offering, the Conversion,
or the Foundation, including, without limitation, those applicable to federally
insured savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued to
the ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and non-assessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and sale
will not be in violation of or subject to any preemptive rights provided for by
Delaware law or by the Certificate of Incorporation.
3. The Foundation has been duly organized and is validly existing as
a non-stock corporation in good standing under the laws of the State of Delaware
with corporate power and authority to own, lease, and operate its properties and
to conduct its business as described in the Prospectus.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
4. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to establish the
Foundation and to issue and sell the Foundation Shares to the Foundation as
described in the Prospectus pursuant to the Gift Instrument; provided, however,
that we express no opinion with respect to the Delaware Securities Act (6 Del.
----
C. (S) 7301 et seq.).
- -- -------
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided in
the Gift Instrument against payment therefor, and a certificate representing
such shares in the form provided to us is duly and properly issued, such shares
will be duly and validly issued, fully paid and non-assessable, with no personal
liability for the payment of the Company's debts arising solely by virtue of the
ownership thereof; such issuance and sale will not be in violation of or subject
to any preemptive rights provided for by Delaware law or the Certificate of
Incorporation.
The following provisions of the Certificate of Incorporation may not
be given effect by a court applying Delaware law, but in our opinion the failure
to give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and non-assessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply the provisions
of those Articles, subsection C.4 of Article FOURTH, to the extent that
provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any,
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
that a court applying Delaware law were to impose equitable limitations upon the
authority of the Board under such provisions.
(b) Article NINTH of the Certificate of Incorporation, which purports
to permit the Board to consider the effect of any offer to acquire the Company
on constituencies other than stockholders in evaluating any such offer.
Very truly yours,
<PAGE>
Exhibit 8.0
________________, 1998
Board of Directors
Woronoco Bancorp, Inc.
31 Court Street
Westfield, Massachusetts 01086-0978
Board of Trustees
Woronoco Savings Bank
31 Court Street
Westfield, Massachusetts 01086-0978
Re: Federal Tax Consequences of the Conversion of Woronoco Savings
Bank from a State-chartered Mutual Savings Bank to a State-chartered
Capital Stock Institution and the Offer and Sale of Common Stock of
Woronoco Bancorp, Inc. (the "Conversion")
To the Members of the Board of Trustees:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of Woronoco Savings Bank (the "Bank") from a state-
chartered mutual savings bank to a state-chartered capital stock institution and
the acquisition of the Bank's capital stock by Woronoco Bancorp, Inc., a
Delaware corporation (the "Holding Company"), pursuant to the plan of conversion
adopted by the Board of Trustees on August 26, 1998 and subsequently amended on
October 14, 1998 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
________________, 1998
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Holding
Company and the Bank concerning the Holding Company and the Bank as well as the
transaction ("Representations"). These Representations are required to be
furnished prior to the execution of this letter and again prior to the closing
of the Conversion. We will rely upon the accuracy of the Representations of the
Holding Company and the Bank and the statements of facts contained in the
examined documents, particularly the Plan of Conversion. We have also assumed
the authenticity of all signatures, the legal capacity of all natural persons
and the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Bank are incorporated in this letter as part of
the statement of the facts.
Woronoco Savings Bank, with its headquarters in Westfield, Massachusetts,
is a state-chartered mutual savings bank. As a savings bank, the Bank has never
been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Bank belong to the deposit account holders
of the Bank, hereinafter sometimes referred to as "shareholders." A shareholder
of the Bank has a right to share, pro rata, with respect to the withdrawal value
of his respective deposit account in any liquidation proceeds distributed in the
event the Bank is ever liquidated. In addition, a shareholder of the Bank is
entitled to interest on his account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Trustees has adopted the Plan of Conversion whereby the Bank will
convert itself into a Massachusetts-chartered capital stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. Assuming that the Holding Company form of organization is utilized,
the Holding Company will acquire the stock of the Bank by purchase, in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the Conversion. The
aggregate sales price of the Common Stock issued in the Conversion will be based
on an independent appraiser's valuation of the estimated pro forma market value
of the Common Stock of the Converted Bank. The Conversion and sale of the
Common Stock will be subject to applicable regulatory approval and the approval
by the affirmative vote of two-thirds of the Corporators.
<PAGE>
Board of Directors
________________, 1998
Page 3
The Bank shall establish at the time of Conversion a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their deposit accounts at the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall, with
respect to his Savings Account, hold a related inchoate interest in a portion of
the liquidation account balance, in relation to his deposit account balance on
the Eligibility Record Date and/or Supplemental Eligibility Record Date or to
such balance as it may be subsequently reduced, as provided in the Plan of
Conversion.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their deposit accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his deposit accounts then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Savings
Accounts and other liabilities, or similar transaction with a Federal Deposit
Insurance Corporation (FDIC) institution, in which the Bank is not the surviving
institution, shall be deemed to be a complete liquidation for this purpose. In
such transactions, the liquidation account shall be assumed by the surviving
institution.
As part of the Conversion, the Company and the Bank intend to establish a
charitable foundation (the "Foundation") that will qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") and to donate to the Foundation up to 8.0% of the number of
shares of Common Stock sold in the Conversion. The establishment and funding of
the Foundation as part of the Conversion is subject to the approval of the
Voting Shareholders of the Bank at the Special Meeting of Shareholders. In the
event that the Foundation does not receive the prerequisite approval, the Bank
may determine to complete the Conversion without the Foundation.
<PAGE>
Board of Directors
________________, 1998
Page 4
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Code, including applicable regulations thereunder and current judicial and
administrative authority. Any future amendments to the Code or applicable
regulations, or new judicial decisions or administrative interpretations, any of
which could be retroactive in effect, could cause us to modify our opinion. No
opinion is expressed herein with regard to the federal, state, or city tax
consequences of the Conversion under any section of the Code except if and to
the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing Representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank shall
recognize gain or loss as a result of the Conversion. The Bank and the
Converted Bank shall each be "a party to a reorganization" within the
meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding
<PAGE>
Board of Directors
________________, 1998
Page 5
Company in exchange for shares of the Converted Bank's capital stock
or by the Holding Company upon the receipt of money from the sale of
its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to
<PAGE>
Board of Directors
________________, 1998
Page 6
its stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Trustees, Officers and Employees have a fair market value of zero.
We understand that you have received a letter from Keller & Co., Inc. that the
subscription rights do not have any value. We express no view regarding the
valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the
Application for Conversion and Form S-1 Registration Statement of Woronoco
Bancorp, Inc. and the references to and summary of this opinion in such
Application for Conversion and Form S-1 Registration Statement.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
Exhibit 8.1
[LETTERHEAD OF WOLF COMPANY, P.C. APPEARS HERE]
================================================================================
November 13, 1998
Board of Trustees
Woronoco Savings Bank
31 Court Street
Westfield, MA 01085
Board of Directors
Woronoco Bancorp, Inc.
31 Court Street
Westfield, MA 01085
Ladies and Gentlemen:
This letter constitutes our opinion as to certain state income tax consequences
of the proposed conversion of Woronoco Savings Bank (the "Bank") from a
Massachusetts mutual savings bank to a Massachusetts stock savings bank followed
by the acquisition of the Bank's capital stock by Woronoco Bancorp, Inc. (the
"Holding Company"), a Delaware corporation, pursuant to the plan of conversion
(the "Conversion").
The opinions contained herein are based solely on the FACTS and REPRESENTATIONS
stated herein. All Section references are to the Internal Revenue Code of 1986,
as amended (the "Code") and Massachusetts General Laws ("MGL") as in effect as
of the date of this opinion. If any of the FACTS and REPRESENTATIONS is not
correct or complete, it is imperative that we be informed in writing as this
could have a material adverse effect on our opinion.
STATEMENT OF FACTS
------------------
Woronoco Savings Bank, with an administrative office in Westfield,
Massachusetts, is a Massachusetts chartered mutual savings bank. As a mutual
savings bank, the Bank has never been authorized to issue stock. Instead, the
proprietary interest in the reserves and undivided profits of the Bank belong to
the deposit account holders of the Bank, hereinafter sometimes referred to as
"depositors". A depositor of the Bank has a right to share, pro rata, with
respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event the Bank is ever liquidated. In
addition, a depositor of the Bank is entitled to interest on his account balance
as fixed and paid by the Bank.
<PAGE>
Holding Company is a Delaware corporation recently organized by the Bank for the
purpose of acquiring all of the capital stock of the Bank to be issued in the
Conversion. Holding Company will have authorized capital stock consisting of 16
million shares of common stock ("Common Stock") and 2 million shares of
preferred stock. Only Common Stock will be issued in connection with the
Conversion. Holding Company will acquire the stock of the Bank in exchange for
the greater of that portion of the net proceeds of the Offerings sufficient to
increase the Bank's tangible capital to 10% of its total adjusted assets or 50%
of the net proceeds from the Offerings.
DESCRIPTION OF THE CONVERSION
-----------------------------
In order to provide organizational and economic strength to the Bank, the Board
of Trustees has adopted a plan of conversion, as amended, (the "Plan of
Conversion") whereby the Bank will convert itself into a Massachusetts stock
savings bank (the "Converted Bank"), the stock of which will be held entirely by
the Holding Company. In connection with the Conversion, the Holding Company
will issue shares of its $0.01 par value Common Stock in Subscription and Direct
Community Offerings. It is anticipated that all such shares of Common Stock not
subscribed for in the Subscription and Direct Community Offerings will be
offered to the general public in a Syndicated Community Offering.
The aggregate sales price of the Common Stock issued in the Conversion will be
based on an independent appraiser's valuation of the estimated pro forma value
of the Common Stock of the Converted Bank. The Conversion and sale of the
Common Stock will be accomplished pursuant to the rules and regulations and will
be subject to the approval of the Commissioner of the Massachusetts Division of
Banks and the Federal Deposit Insurance Corporation ("FDIC").
In accordance with the Plan of Conversion, rights to subscribe for the purchase
of Common Stock have been granted under the Plan of Conversion to the following
persons in the following order of priority: (1) depositors whose accounts in
the Bank totaled $50 or more on July 31, 1997 ("Eligible Account Holders"); (2)
depositors whose accounts in the Bank totaled $50 or more on June 30, 1998
("Supplemental Eligible Account Holders"); (3) the Employee Plans, including the
ESOP; and (4) trustees, corporators, directors, officers, and employees who do
not otherwise qualify as Eligible Account Holders or Supplemental Eligible
Account Holders. All subscriptions received will be subject to the availability
of Common Stock after satisfaction of all subscriptions of all persons having
prior rights in the Subscription Offering and to the maximum and minimum
purchase limitations set forth in the Plan of Conversion.
2
<PAGE>
REPRESENTATIONS
---------------
In connection with the proposed reorganization, the following representations
have been made to us by you and we have relied on them as an integral
assumption in reaching our conclusions:
1) The value of the withdrawable deposit accounts plus interests in the
liquidation account of the Converted Bank to be received under the
Plan of Conversion will, in each instance, be equal to the value of
the withdrawable deposit accounts (plus the related interest in the
residual equity of the Bank) deemed to be surrendered in exchange
therefor.
2) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date and/or the Supplemental Eligibility
Record Date, then no amount of that individual's total deposits will
be excluded from participation in the liquidation account. The value
of the deposit accounts of the Bank which have a balance of less than
$50 on the Eligibility Record Date or the Supplemental Eligibility
Record Date is less than 1% of the total value of all deposit accounts
of the Bank.
3) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank will own all of
the outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
4) After the Conversion, the Converted Bank- will continue the business
of the Bank in the same manner as prior to the Conversion. The
Converted Bank has no plan or intention and the Holding Company has no
plan or intention to cause the Converted Bank to sell its assets other
than in the ordinary course of business.
5) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
6) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
3
<PAGE>
7) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
and/or Stock Plans.
8) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Code.
9) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as compensation by means of the Employee
and/or Stock Plans that may be approved at the conversion or
subsequently thereto. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
10) The value of the assets of the Bank, which will be transferred to
Converted Bank in the Conversion, will equal or exceed the sum of the
liabilities of the Bank which will be assumed by the converted Bank
and any liabilities to which the transferred assets are subject.
11) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
12) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
13) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
4
<PAGE>
14) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
15) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
16) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the value of the stock of the Holding
Company at the time of the completion of the Conversion as determined
by an independent appraisal.
17) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
18) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
19) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
20) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past 5 tax years.
21) The money necessary for the ESOP to purchase the stock will be lent
from a newly created subsidiary of Holding Company ("ESOP Loan
Subsidiary").
5
<PAGE>
DISCUSSION
----------
Financial Institution Excise Tax
Bank is a Massachusetts mutual savings bank subject to the Massachusetts
Financial Institution excise tax under MGL chapter 63, sections 1, 2, 2A, and
7. Holding Company will be a Delaware chartered corporation subject to
Massachusetts excise tax under MGL chapter 63, section 39 or the excise imposed
under MGL chapter 63, section 38B(b) if Holding Company is classified as a
security corporation pursuant to that section. ESOP Loan Subsidiary will be a
Massachusetts domestic corporation subject to the Massachusetts Financial
Institution excise tax under MGL chapter 63, sections 1, 2, 2A and 7 whose
purpose is to loan money to the ESOP to enable the ESOP to purchase stock.
The Massachusetts Financial Institution excise tax provides that banks and
certain corporations are taxed on net income as defined in MGL chapter 63,
section 1, which provides that net income is equal to "gross income other than
ninety-five percent of dividends received in any taxable year beginning on or
after January first, nineteen hundred and ninety-nine from or on account of the
ownership of any class of stock if the financial institution owns fifteen
percent or more of the voting stock of the institution paying the dividend,
less the deductions, but not the credits allowable under the provisions of the
Internal Revenue Code, as amended and in effect for the taxable year. For
taxable years beginning on or after January first, nineteen hundred and ninety-
nine, the provisions of section 291 of said Code shall not apply; and the
provisions of section 171(a)(2) and 265 of said Code shall only apply to the
extent that the income to which the deductions relate is excludable from gross
income. Deductions with respect to the following items, however, shall not be
allowed except as otherwise provided:
(a) dividends received, except as otherwise provided;
(b) losses sustained in other taxable years; or
(c) taxes on or measured by income, franchise taxes measured by net
income, franchise taxes for the privilege of doing business and
capital stock taxes imposed by any state."
Pursuant MGL chapter 63, section 1 for taxable years beginning on or after
January 1, 1995 gross income "is defined under the provisions of the federal
Internal Revenue Code, as amended and in effect for the taxable year, plus the
interest from bonds, notes and evidences of indebtedness of any state, including
the Commonwealth". Accordingly, a transaction that is non-taxable for federal
income tax purposes because it qualities as a tax-free reorganization within the
meaning of Section 368(a)(1)(F) of the federal Internal Revenue Code would also
be non-taxable for Massachusetts Financial Institution excise tax purposes by
reason of the fact that the federal treatment is controlling for Massachusetts
purposes.
6
<PAGE>
Although there is no case law nor regulations, announcements, or letter rulings
issued by the Department of Revenue ("DOR") since the adoption of the revised
definition of gross income, the DOR has issued numerous letter rulings
regarding reorganizations under pre-1995 law. In several letter rulings, the
DOR has ruled that no gain or loss should be recognized on transactions which
qualify as reorganizations under Code section 368(a)./1/ Other letter rulings
have held no Massachusetts gross income or loss resulted from the conversion of
a mutual savings or cooperative bank to a stock savings or cooperative bank./2/
The letter rulings relating to the conversion from mutual to stock form of
doing business specifically address the issue of whether the issuance of stock,
under Section 1032 of the Code, creates income to the issuer. In all of the
rulings, the DOR stated that no gain or loss should be recognized on the
receipt of money in exchange for shares of common stock./3/
Accordingly, no gain should be recognized by either Holding Company upon
issuance of its shares to the public or by Bank upon issuance of its shares to
Holding Company.
While the above rulings apply to pre-1995 tax law, the statutory definition of
gross income under pre-1995 tax law was very broad to include gross income from
all sources. Accordingly, the conclusions reached by these rulings would
provide weight to our conclusion that a non-taxable transaction for federal
income tax purposes would also be non-taxable for Massachusetts Financial
Institution excise tax purposes.
Corporate Excise Tax
It is the intent of management of Holding Company to obtain classification as a
Massachusetts Security Corporation under Massachusetts Chapter 63, Section
38B(b) for Massachusetts excise tax purposes. One of the requirements for
obtaining classification as a Massachusetts Security Corporation is that the
company be engaged "exclusively in buying. selling, dealing in, or holding
securities its own behalf and not as a broker."/4/
-----------------------------
/1/Massachusetts Letter Rulings 82-5, 83-53, 85-3, and 85-63.
/2/Massachusetts Letter Rulings 84-11, 83-61 and 83-53.
/3/Ibid.
/4/MGL Chapter 63, Section 38(B).
7
<PAGE>
Holding Company has been authorized to loan money to the ESOP plan to be used
for the purchase of Holding Company stock. The lending of money is an
impermissible activity for Massachusetts Security Corporations/5/ and would
result in disqualification as a Massachusetts Security Corporation. Such
disqualification could result in additional income taxes being incurred by
Holding Company.
Management has represented to us that if it becomes necessary for the Holding
Company to loan money to the ESOP plan, the Holding Company will create a newly
formed subsidiary, ESOP Loan Subsidiary. ESOP Loan Subsidiary will then loan
the money to the ESOP plan.
Massachusetts Letter Rulings 88-13 and 91-3 addressed the issues of whether bank
holding companies and other corporations, respectively, were allowed to own
wholly-owned subsidiaries and what their permissible activities would be. In
both rulings, and particularly in the case of bank holding companies,
corporations were given fairly broad powers to manage the investment in their
wholly-owned subsidiaries provided they did not actually conduct a trade or
business themselves.
Provided ESOP Loan Subsidiary is created in such a manner that the business of
ESOP Loan Subsidiary can be managed by ESOP Loan Subsidiary and is not managed
by Holding Company, the formation of ESOP Loan Subsidiary followed by the
lending of money from ESOP Loan Subsidiary, to the ESOP plan should not violate
the requirements necessary to obtain and retain Massachusetts Security
Corporation classification status for Holding Company.
OPINION
-------
Accordingly, based upon the facts and representations stated herein, it is the
opinion of Wolf and Company, P.C. regarding the Massachusetts income tax effect
of the planned reorganization that:
1.) Provided that the Conversion qualifies as a tax-free reorganization
within the meaning of section 368(a)(1)(F) of the Code, the Conversion
will also qualify as a tax-free reorganization for Massachusetts
excise tax purposes (Massachusetts Letter Rulings 84-11, 83-53 and 83-
61).
2.) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock, or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Massachusetts Letter Ruling 87-11, Section
1032(a) of the Code).
-------------------------------
/5/Massachusetts Directive 86-35.
8
<PAGE>
3.) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Massachusetts Letter Ruling 84-
11, Section 362(b) of the Code).
4.) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code and Massachusetts Letter Ruling
84-11).
5.) No gain or loss will be recognized by the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank on the
constructive issuance to them of withdrawable deposit accounts in the
Converted Bank plus interests in the liquidation account of the
Converted Bank in exchange for their deposit accounts in the Bank or
to the other depositors on the issuance to them of withdrawable
deposit accounts (Massachusetts Letter Ruling 84-11 and Section 354(a)
of the Code).
6.) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a) and Massachusetts Letter Ruling
84-11). Gain realized, if any, by the Eligible Account Holders and
Supplemental Eligible Account Holders on the distribution to them of
nontransferable subscription rights to purchase shares of Common Stock
will be recognized but only in an amount not in excess of the fair
market value of such subscription rights (Section 356(a) and
Massachusetts Letter Ruling 84-11). Eligible Account Holders and
Supplemental Eligible Account Holders will not realize any taxable
income as a result of the exercise by them of the nontransferable
subscription rights (Massachusetts Letter Ruling 84-11).
7.) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code and Massachusetts Letter Rulings 84-11
and 83-61). The basis of the interests in the liquidation account of
the Converted Bank to be received by the Eligible Account Holders of
the Bank shall be zero (Massachusetts Letter Rulings 84-11 and 83-61).
The basis of the Holding Company Common Stock to its stockholders will
be the purchase price thereof plus the fair market values, if any, of
nontransferable subscription rights (Section 1012 of the Code and
Massachusetts Letter Rulings 84-11 and 83-61). Accordingly, assuming
the nontransferable subscription rights have no value, the basis of
the Common Stock to the Eligible Account
9
<PAGE>
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code and Massachusetts Letter Ruling 84-11 and 83-61).
8.) Under MGL Chapter 63, Sections 1, 2 and 7, the Bank and the Converted
Bank will be treated as the same savings bank and as if the Conversion
had not occurred (Massachusetts Letter Ruling 84-11). Accordingly:
a.) the part of the current taxable year of the Bank before the
Conversion and the part of the current taxable year of the
Converted Bank after the Conversion will constitute a single
taxable year of the Converted Bank;
b.) the Converted Bank will succeed to and take into account the net
operating income of the Bank as of the date of the Conversion;
and
c.) for the current taxable year, the Converted Bank may claim as a
credit any estimated tax under MGL Chapter 63, Section 2 paid by
the Bank prior to the Conversion.
9.) The lending of money from ESOP Loan Subsidiary to the ESOP plan will
not prevent Holding Company from qualifying as a Massachusetts
Security Corporation provided that Holding Company does not conduct
any other activities deemed impermissible under MGL Chapter 63,
Section 38B, and the various regulations, announcements and letter
rulings issued by the Department of Revenue.
Our opinion under paragraph (6) above is predicated on the representation that
no person shall receive any payment, whether in money or property, in lieu of
the issuance of subscription rights. Our opinion under paragraphs (6) and (7)
above assumes that the subscription rights to purchase shares of Common Stock
received by Eligible Account Holders, and Supplemental Eligible Account Holders
have a fair market value of zero. We understand that you have received an
opinion of Keller & Co. Inc. that the subscription rights do not have any value.
We express no view regarding the valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market value,
income may be recognized by various recipients of the subscription rights (in
certain cases, whether or not the rights are exercised) and Holding Company
an/or the Converted Bank may be taxable on the distribution of the subscription
rights.
10
<PAGE>
Our opinion assumes that the Conversion qualifies under Code Section 368(a) as a
tax free reorganization. We understand that the federal tax opinion is being
rendered by Muldoon, Murphy & Faucette, Attorneys at Law. We express no view
regarding whether the Conversion qualifies as a tax free reorganization under
the Code.
CONCLUSION
----------
THE OPINIONS CONTAINED HEREIN ARE RENDERED ONLY WITH RESPECT TO THE SPECIFIC
MATTERS DISCUSSED HEREIN AND WE EXPRESS NO OPINION WITH RESPECT TO ANY OTHER
LEGAL, FEDERAL, STATE, OR LOCAL TAX ASPECT OF THESE TRANSACTION. THIS OPINION
IS NOT BINDING UPON ANY TAX AUTHORITY INCLUDING THE MASSACHUSETTS DEPARTMENT OF
REVENUE OR ANY COURT AND NO ASSURANCE CAN BE GIVEN THAT A POSITION CONTRARY TO
THAT EXPRESSED HEREIN WILL NOT BE ASSERTED BY A TAX AUTHORITY.
IN RENDERING OUR OPINIONS WE ARE RELYING UPON THE RELEVANT PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, MASSACHUSETTS GENERAL LAWS AND THE
REGULATIONS, JUDICIAL AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS OF THE
DATE OF THIS LETTER.
HOWEVER, ALL OF THE FOREGOING AUTHORITIES ARE SUBJECT TO CHANGE OR MODIFICATION
WHICH CAN BE RETROACTIVE IN EFFECT AND, THEREFORE, COULD ALSO AFFECT OUR
OPINIONS. WE UNDERTAKE NO RESPONSIBILITY TO UPDATE OUR OPINION FOR ANY
SUBSEQUENT CHANGE OR MODIFICATION.
Very truly yours,
Wolf and Company, P.C.
/S/Wolf and Company, P.C.
11
<PAGE>
Exhibit 10.1
TRUST AGREEMENT
BETWEEN
WORONOCO SAVINGS BANK
AND
[TRUSTEE]
FOR THE
WORONOCO SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
CONTENTS
--------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Section 1 Creation of Trust 1
Section 2 Investment of Trust Fund and
Administrative Powers of the
Trustee 2
Section 3 Compensation and Indemnification
of Trustee and Payment of Expenses
and Taxes 7
Section 4 Records and Valuation 8
Section 5 Instructions from Committee 8
Section 6 Change of Trustees 9
Section 7 Miscellaneous 10
</TABLE>
<PAGE>
This TRUST AGREEMENT dated___________, 199___ BETWEEN Woronoco Savings
Bank, a Massachusetts-chartered savings bank with its principal office at 31
Court Street, Westfield, Massachusetts 01086-0978 (hereinafter called the
"Bank"), AND____________-(hereinafter called "_____________" or the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, the Bank approved and adopted an employee stock ownership plan for
the benefit of its employees, known as the Woronoco Savings Bank Employee Stock
Ownership Plan effective____________, 199__ (hereinafter called the "Plan"); and
WHEREAS, the Bank has authorized the execution of this Trust Agreement and
has appointed_____________ as Trustee of the Trust Fund created pursuant to the
Plan; and
WHEREAS, ________________ has agreed to act as Trustee and to hold and
administer the assets of the Plan in accordance with the terms of this Trust
Agreement;
NOW, THEREFORE, the Bank and the Trustee agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustee. _________________ shall be trustee of the Trust Fund (as
-------
defined below) created in accordance with and in furtherance of the Plan, and
shall serve as Trustee until its removal or resignation in accordance with
Section 6 (unless otherwise noted, all Section references contained herein are
to this Trust Agreement).
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from
-----------
the Employer as defined in the Plan and amounts transferred from other qualified
retirement plans from time to time in accordance with the terms of the Plan.
All such property and contributions, together with income thereon and increments
thereto, shall constitute the "Trust Fund" to be held in accordance with the
terms of the Trust Agreement.
1.3 Incorporation of Plan. An instrument entitled "Woronoco Savings Bank
----------------------
Employee Stock Ownership Plan" is incorporated herein by reference, and this
Trust Agreement shall be interpreted consistently with that Plan. All words and
phrases defined in that Plan shall have the same meaning when used in this Trust
Agreement, unless otherwise specifically defined in this Trust Agreement.
1.4 Name. The name of this trust shall be "Woronoco Savings Bank Employee
-----
Stock Ownership Plan Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
-----------------------
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the
<PAGE>
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan, except to the extent that assets may be returned to
the Employer in accordance with the Plan where the Plan fails to qualify
initially under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), or where they are attributable to contributions made by mistake of
fact or conditioned upon their deductibility.
Section 2. Investment of Trust Fund and Administrative Powers of the
---------------------------------------------------------
Trustee.
- --------
2.1 Stock and Other Investments. The basic investment policy of the Plan
----------------------------
shall be to invest primarily in Stock of the Employer for the exclusive benefit
of the Participants and their Beneficiaries. The Committee shall have full and
complete investment authority and responsibility with respect to the purchase,
retention, sale, exchange, and pledge of Stock and the payment of Stock
Obligations, and the Trustee shall not deal in any way with Stock except in
accordance with the written instructions of the Committee. The Trustee shall
invest, or keep invested, all or a portion of the Trust Fund in Stock, and shall
pay Stock Obligations out of assets of the Trust Fund, as instructed from time
to time by the Committee. The Trustee shall invest any balance of the Trust
Fund (the "Investment Fund") in such other property as the Committee, in its
sole discretion, shall deem advisable, subject to any delegation of such
investment responsibility pursuant to Section 2.2. Nothing contained herein
shall provide investment discretion authority or any like kind responsibility in
regard to the assets of the Trust Fund.
In connection with instructions to acquire Stock, the Trustee may purchase
newly issued or outstanding Stock from an Employer or any other holders of
Stock, including Participants, Beneficiaries, and Plan fiduciaries. All
purchases and sales of Stock shall be made by the Trustee at fair market value
as determined by the Committee in good faith and in accordance with any
applicable requirement under the Employee Retirement Income Security Act of 1974
as amended ("ERISA"). Such purchases may be made with assets of the Trust Fund,
with funds borrowed for this purpose (with or without guarantees of repayment to
the lender by an Employer), or by any combination of the foregoing.
Notwithstanding any other provision of this Trust Agreement or the Plan,
neither the Committee nor Trustee shall make any purchase, sale, exchange,
investment, pledge, valuation, or loan, or take any other action involving those
assets for which it is responsible which (i) is inconsistent with the policy of
the Plan and Trust Agreement, (ii) is inconsistent with the prudence and
diversification requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA
(to the extent such requirements apply to an employee stock ownership plan and
trust), (iii) is prohibited by Section 406 or 407 of ERISA, or (iv) would impair
the qualification of the Plan or the exemption of the Trust under Sections 401
and 501 of the Code.
2.2 Delegation of Investment Responsibility. The Committee may, by
----------------------------------------
written notice, direct the Trustee to segregate any portion or all of the
Investment Fund into one or more separate accounts for each of which full
investment responsibility will be delegated to an investment manager, as defined
in Section 3(38) of ERISA appointed in such notice pursuant to
2
<PAGE>
Section 402(c)(3) of ERISA (hereinafter a "Manager"). For any separate account
where the Trustee is to maintain custody of the assets, the Trustee and the
Manager shall agree upon procedures for the transmittal of investment
instructions from the Manager to the Trustee, and the Trustee may provide the
Manager with such documents as may be necessary to authorize the Manager to
effect transactions directly on behalf of the segregated account.
Further, the Committee may, by written notice, direct the Trustee to
segregate any portion or all of the Investment Fund into one or more separate
accounts for each of which full investment responsibility will be delegated to
an insurance company through one or more group annuity contracts, deposit
administration contracts, or similar contracts, which may provide for
investments in any commingled separate accounts established under such
contracts. An insurance company shall be a Manager with respect to any amounts
held under such a contract except to the extent the insurer's assets are not
deemed assets of the Plan and Trust Fund pursuant to Section 401(b)(2) of ERISA.
The allocation of amounts held under such a contract among the insurer's general
account and one or more individual or commingled separate accounts shall be
determined by the Bank except as otherwise agreed by the Bank and the insurer.
Any Manager shall have all of the powers given to the Trustee pursuant to
Section 2.3 with respect to the portion of the Trust Fund committed to its
investment discretion and control. The Trustee shall be responsible for the
safekeeping of any assets which remain in its custody, but in no event shall the
Trustee be under any duty to question or make any inquiry or suggestion
regarding the action or inaction of a Manager or an insurer or the advisability
of acquiring, retaining, or disposing of any asset of a segregated account. The
Employer shall indemnify and hold the Trustee harmless from any and all costs,
damages, expenses, and liabilities which the Trustee may incur by reason of any
action taken or omitted to be taken by the Trustee upon directions from the
Committee, a Manager, or an insurer pursuant to this Section 2.2.
2.3 Trustee Powers. In addition to and not by way of limitation upon the
---------------
fiduciary powers granted to it by law, the Trustee shall have the following
specific powers, subject to direction by the Committee and subject to the
limitations set forth in Section 2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between principal
and income;
2.3-2 to hold funds uninvested temporarily without liability for interest
thereon, and to deposit funds in one or more savings or similar accounts with
any banks and savings and loan associations which are insured by an
instrumentality of the federal government, including the Trustee if it is such
an institution.
2.3-3 to invest or reinvest the whole or any portion of the money or other
property which constitutes the Trust Fund in such common or preferred stocks,
investment trust shares, mutual funds including funds for which the Trustee or
any of its affiliate serves as investment advisor, commingled trust funds,
partnership interests, bonds, notes, or other evidences of indebtedness,
3
<PAGE>
and real and personal property as the Committee in its absolute judgment and
discretion may deem to be for the best interests of the Trust Fund, regardless
of nondiversification to the extent that such nondiversification is clearly
prudent, and regardless of whether any such investment or property is authorized
by law regarding the investment of trust funds, of a wasting asset nature,
temporarily nonincome producing, or within or without the United States;
2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 to exchange any investment or property, real or personal, for other
investments or properties at such time and upon such terms as the Trustee shall
deem proper;
2.3-6 to sell, transfer, convey or otherwise dispose of any investment or
property, real or personal, for cash or on credit, in such manner and upon such
terms and conditions as the Trustee shall deem advisable, and no person dealing
with the Trustee shall be under any duty to inquire as to the validity,
expediency, or propriety of any such sale or as to the application of the
purchase money paid to the Trustee;
2.3-7 to deposit securities with stock clearing corporations or
depositories or member organizations or to hold any investment or property in
the name of the Trustee, with or without the designation of any fiduciary
capacity, or in name of a nominee, or unregistered, or in such other form that
title may pass by delivery; provided, however, that the Trustee's records always
show that such investment or property belongs to the Trust Fund and the Trustee
shall not be relieved hereby of its responsibility to maintain safe custody of
the Trust Fund;
2.3-8 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if in
the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust;
2.3-9 to extend the time for payment of, to modify, to renew, or to
release security from any mortgage, note or other evidence of indebtedness, or
to take advantage of or waive any default; to foreclose mortgages and bid in
property under foreclosure or to take title to property by conveyance in lieu of
foreclosure, either with or without the payment of additional consideration;
2.3-10 to vote in person or by proxy all stocks and other securities
having voting privileges; to exercise or refrain from exercising any option or
privilege with respect to stocks and other securities, including any right or
privilege to subscribe for or otherwise to acquire stocks and other securities;
or to sell any such right or privilege; to assent to and join in any plan of
refinance, merger, consolidation, reorganization or liquidation of any
corporation or other enterprise in which this Trust may have an interest, to
deposit stocks and other securities with any committee formed to effectuate the
same, to pay any expense incidental thereto, to exchange stocks and other
securities for those which may be issued pursuant to any such plan, and to
retain
4
<PAGE>
as an investment the stocks and other securities received by the Trustee; and to
deposit any investment in a voting trust; notwithstanding the preceding,
participants and beneficiaries shall be entitled to direct the manner in which
stock allocated to their respective accounts are to be voted on all matters. All
stock which has been allocated to participants' accounts for which the Trustee
has received no written direction and all unallocated Employer securities will
be voted in accordance with Section 8.01 of the Plan. Whenever such voting
rights are to be exercised, the Employer, the Committee and the Trustee shall
see that all participants and beneficiaries are provided with adequate
opportunity to deliver their instructions to the Trustee regarding voting of
stock allocated to their accounts. The instructions of the participants with
respect to the voting of allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee at the
direction of the Committee shall consider to be worthless or not of sufficient
value to warrant its keeping or protecting; to abstain from the payment of
taxes, water rents, assessments, repairs, maintenance, and upkeep of any such
property; to permit any such property to be lost by tax sale or other
proceedings, and to convey any such property for a nominal consideration or
without consideration;
2.3-12 to borrow money from an Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as the
Committee may deem to be advisable, to issue its promissory notes as Trustee to
evidence such debt, to secure the payment of such notes by pledging any property
of the Trust Fund, and to authorize the holders of any such notes to pledge them
to secure obligations of the holders and in connection therewith to repledge any
assets of the Trust as security therefor; provided that, with respect to any
extension of credit to the Trust involving, as a lender or guarantor, an
Employer or another "disqualified person" within the meaning of Section
4975(e)(2) of the Code --
(a) each loan or installment contract is primarily for the benefit of
Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to repay
the loan, or to repay a previous loan meeting these conditions, and the
subject of any installment contract shall be only the Trust's purchase
of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist only
of the assets purchased with borrowed funds or received in accordance
with an installment contract and the creditor shall have no recourse
against the Trust Fund except with respect to the collateral (although
the creditor may have recourse against an Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be made
only from those amounts contributed by the Employer to the Trust Fund,
from amounts earned on such contributions, and from cash dividends
received on unallocated Stock held by the Trust as collateral for such
an obligation; and
5
<PAGE>
(f) upon the payment of any portion of balance due on a loan or upon any
installment payment, a proportionate part of any assets originally
pledged as collateral for such indebtedness shall be released from
encumbrance in accordance with Section 4.2 of the Plan and the
Committee shall at least annually advise the Trustee of the number of
shares of Stock so released and the proper allocation of such shares
under the terms of the Plan;
2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property against loss by fire or other
casualty; to lease or grant options for the sale of such property, which lease
or option may be for a period of time which may extend beyond the life of this
Trust; and to take any other action or enter into any other contract respecting
such property which is consistent with the best interests of the Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the Bank, to employ and compensate
agents, investment counsel, custodians, actuaries, attorneys, and accountants in
such connection;
2.3-15 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Committee, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take a
particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by it in good faith pursuant to such
advice;
2.3-16 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise or
submit to arbitration any dispute concerning the Trust Fund;
2.3-17 to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in
part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to Section
501(a) of the Code, or its successor Section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated by
reference in the Plan;
2.3-19 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property to
such trusts in proportion to their undivided interests, and when non pro rata
distributions of property or money are made
6
<PAGE>
from such trusts, to make appropriate adjustments to the undivided fractional
interests of such trusts;
2.3-20 to invest all or any portion of the Trust Fund in one or more group
annuity contracts, deposit administration contracts, and other such contracts
with insurance companies, including any commingled separate accounts established
under such contracts;
2.3-21 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by the
Trustee, to exercise all the same rights and powers as are or may be lawfully
exercised by persons owning cash, or stocks and other securities, or such
property in their own right; and to do all other acts, whether or not expressly
authorized, which it may deem necessary or proper for the protection of the
Trust Fund; and
2.3-22 whenever more than two persons shall qualify to act as co-trustees,
to exercise and perform every power (including discretionary powers), authority
or duty by the concurrence of a majority of them the same effect as if all had
joined therein, except that the unanimous vote of such persons shall be
necessary to determine the number (one or more) and identity of persons who may
sign checks, make withdrawals from financial institutions, have access to safe
deposit boxes, or direct the sale of trust assets and the disposition of the
proceeds.
Section 3. Compensation and Indemnification of Trustee and Payment of
----------------------------------------------------------
Expenses and Taxes.
- -------------------
3.1 Fees and Expenses from Fund. Compensation of Trustee. In
---------------------------
consideration for rendering services pursuant to this Trust Agreement the
Trustee shall be paid fees in accordance with the Trustee's fee schedule as in
effect from time to time. Fee changes resulting in fee increases shall be
effective upon not less than 30 days' notice to the Bank. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
attorneys' fees, incurred in the administration of the Trust created hereby.
Fees and expenses shall be allocated to Participant Accounts, if any, unless
paid directly by the Employer. All compensation and expenses of the Trustee
shall be paid out of the Trust Fund or by the Employer as specified in the Plan.
If and to the extent the Trust Fund shall not be sufficient, such compensation
and expenses shall be paid by the Employer upon demand. If payment is due but
not paid by the Employer, such amount shall be paid from the assets of the
Trust Fund. The Trustee is hereby empowered to withdraw all such compensation
and expenses which are 60 days past due from the Trust Fund, and, in furtherance
thereof, liquidate any assets of the Trust Fund, without further authorization
or direction from or by any person.
3.2 Indemnification. Notwithstanding any other provision of this Trust
----------------
Agreement, any individual designated as a trustee hereunder shall be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by
7
<PAGE>
or imposed upon such individual in connection with any claim made against him or
in which he may be involved by reason of his being, or having been, a trustee
hereunder, to the extent such amounts are not satisfied by insurance maintained
by the Employer, except liability which is adjudicated to have resulted from the
gross negligence or willful misconduct of the Trustee by reason of any action so
taken. Further, any corporate trustee and its officers, directors and agents
shall be indemnified and held harmless by the Employer to the fullest extent
permitted by law against any and all costs, damages, expenses and liabilities
including, but not limited to attorneys' fees and disbursements reasonably
incurred by or imposed upon such persons and/or corporation in connection with
any claim made against it or them or in which it or them may be involved by
reason of its being, or having been, a trustee hereunder, except liability which
is adjudicated to have resulted from the gross negligence or willful misconduct
of the Trustee by reason of any action so taken.
3.3 Expenses. All expenses of administering this Trust and the Plan,
---------
whether incurred by the Trustee or the Committee, shall be paid by the Trustee
from the Trust Fund to the extent such expenses shall not have been assumed by
the Employer.
3.4 Taxes. All taxes of any kind that may be levied or assessed upon the
------
Trust Fund, its income or assets, shall be paid from the Trust Fund, but the
Trustee shall not be obliged to pay such tax so long as it shall contest the
validity of such levy or assessment upon the advice of counsel.
Section 4. Records and Valuation.
----------------------
4.1 Records. The Trustee, and any investment manager appointed pursuant
--------
to Section 2.2, shall maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions made by it with
respect to the Trust Fund, and all accounts, books and records relating thereto
shall be open at all reasonable time to inspection and audit by the Committee
and the Employer.
4.2 Valuation. From time to time upon the request of the Committee, but
----------
at least annually as of the last day of each Plan Year, the Trustee shall
prepare a balance sheet of the Investment Fund in accordance with Section 8.2 of
the Plan and shall deliver copies of the balance sheet to the Committee and the
Employer. In the absence of any written objections to the balance sheet by the
Committee or an Employer within 90 days after its delivery to them, the Trustee
shall be entitled to presume and to rely upon its correctness for all purposes.
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members and Employees. From time to time the Bank
---------------------------------------
shall certify to the Trustee in writing the names of the individuals comprising
the Committee and shall furnish to the Trustee specimens of their signatures and
the signatures of their agents, if any. The
8
<PAGE>
Trustee shall be entitled to presume that the identities of such individuals and
their agents are unchanged until it receives a certification from the Bank
notifying it of any changes.
5.2 Instructions to Trustee. The Trustee shall pay such sums to such
------------------------
persons and shall take such other actions as shall be set forth in written
instructions from a single member of the Committee, whose name shall be
certified in writing to the Trustee by the Bank from time to time. The Trustee
shall be fully protected in taking any action based upon such written
instructions and shall have no power, authority, or duty to interpret the Plan
or to inquire into the decisions or determinations of the Committee, or to
question the instructions given to it by the Committee.
5.3 Plan Change. In the event of an amendment, merger, division, or
------------
termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the Committee.
Section 6. Change of Trustees.
-------------------
The Bank may at any time remove any person or entity serving as a trustee
hereunder by giving to such person or entity written notice of removal and, if
applicable, the name and address of the successor trustee. Any person or entity
serving as a trustee hereunder may resign at any time by giving written notice
to the Bank. Any such removal or resignation shall take effect within 30 days
after notice has been given by the trustee or by the Bank, as the case may be.
Within those 30 days, the removed or resigned trustee shall transfer, pay over
and deliver any portion of the Trust Fund in its possession or control (less an
appropriate reserve for any unpaid fees, expenses, and liabilities) and all
pertinent records to the successor or remaining trustee; provided, however, that
any assets which are invested in a collective fund or in some other manner which
prevents their immediate transfer shall be transferred and delivered to the
successor trustee as soon as may be practicable. Thereafter, the removed or
resigned trustee shall have no liability for the Trust Fund or for its
administration by the successor or remaining trustee, but shall render an
accounting to the Committee of its administration of the Trust Fund to the date
on which its trusteeship shall have been terminated. The Bank may also, upon 30
days' notice to each person currently serving as a trustee, appoint one or more
persons to serve as co-trustees hereunder.
Section 7. Miscellaneous.
--------------
7.1 Right to Amend. This Trust Agreement may be amended from time to time
---------------
by an instrument executed by the Bank; provided, however, that any amendment
affecting the powers, duties or liabilities of the Trustee must be approved by
the Trustee, and provided, further, that no amendment may divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the Participants
and their Beneficiaries prior to the satisfaction of all liabilities for
benefits. Any amendment shall apply to the Trust Fund as constituted at the time
of the amendment as well as to that portion of the Trust Fund which is
subsequently acquired.
9
<PAGE>
7.2 Compliance with ERISA. In the exercise of its powers and the
----------------------
performance of its duties, the Trustee shall act in good faith and in accordance
with the applicable requirements under ERISA. Except as may be otherwise
required by ERISA, the Trustee shall not be required to furnish any bond in any
jurisdiction for the performance of its duties and, if a bond is required
despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty to
------------------------------
enforce the payment of any contributions and shall not be responsible for the
adequacy of the Trust Fund to satisfy any obligations for benefits, expenses,
and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required by
--------
law to file with any governmental authority with respect to this Trust, and the
Committee shall furnish to the Trustee whatever information is necessary to
prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee, including
----------------------
but not limited to banks, brokers, dealers, and insurers, shall be under no
obligation to inquire concerning the validity of anything which the Trustee
purports to do, nor need any person see to the proper application of any money
paid or any property transferred upon the order of the Trustee or to inquire
into the Trustee's authority as to any transaction.
7.6 Limitation Upon Responsibilities. The Trustee shall have no
---------------------------------
responsibilities with respect to the Plan or Trust other than those specifically
enumerated or explicitly allocated to it under this Trust Agreement or the
provisions of ERISA. All other responsibilities are retained and shall be
performed by one or more of the Employer, the Committee, and such advisors or
agents as they choose to engage.
The Trustee may execute any of the trusts or powers hereof and perform any
of its duties by or through attorneys, agents, receivers or employees and shall
not be answerable for the conduct of the same if chosen with reasonable care and
shall be entitled to advice of counsel concerning all matters of trust hereof
and the duties hereunder, and may in all cases pay such reasonable compensation
to all such attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trusts hereof. The Trustee may act upon the
opinion or advice of any attorney (who may be the attorney for the trustee or
attorney for the Committee), approved by the Trustee in the exercise of
reasonable care. The Trustee shall not be responsible for any loss or damage
resulting from any action or non-action in good faith in reliance upon such
opinion or advice.
The Trustee shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed to be genuine and correct and to have been signed or sent by the proper
person or persons.
As to the existence or non-existence of any fact or as to the sufficiency
or validity of any instrument, paper or proceedings, the Trustee shall be
entitled to rely upon a certificate signed on
10
<PAGE>
behalf of the Committee as sufficient evidence of the facts therein contained
but may at its discretion secure such further evidence deemed necessary or
advisable, but shall in no case be bound to secure the same. The Trustee shall
not be answerable for other than its gross negligence or willful misconduct.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
7.7 Successor Trustees. This Trust Agreement shall apply to any person
-------------------
who shall be appointed to succeed the person currently appointed as the Trustee;
and any reference herein to the Trustee shall be deemed to include any one or
more individuals or corporations or any combination thereof who or which hall at
any time act as a co-trustee or as the sole trustee.
7.8 Governing State Law. This Trust Agreement shall be interpreted in
--------------------
accordance with the laws of the Commonwealth of Massachusetts to the extent
those laws may be applicable under the provisions of ERISA.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement
as of the day and year first above written.
ATTEST: WORONOCO SAVINGS BANK
By:
- ------------------------------ -----------------------------
Name
[TRUSTEE]
AS TRUSTEE
ATTEST:
By:
- ------------------------------ -----------------------------
Name
12
<PAGE>
[ESOP SUBSIDIARY LETTERHEAD]
EXHIBIT 10.2
___________ __, 199_
Cornelius D. Mahoney
President and Chief Executive Officer
Woronoco Savings Bank
31 Court Street
Westfield, Massachusetts 01086-0978
Dear Mr. Mahoney:
This letter confirms [ESOP Subsidiary]'s commitment to fund a leveraged
ESOP in an amount up to $________. The commitment is subject to the following
terms and conditions:
1. Lender: ___________________________ (the "Company").
------
2. Borrower: Woronoco Savings Bank Employee Stock Ownership Plan.
--------
3. Trustee: _____________________________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
Woronoco Savings Bank Employee Stock Ownership Plan.
5. Maturity: Up to _______ years form takedown.
--------
6. Amortization: Equal principal payments on quarterly, semi-annual or
------------
annual basis; specific amount to be set prior to takedown upon
determination of total loan disbursements.
7. Pricing:
-------
a. [8%] or [the Prime Rate as published in the Wall Street Journal
on the date of the loan transaction].
8. Interest Payments:
-----------------
a. Quarterly, semi-annual or annual 360 or 365 day basis.
<PAGE>
Mr. Cornelius D. Mahoney
____________ __, 199_
Page 2
9. Funding: In full by ____________, unless such date is waived by the
-------
Company.
10. Prepayment: Voluntary prepayments are permitted at any time.
----------
11. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of Woronoco Savings Bank or the Company.
12. Closing Date: Not later than ____________, unless such date is
------------
waived by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Accepted on Behalf of
Woronoco Savings Bank
By: Date:
------------------------------------- --------------------------
Cornelius D. Mahoney
President and Chief Executive Officer
<PAGE>
WORONOCO SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
[ESOP SUBSIDIARY]
31 Court Street
Westfield, Massachusetts 01086-0978
_____________, ____
Gentlemen:
The undersigned, ________________ ("Trustee"), not individually but solely
as Trustee under the Woronoco Savings Bank Employee Stock Ownership Trust (the
"Trust") effective _______________, ____ (the "Borrower"), applies to you for
your commitment, subject to all of the terms and conditions hereof and on the
basis of the representations hereinafter set forth, to make a loan available to
the Borrower as hereinafter set forth. [ESOP SUBSIDIARY] is hereinafter referred
to as the "Lender". The term "Bank" as used herein refers to the sponsoring
employer of the Woronoco Savings Bank Employee Stock Ownership Plan (the
"ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. Subject to and upon the terms and conditions herein
----------------
set forth, the Lender agrees to lend amounts to the Borrower (the "Loan") from
time to time during the period of this agreement up to but not including the
maturity date of ________, 20__ in an aggregate principal amount (the "Loan
Amount") sufficient to permit the Borrower to acquire a number of shares
("Shares") of common stock, par value $0.01 ("Common Stock") of Woronoco
Bancorp, Inc., a Delaware corporation, and the Holding Company of the Bank,
equal to 8% of the Shares issued in connection with the conversion of the Bank
from the mutual to stock form (the "Conversion") including the shares issued to
Woronoco Savings Charitable Foundation, a charitable foundation being
established in connection with the Conversion.
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1 hereof
--------
shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as
<PAGE>
Exhibit A (the "Note"), such Note to bear interest as hereinafter provided, and
to mature in ten (__) equal annual installments sufficient to repay all borrowed
amounts plus interest, commencing on ___________, ____, and on the last day of
each and every _____ each year thereafter, except that the final installment not
sooner paid shall be due on ___________, ____, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained
------------------
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
"Interest Rate" defined for purposes of this Agreement to mean the lowest prime
rate reported in The Wall Street Journal on the date of the Conversion.
2.2 BASIS AND PAYMENT DATES. All interest due on the Note prior to
-----------------------
maturity shall be due and payable on an annual basis on the last day of each
year (commencing ___________, ____)
2
<PAGE>
and at maturity (unless prepaid in whole prior to such date, then on the date of
such prepayment in whole) and interest due after maturity shall be due and
payable upon demand. All interest on the Note shall be computed on an annual
basis.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender all Shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will at
------------------
any time and from time to time as requested by the Lender execute and deliver
such further instruments and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default as defined in Section 9
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until a Default has
occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
----------------
shall have occurred and be continuing, as promptly as is practicable after
___________ in each year (the period commencing on the date hereof and ending
___________ in each subsequent 12-month period ending on ___________ being
hereinafter referred to as a "Plan Year"), to release that number of Pledged
Shares then being held to secure the Loan which is equal to the number of such
Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the numerator of which is the aggregate amount of all principal and
interest payments made on the Note during the Plan Year and the denominator of
which is the sum of the numerator plus the unpaid principal and interest of the
Note as of the last day of such Plan Year.
3
<PAGE>
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at 31 Court
Street, Westfield, Massachusetts 01086-0978 for the account of the Lender (or at
such other place for the account of the Lender as the Lender may from time to
time in writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note on any ___________ without premium or penalty. The
Borrower shall also have the privilege of prepaying in whole or in part the Note
on any other date; provided, however, that such prepayment shall be with premium
or penalty to the extent of interest paid in advance of such date. The term
"Business Day" shall mean any day on which savings institutions are generally
open for business in Massachusetts other than Saturday and Sunday. All such
prepayments shall be made without premium or penalty. Prepayments shall first
be applied to the several installments of the Note in the inverse order of their
respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
4
<PAGE>
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and is validly existing and in good standing
under the laws of the Commonwealth of Massachusetts. The Lender has full power
and authority and legal right to make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound, and (iii) any statute, rule
or regulation of any federal, state or local government or agency applicable to
the Lender, except in any such case (i), (ii), (iii) above, for any such
conflicts, violations, defaults which either individually or in the aggregate do
not have a material adverse effect on the business properties of the Lender and
its subsidiaries, taken as a whole.
6.5 To its best knowledge, the Bank has taken such actions as are required
by applicable law to be taken to establish the ESOP and the Trust.
6.6 To its best knowledge, there is no action, suit, investigation or
proceeding pending, or threatened against or affecting the ESOP before any court
or governmental department, agency or instrumentality.
5
<PAGE>
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are "prohibited transactions" within
the meaning of Section 4975 of the Code or Section 406(a) of ERISA, and are
subject to exemption pursuant to Section 4975(d)(3) of the Code and Section 408
of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded on American Stock Exchange.
6.9 DETERMINATION LETTER. The Bank shall apply for a determination
letter from the Internal Revenue Service that the Plan and the Trust, taken
together, qualify as an employee stock ownership plan for purposes of Section
4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within six (6) days of the
date of the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
6
<PAGE>
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP
and the Trust in accordance with sound accounting practice and will, from
time to time, furnish to the Lender and its duly authorized
representatives, such information and data with respect to the financial
condition of the ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default hereunder or of
any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
SECTION NINE. DEFAULT AND REMEDIES.
9.1 DEFAULT. Any one or more of the following shall constitute a Default
--------
hereunder:
(a) As of the date when due, the Borrower fails to make payment of
principal and/or interest with respect to the Note or any other amounts
payable under this Agreement within five (5) business days of the date when
due;
(b) As of the date proven false, the Borrower makes any
representation, warranty or statement herein or in connection with the
making of the Loan which proves to be incorrect in any material respect;
(c) As of the date the Borrower fails to perform or observe any term,
covenant or agreement (other than those referred to in subparts (a) and
(b), inclusive, of this Section 9.1) contained in this Agreement and such
failure continues unremedied for a period of 30 days after notice to the
Borrower by the Lender or any other holder of the Note;
(d) As of the date of termination of the ESOP if such termination is
prior to the expiration of the term of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Default described in
-----------------------------------
subsections (a) to (c), of Section 9.1 has occurred and is continuing, the
Lender or the holder of the Note shall have no rights to assets of the Trust
other than (i) contributions (other than contributions of employer securities)
that are made by the Lender to enable the Borrower to meet its obligations
pursuant to the Loan, cash dividends received by the Borrower on the Shares and
earnings attributable to the investment of such contributions and dividends and
(ii) the Pledged Stock; provided further, however, that the value of Trust
assets transferred to the Lender as a result of an Event of Default shall not
exceed the amount of the repayment then in default, and, provided further, that
so long as the Lender is a "party in interest" within the meaning of ERISA
7
<PAGE>
Section 3(14) or a "disqualified person" within the meaning of Section
4975(e)(2) of the Code, a transfer of Trust assets upon default shall be made
only if, and to the extent of, the Borrower's failure to meet the loan's payment
schedule.
9.3 RIGHTS UPON A DEFAULT. When any Default has occurred and is
----------------------
continuing the Lender may, in addition to such other rights or remedies as it
may have, then or at any time or times thereafter exercise with respect to the
Collateral any and all of the rights, options and remedies of a secured party
under the Uniform Commercial Code of Massachusetts (the "UCC") including without
limitation the sale of all or any part of the Collateral at any brokers' board
or any public or private sale, provided, however that the Lender shall only be
able to exercise such rights and remedies to the extent of all interest and
principal payments which are due and payable as of the date of the Default and
provided further that prior to such exercise the Lender shall release from the
Collateral so much thereof as it would have been required to release under
Section 3.4 hereof if the period from the previous ___________ to the date of
such release constituted a Plan Year and no Default had occurred. The net
proceeds of any such sale, after deducting all costs and expenses incurred in
the collection, protection, sale and delivery of the Collateral (which expenses
Borrower promises to pay) shall be applied first to the payment of any costs and
expenses incurred by the Lender in selling or otherwise disposing of the
Collateral, second, to the payment of the principal of and the interest on the
Note, and, third, ratably as among any other items of the indebtedness hereby
secured. Any surplus remaining after the full payment and satisfaction of the
foregoing shall be returned to the Borrower or to whomsoever a court of
competent jurisdiction shall determine to be entitled thereto. Any requirement
of said UCC as to reasonable notice shall be met by the Lender personally
delivering or mailing notice (by certified mail - return receipt requested) to
the Borrower at its address as provided in Section 10.6 hereof at least ten (10)
days prior to the event giving rise to the requirement of such notice. In
connection with any offer, solicitation or sale of the Collateral, the Lender
may restrict bidders and otherwise proceed in whatever manner it reasonably
believes appropriate in order to comply or assure compliance with applicable
legal requirements pertaining to the offer and sale of securities of the same
type as the Collateral.
9.4 ERISA RESTRICTIONS. The number of shares of Pledged Stock as to which
-------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
SECTION TEN. MISCELLANEOUS.
10.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the Commonwealth of Massachusetts interest at the rate the Note bears for the
period prior to maturity shall continue to
8
<PAGE>
accrue on such principal from the stated due date thereof to and including the
next succeeding Business Day on which the same is payable.
10.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
10.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver of
----------------
any provision of this Agreement or of the Note nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
10.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
10.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
10.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at [TRUSTEE], _______________, _________, _____________ _____,
Attention: Trust Officer; if to the Lender at 31 Court Street, Westfield,
Massachusetts 01086-0978, and a copy to counsel, Attention: Thomas P. Hutton,
Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016,
or at such other address as shall be designated by any party hereto in a written
notice to each other party pursuant to this Section 10.6.
10.7 HEADINGS. Article and Section headings used in this Agreement are for
--------
convenience or reference only and are not a part of this Agreement for any other
purpose.
10.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
9
<PAGE>
10.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
10.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be binding
-----------------------------------
upon the Borrower and its successors and assigns and shall inure to the benefit
of the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
10.11 CONCERNING THE BORROWER. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain Woronoco Savings
Bank Employee Stock Ownership Trust effective _______________, ____, by and
between the undersigned and Woronoco Savings Bank and this Agreement shall be
binding upon the undersigned and its successors and assigns and upon the trust
estate. The undersigned assumes no personal or individual liability or
responsibility for payment of the indebtedness evidenced by the Note or for
observance or performance of the covenants and agreements herein contained or
for the truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
10.12 LIMITED LIABILITY. Anything contained herein or in the Note to the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
10.13 LENDER'S DUTY OF CARE. It is agreed and understood that the Lender's
---------------------
duty with respect to the Collateral shall be solely to use reasonable care in
the custody and preservation of the Collateral in the Lender's possession, which
shall not include any steps necessary to preserve rights against prior parties.
10
<PAGE>
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
11
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this __th day of _____, 199_.
[TRUSTEE], and its successors in trust, as Trustee
under that certain Woronoco Savings Bank Employee Stock
Ownership Trust effective _______________, ____ by and
between the undersigned and Woronoco Savings Bank
By
-----------------------------------
Accepted and agreed to at Westfield, Massachusetts as of the date last
above written.
By
-----------------------------------
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount _________, 199_
Westfield, Massachusetts
For VALUE RECEIVED, the undersigned, [TRUSTEE], not individually but solely
as Trustee under that certain Woronoco Savings Bank Employee Stock Ownership
Trust effective _______________, ____ by and between the undersigned
("Borrower") and Woronoco Savings Bank promises to pay to the order of [ESOP
SUBSIDIARY], (the "Lender") at its office at 31 Court Street, Westfield,
Massachusetts 01086-0978, the aggregate unpaid principal amount of all loan
amounts or advances under the loan made to the Borrower under Section 1.1 of the
Loan and Security Agreement hereinafter referred to in _____ (__) consecutive
annual equal installments payable over a ten (10) year period in an amount
sufficient to repay all borrowed amounts plus interest, payable annually on the
last business day of _________, 199_, and continuing on the last business day of
each and every March thereafter, except that the final installment not sooner
paid shall be due on ___________, 20__, the final maturity hereof.
The Borrower promises to pay interest (computed annually) at said office on
the balance of principal from time to time remaining outstanding and unpaid
hereon at the rate per annum equal at all times to the Interest Rate as defined
in Section 12.1 of the Loan and Security Agreement (as defined below) on the
last business day of each and every ________, commencing ___________, ____, and
in each year thereafter and on the final maturity date of this Note. On demand,
the Borrower promises to pay interest on any overdue principal hereof (whether
by lapse of time, acceleration, or otherwise) until paid at the stated rate.
This Note is issued under the terms and provisions of that certain Woronoco
Savings Bank Employee Stock Ownership Trust Loan and Security Agreement bearing
even date herewith by and between the Borrower and the Lender (the "Loan and
Security Agreement") and this Note and the holder hereof are entitled to all the
benefits and security provided for by or referred to in such Loan and Security
Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts without regard to principles of
conflicts of laws. The Borrower hereby waives presentment for payment and
demand.
13
<PAGE>
Upon the occurrence of a Default as such term is defined in the Loan and
Security Agreement at the option of the Lender, all amounts payable by the
Borrower to the Lender under the terms of this Note may immediately become due
and payable by the Borrower to the Lender pursuant to the provisions of Section
9.3 of the Loan and Security Agreement, and the Lender shall have all of the
rights, powers, and remedies available under the terms of this Note, any of the
other documents evidencing and securing this Loan and all applicable laws. The
Borrower and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of the indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
[TRUSTEE] and its successors in trust, as
Trustee under that certain Woronoco Savings
Bank Employee Stock Ownership Trust
effective _______________, ____ by and
between the undersigned and Woronoco Savings
Bank
By:
----------------------------
14
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by [ESOP SUBSIDIARY] ("Lender") to the
undersigned ("Borrower"), the receipt whereof is hereby acknowledged and subject
to the terms and provisions of the Loan and Security Agreement described below,
the Borrower does hereby grant a security interest to said Lender in the
instruments or negotiable documents hereafter described ("Collateral"), in all
of which Collateral the Borrower warrants that the Borrower has good, valid and
effective rights to the ownership and possession thereof and to the grant of the
security interest hereby made:
All Shares of the common stock, par value $.01 per share, of Woronoco
Bancorp, Inc., a Delaware corporation, acquired with the proceeds of the
Loan Amount.
Borrower agrees, upon request, to deliver said collateral to said Lender as
soon as practicable after Borrower's receipt of one or more certificates
therefore.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the Commonwealth of
Massachusetts, particularly the Uniform Commercial Code, except where preempted
by federal law.
Dated at Westfield, Massachusetts the __th day of _________, 199_.
[TRUSTEE], and its successors in trust, as
Trustee under that certain Woronoco Savings Bank
Employee Stock Ownership Trust effective
_______________, ____ by and between the
undersigned and Woronoco Savings Bank
By:
---------------------------------
15
<PAGE>
EXHIBIT 10.3
FORM OF
WORONOCO SAVINGS BANK
___________-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ___________________,
1999 by and among Woronoco Savings Bank (the "Bank"), a Massachusetts-chartered
savings bank, with its principal administrative office at 31 Court Street,
Westfield, Massachusetts, 01086-0978, Woronoco Bancorp, Inc., a corporation
organized under the laws of the State of Delaware, the holding company for the
Bank (the "Holding Company"), and _______________ ("Executive").
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
_____________ and___________________ of the Bank. Executive shall render
administrative and management services to the Bank such as are customarily
performed by persons situated in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of _____________ (___) full calendar months thereafter. Commencing
on the first anniversary date of this Agreement, and continuing on each
anniversary thereafter, the disinterested members of the board of directors of
the Bank ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be ________ (___) months unless the
Executive elects not to extend the term of this Agreement by giving written
notice in accordance with Section 8 of this Agreement. Executive shall abstain
from any vote regarding an extension of the term of this Agreement. The Board
will review the Agreement and Executive's performance annually for purposes of
determining whether to extend the Agreement and the rationale and results
thereof shall be included in the minutes of the Board's meeting. The Board
shall give notice to the Executive as soon as possible after such review as to
whether the Agreement is to be extended.
<PAGE>
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Bank, or materially affect
the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Bank may be terminated by the Bank or the Executive during the term of
this Agreement, subject to the terms and conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
Executive shall receive compensation and reimbursement under this
Agreement, as follows:
(a) The Bank shall pay Executive as compensation a salary of $___________
per year ("Base Salary") payable in accordance with the normal payroll practices
of the Bank. Base Salary shall include any amounts of compensation deferred by
Executive under any tax-qualified retirement or welfare benefit plan or any
other deferred compensation arrangement maintained by the Bank. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually with the Bank Board making its first review no later than one year from
the date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary at any time during
this Agreement and the resulting annual salary attributable to such increase
shall become the "Base Salary" for purposes of this Agreement. In addition to
the Base Salary provided in this Section 3(a), the Bank shall also provide
Executive, at no premium cost to Executive, with all such other benefits as are
provided uniformly to permanent full-time employees of the Bank.
(b) Discretionary Bonuses. The Executive shall be entitled to participate
---------------------
in an equitable manner with all other executive officers of the Bank in
discretionary bonuses as authorized and declared by the Bank Board to executive
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Executive's right to participate in such bonuses when and
as declared by the Bank Board.
(c) The Executive shall be entitled to receive fees for serving as a
director of the Holding Company and/or the Bank or as a member of any committee
as received by other members of the Boards of Directors of the Holding Company
and/or the Bank.
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<PAGE>
(d) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would materially adversely affect Executive's rights or
benefits thereunder; except to the extent such changes are made applicable to
all Bank employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (d), Executive shall
be entitled to participate in or receive benefits under all plans relating to
stock options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group life
insurance, medical and other health and welfare coverage, education, cash or
stock bonuses that are now or hereafter made available by the Bank in the future
to its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(e) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Bank shall pay or reimburse Executive for all reasonable travel and other
reasonable expenses incurred by Executive performing his obligations under this
Agreement and may provide such additional compensation in such form and such
amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Bank's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as ____________and
__________________, unless consented to by the Executive, (B) a material change
in Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than ____ miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Bank or Holding Company, or
(F) breach of this Agreement by the Bank. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate his employment under this Agreement by
-3-
<PAGE>
resignation upon not less than sixty (60) days prior written notice given within
six full months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Sections 3(a) and 3(b);
respectively, that would have been paid to Executive for the remaining term of
this Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm customarily performing such valuation, of any
stock options or related rights which as of the Date of Termination have been
granted to Executive but are not exercisable by Executive and the value of any
restricted stock or related rights which have been granted to Executive; but in
which Executive does not have a non-forfeitable or fully-vested interest as of
the Date of Termination; and (ii) all benefits, including health insurance
in accordance with Section 3(d) that would have been provided to Executive for
the remaining term of the this Agreement had an Event of Termination not occur;
provided, however, that any payments pursuant to this subsection and subsection
- -------- -------
4(c) below shall not, in the aggregate, exceed three (3) times Executive's
average annual compensation for the five (5) most recent taxable years that
Executive has been employed by the Bank or such lesser number of years in the
event that Executive shall have been employed by the Bank for less than five (5)
years. In the event the Bank is not in compliance with its minimum capital
requirements or if such payments pursuant to this subsection (b) would cause the
Bank's capital to be reduced below its minimum regulatory capital requirements,
such payments shall be deferred until such time as the Bank or successor thereto
is in capital compliance. At the election of the Executive, which election is
to be made prior to an Event of Termination, such payments shall be made in a
lump sum as of the Executive's Date of Termination. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Bank or
Holding Company employees. Such coverage shall cease upon the expiration of the
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Change in Bank Control Act and the
Rules and
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<PAGE>
Regulations promulgated by the Federal Deposit Insurance Corporation ("FDIC") at
12 C.F.R. (S) 303.4(a) with respect to the Bank and the Board of Governors of
the Federal Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with respect to
the Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act of
1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
(S) 225.11, as in effect on the date hereof except for the Holding Company's
acquisition of the Bank; or (iv) without limitation such a Change in Control
shall be deemed to have occurred at such time as (A) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Bank or the Holding Company representing 20%
or more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity; or (D) solicitations of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan or
reorganization, merger of consolidation of the Holding Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than ___
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the Base Salary and bonuses in accordance with Sections
3(a) and 3(b), respectively, that would have been paid to Executive for
-5-
<PAGE>
the payments due for the remaining term of the Agreement had the event described
in Subsection (b) of this Section 5 not occurred, plus value, as calculated by a
recognized firm customarily performing such valuation, of any stock option or
related rights which as of the Date of Termination have been granted to
Executive, but are not exercisable by Executive and the value of restricted
stock awards or related rights which have been granted to Executive, but which
Executive does not have a non-forfeitable or fully-vested interest as of the
Date of Termination and all benefits, including health insurance, in accordance
with Section 3(d) that would have been provided to Executive for the remaining
term of this Agreement had the event described in Subsection (b) of this Section
5 not occurred; or 2) ______ (__) times Executive's Average Annual Compensation
(as defined herein) for the five (5) most recent taxable years that Executive
has been employed by the Bank or such lesser number of years in the event that
Executive shall have been employed by the Bank for less than five (5) years.
Such "Average Annual Compensation" shall include all taxable income paid by the
Bank or Holding Company, including but not limited to, Base Salary, commissions,
and bonuses, as well as contributions on Executive's behalf to any pension
and/or profit sharing plan, severance payments, retirement payments, directors
or committee fees and fringe benefits paid or to be paid to the Executive in any
such year and payment of any expense items without accountability or business
purpose or that do not meet the Internal Revenue Service requirements for
deductibility by the Bank; provided, however, that any payment under this
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provision and subsection 5(d) below shall not exceed three (3) times the
Executive's average annual compensation over a five (5) year period. In the
event the Bank is not in compliance with its minimum capital requirements or if
such payments would cause the Bank's capital to be reduced below its minimum
regulatory capital requirements, such payments shall be deferred until such time
as the Bank or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum as of the Executive's Date of Termination.
In the event that no election is made, payment to the Executive will be made in
approximately equal installments on a monthly basis over a period of _________
months following the Executive's termination. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all Bank
employees on a non-discriminatory basis. Such coverage and payments shall cease
upon the expiration of _________(__) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of
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<PAGE>
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount", as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given.).
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(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Bank will continue
to pay Executive his Base Salary in effect when the notice giving rise to the
dispute was given until the earlier of: 1) the resolution of the dispute in
accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which the
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners, agents, servants, employees and all
persons acting for or under the direction of Executive. Nothing herein will be
construed as prohibiting the Bank from pursuing any other remedies available to
the Bank for such breach or threatened breach, including the recovery of damages
from Executive.
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(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank.
Further, Executive may disclose information regarding the business activities of
the Bank to the Massachusetts Commissioner of Banks and the Federal Deposit
Insurance Corporation ("FDIC") pursuant to a formal regulatory request. In the
event of a breach or threatened breach by Executive of the provisions of this
Section, the Bank will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated
________________________, between Executive and the Holding Company, such
compensation payments and benefits paid by the Holding Company will be
subtracted from any amounts due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by the
Holding Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to Executive of
a kind elsewhere provided. No provision of this
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Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts applicable to
contracts entered into and to be performed entirely within the Commonwealth of
Massachusetts.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank if Executive is successful on the merits pursuant
to a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.
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<PAGE>
21. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF, Woronoco Savings Bank and _________________ have caused
this Agreement to be executed and their seals to be affixed hereunto by their
duly authorized officers and directors, and Executive has signed this Agreement,
on the ____ day of __________________, 199__.
ATTEST: WORONOCO SAVINGS BANK
By:
- ---------------------------- --------------------------------
Secretary Cornelius D. Mahoney
President and Chief Executive Officer
[SEAL]
ATTEST: .
---------------------------------
(Guarantor)
By:
- ---------------------------- ---------------------------------
Secretary President and Chief Executive
Officer
[SEAL]
WITNESS:
- ---------------------------- ---------------------------------
Executive
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EXHIBIT 10.4
FORM OF
HOLDING COMPANY
_____________YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of __________, 1999, by
and between Woronoco Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal offices at 31 Court
Street, Westfield, Massachusetts, 01086-0978 and ___________________
("Executive"). Any reference to "Institution" herein shall mean Woronoco
Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as _____________and _____________________ of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of ___________ (___) full calendar months thereafter. Commencing
on the date of the execution of this Agreement, the term of this Agreement shall
be extended for one day each day until such time as the board of directors of
the Holding Company (the "Board") or Executive elects not to extend the term of
the Agreement by giving written notice to the other party in accordance with
Section 8 of this Agreement, in which case the term of this Agreement shall be
fixed and shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder, including activities and services
related to the organization, operation and management of the Holding Company and
its direct or indirect subsidiaries ("Subsidiaries") and participation in
community, professional and civic organizations; provided, however, that, with
the approval of the Board, as evidenced by a resolution of such Board, from time
to time, Executive may serve, or continue to serve, on the boards of directors
of, and hold any other offices or positions in, companies or organizations,
which, in such Board's judgment, will not present any conflict of interest with
the Holding Company or its Subsidiaries, or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as _____________ and _________________ of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of $___________
per year ("Base Salary") payable in accordance with the normal payroll practices
of the Bank. Base Salary shall include any amounts of compensation deferred by
Executive under any tax-qualified retirement or welfare benefit plan or any
other deferred compensation arrangement maintained by the Bank. During the
period of this Agreement, Executive's Base Salary shall be reviewed at least
annually; the first such review will be made no later than one year from the
date of this Agreement. Such review shall be conducted by the Board or by a
Committee of the Board delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Holding Company
shall also provide Executive, at no premium cost to Executive, with all such
other benefits as provided uniformly to permanent full-time employees of the
Holding Company and its Subsidiaries.
(b) Discretionary Bonuses. The Executive shall be entitled to participate
---------------------
in an equitable manner with all other executive officers of the Holding Company
in discretionary bonuses as authorized and declared by the Holding Company Board
to executive employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Executive's right to participate in such
bonuses when and as declared by the Holding Company Board.
(c) The Executive shall be entitled to receive fees for serving as a
director of the Holding Company and/or the Bank or as a member of any committee
as received by other
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members of the Boards of Directors of the Holding Company and/or the Bank.
(d) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company will
not, without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Holding Company employees on a non-discriminatory basis.
Without limiting the generality of the foregoing provisions of this Subsection
(d), Executive shall be entitled to participate in or receive benefits under all
plans relating to stock options, restricted stock awards, stock purchases,
pension, thrift, supplemental retirement, profit-sharing, employee stock
ownership, group life insurance, medical and other health and welfare coverage,
education, cash or stock bonuses that are now or hereafter made available by the
Holding Company in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as ________________ and _____________________,
unless consented to by the Executive, (B) a material change in Executive's
function, duties, or responsibilities with the Holding Company or its
Subsidiaries, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, unless consented to by the Executive,
(C) a relocation of Executive's principal place of employment by more than _____
miles from its location at the effective date of this Agreement, unless
consented to by the Executive, (D) a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Holding Company or the Institution, or (F) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six full calendar
months after the event giving rise to said right to elect.
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(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Sections 3(a) and 3(b);
respectively, that would have been paid to Executive for the remaining term of
this Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm customarily performing such valuation, of any
stock options or related rights which as of the Date of Termination have been
granted to Executive but are not exercisable by Executive and the value of any
restricted stock or related rights which have been granted to Executive; but in
which Executive does not have a non-forfeitable or fully-vested interest as of
the Date of Termination; and (ii) all benefits, including health insurance
in accordance with Section 3(d) that would have been provided to Executive for
the remaining term of the this Agreement had an Event of Termination not occur.
At the election of the Executive, which election is to be made prior to an Event
of Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. (S) 303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with
respect to the Holding Company, as in effect on the date hereof; or (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. (S) 225.11, as in effect on the date hereof except for the Holding
Company's acquisition of the Bank; or (iv) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock
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form and any securities purchased by any tax qualified employee benefit plan of
the Bank; or (B) individuals who constitute the Board of Directors on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board; or
(C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the resulting
entity; or (D) solicitations of shareholders of the Holding Company, by someone
other than the current management of the Holding Company, seeking stockholder
approval of a plan or reorganization, merger of consolidation of the Holding
Company or Bank or similar transaction with one or more corporations as a result
of which the outstanding shares of the class of securities then subject to the
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Bank or the Holding Company shall be distributed;
or (E) a tender offer is made for 20% or more of the voting securities of the
Bank or the Holding Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than
_____ miles from its location immediately prior to the change in control, unless
such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(1) the Base Salary and bonuses in accordance with Sections 3(a) and 3(b),
respectively, that would have been paid to Executive for the payments due for
the remaining term of the Agreement had the event described in Subsection (b) of
this Section 5 not occurred, plus value, as calculated by a recognized firm
customarily performing such valuation, of any stock option or related rights
which as of the Date of Termination have been granted to Executive, but are not
exercisable by Executive and the value of restricted stock awards or related
rights which have been granted to Executive, but which Executive does not have a
non-forfeitable or fully-vested interest as of the Date of Termination and all
benefits, including health insurance, in accordance with Section 3(d) that would
have been provided to Executive for the remaining term of this Agreement had the
event described in Subsection (b) of this Section 5 not occurred; or 2) ____
(___) times Executive's Average Annual Compensation (as defined herein) for the
five (5) most recent taxable years that Executive has been employed by the Bank
or such
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lesser number of years in the event that Executive shall have been employed by
the Bank for less than five (5) years. Such "Average Annual Compensation" shall
include all taxable income paid by the Bank or Holding Company, including but
not limited to, Base Salary, commissions, and bonuses, as well as contributions
on Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees and fringe benefits
paid or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank. At the
election of the Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no election
is made, payment to the Executive will be made on a monthly basis in
approximately equal installments during the remaining term of the Agreement.
Such payments shall not be reduced in the event Executive obtains other
employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of _____________ (_____)
months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking
any reductions permitted pursuant to Section 280G of the Code and the
regulations thereunder. Any amount determined to be an excess parachute payment
after taking into account such reductions shall be hereafter referred to as the
"Initial Excess Parachute Payment". As soon as practicable after a Change in
Control, the Initial Excess Parachute Payment shall be determined. Upon the
Date of Termination following a Change in Control, the Holding Company shall pay
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and federal
income and excise taxes on the payment provided under clause (1) and
on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
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Tax Rate
GUP = __________
1-Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement
to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is
more than the Initial Excess Parachute Payment (such different amount
being hereafter referred to as the "Determinative Excess Parachute
Payment") then the Holding Company's independent accountants shall
determine the amount (the "Adjustment Amount") the Holding Company
must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess
Parachute Payment had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, independent accountants
of the Holding Company shall take into account any and all taxes
(including any penalties and interest) paid by or for Executive or
refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the
Holding Company shall pay the Adjustment Amount to Executive. In no
event however, shall Executive make any payment under this paragraph
to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other
-7-
<PAGE>
benefits for any period after Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination, stock options and related limited rights
granted to Executive under any stock option plan shall not be exercisable nor
shall any unvested awards granted to Executive under any stock benefit plan of
the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination, such stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
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<PAGE>
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of
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<PAGE>
banking, financial and/or economic principles, concepts or ideas which are not
solely and exclusively derived from the business plans and activities of the
Holding Company. In the event of a breach or threatened breach by the Executive
of the provisions of this Section, the Holding Company will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or its Subsidiaries or from rendering any services to any
person, firm, corporation, other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Holding Company from pursuing any other remedies
available to the Holding Company for such breach or threatened breach, including
the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated __________, 199_,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and
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<PAGE>
the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of _____________
without regards to principles of conflicts of law of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
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<PAGE>
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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<PAGE>
SIGNATURES
IN WITNESS WHEREOF, ___________________ has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the ____ day of
________, 199___.
ATTEST: HOLDING COMPANY
By:
- ----------------------------- --------------------------------
_________ _______________________________
Secretary Director, President and Chief
Executive Officer
For the Entire Board of Directors
[SEAL]
WITNESS:
By:
- ----------------------------- --------------------------------
_________ _______________________________
Secretary Executive
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<PAGE>
EXHIBIT 10.5
FORM OF
WORONOCO SAVINGS BANK
______________YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of __________, 1999, by and among
Woronoco Savings Bank (the "Institution"), a Massachusetts-chartered savings
bank, with its principal administrative office at 31 Court Street, Westfield,
Massachusetts, 01085-0978 _______________ ("Executive"), and Woronoco Bancorp,
Inc. (the "Holding Company"), a corporation organized under the laws of the
State of Delaware which is the holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution Executive
has made to the Institution and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Institution.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Change in Control Agreement (the "Agreement") shall be
deemed to have commenced as of the date first above written and shall continue
for a period of ____________ (____) full calendar months thereafter. Commencing
on the first anniversary date of this Agreement and continuing at each
anniversary date thereafter, the Board of Directors of the Institution ("Board")
may extend the Agreement for an additional year. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement, and the results thereof shall be included in
the minutes of the Board's meeting.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) hereof, the provisions of Section 3 shall apply. Upon
the occurrence of a Change in Control, Executive shall have the right to elect
to voluntarily terminate his employment at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction in his annual compensation or benefits, or relocation of
his principal place of employment by more than ____ miles from its location
immediately prior to the Change in Control; provided, however, the Executive may
consent in writing to any such demotion, loss, reduction or
<PAGE>
relocation. The effect of any written consent of the Executive under this
Section 2 (a) shall be strictly limited to the terms specified in such written
consent.
(b) For purposes of this Agreement, a "Change in Control" shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. (S) 303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with
respect to the Holding Company, as in effect on the date hereof; or (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. (S) 225.11, as in effect on the date hereof except for the Holding
Company's acquisition of the Bank; or (iv) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any tax qualified employee benefit plan of the Bank; or
(B) individuals who constitute the Board of Directors on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; or (D) solicitations of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan or
reorganization, merger of consolidation of the Holding Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(c) Executive shall not have the receive termination benefits pursuant to
Section 3 hereof upon Termination for Cause. The term "Termination for Cause"
shall mean termination because of Executive's personal dishonesty, willful
misconduct, any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order or material breach of any provision of this Agreement.
Notwithstanding the foregoing,
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<PAGE>
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 4 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof vest. At
the Date of Termination, such stock options and related limited rights and such
unvested awards shall become null and void and shall not be exercisable by or
delivered to Executive at any time subsequent to such Date of Termination for
Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by termination of the Executive's employment due to:
(1) Executive's dismissal or (2) Executive's voluntary termination pursuant to
Section 2(a), unless such termination is due to Termination for Cause, the
Institution and the Holding Company shall pay Executive, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, a sum equal to ______ (____) times Executive's Average Annual
Compensation (as defined herein) for the five most recent taxable years that
Executive has been employed by the Institution or such lesser number of years in
the event that Executive shall have been employed by the Institution for less
than five years, such "Average Annual Compensation" shall include all taxable
income paid by the Bank or Holding Company, including but not limited to any
base salary, bonuses, and commissions paid or to be paid to Executive, as well
as contributions on Executive's behalf to any pension and/or profit sharing
plan, severance payments, retirement payments, directors or committee fees and
fringe benefits paid or to be paid to the Executive in any such year. At the
election of Executive, which election is to be made prior to a Change in
Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Institution shall cause to be continued life, medical
and disability coverage substantially identical to the coverage maintained by
the Institution or Holding Company for Executive prior to his severance, except
to the extent such coverage may be changed in its application to all Institution
or Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of ________ (____) full calendar months
from the Date of Termination.
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<PAGE>
(c) Notwithstanding the preceding paragraphs of this Section 3, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Internal Revenue Code of 1986, as
amended, or any successor thereto, and in order to avoid such a result
Termination Benefits will be reduced, if necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount," as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs of
this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to his annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination.
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<PAGE>
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Institution and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Institution or shall impose on the Institution any obligation
to employ or retain Executive in its employ for any period.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
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<PAGE>
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. (S)1828(k), 12
C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of __________ without
regard to the principles of conflicts of law of this state.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Institution (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
-6-
<PAGE>
15. INDEMNIFICATION.
---------------
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.
16. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
-7-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Woronoco Savings Bank and _________________ have caused
this Agreement to be executed by their duly authorized officers, and Executive
has signed this Agreement, on the ____ day of ___________________, 199_.
ATTEST: WORONOCO SAVINGS BANK
By:
- ------------------------------ -----------------------------------
Secretary Cornelius D. Mahoney
President and Chief Executive Officer
SEAL
ATTEST: HOLDING COMPANY
(Guarantor)
By:
- ------------------------------ -----------------------------------
Secretary President and
Chief Executive Officer
SEAL
WITNESS:
- ------------------------------ -----------------------------------
Executive
-8-
<PAGE>
Exhibit 10.6
FORM OF
WORONOCO SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the Woronoco Savings Bank Employee Severance
Compensation Plan (the "Plan") is to assure for Woronoco Savings Bank (the
"Bank") the services of Employees of the Bank in the event of a Change in
Control (capitalized terms are defined in Section 2.1) of Woronoco Bancorp, Inc.
(the "Holding Company") or the Bank. The benefits contemplated by the Plan
recognize the value to the Bank of the services and contributions of the
Employees of the Bank and the effect upon the Bank resulting from the
uncertainties of continued employment, reduced employee benefits, management
changes and relocations that may arise in the event of a Change in Control of
the Bank or the Holding Company. The Bank's and the Holding Company's Boards of
Directors believe that it is in the best interests of the Bank and the Holding
Company to provide Employees of the Bank who have been with the Bank for a
minimum of_____(months/ year) with such benefits in order to defray the costs
and changes in employment status that could follow a Change in Control. The
Boards of Directors believe that the Plan will also aid the Bank in attracting
and retaining highly-qualified individuals who are essential to its success and
the Plan's assurance of fair treatment of the Bank's Employees will reduce the
distractions and other adverse effects on Employees' performance in the event of
a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date, the Bank hereby establishes an employee
severance compensation plan to be known as the "Woronoco Savings Bank Employee
Severance Compensation Plan."
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees
of the Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to an
employment or change in control agreement with the Employer.
<PAGE>
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual
right to the benefits to which each Participant is entitled hereunder,
enforceable by the Participant against the Employer.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Annual Compensation" of a Participant means and includes all
wages, salary, bonus, and other cash compensation, if any, paid or accrued by an
Employer as consideration for the Participant's service during the 12 months
ended the date as of which Annual Compensation is to be determined, which is or
would be includable in the gross income of the Participant receiving the same
for federal income tax purposes.
(b) "Bank" means the Woronoco Savings Bank or any successor of
Woronoco Savings Bank as provided for in Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Holding Company, as in
effect on the date hereof; or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
or the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an
2
<PAGE>
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board; or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity; or (D) solicitations of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan or
reorganization, merger of consolidation of the Holding Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an Employee to perform the work
customarily assigned to him . Additionally, a medical doctor selected or
approved by the Board of Directors must advise the Board that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board
of Directors of the Bank, or such other date as the Board of Directors of the
Bank shall designate in its resolution approving the Plan.
(f) "Employee" means any employee of the Bank or any subsidiary of the
Bank or any parent of the Bank who has completed at least_____ Year of Service
with the Bank; provided, however, that any employee who is covered or
hereinafter becomes covered by an employment contract or change in control
agreement with the Employer shall not be considered to be an "Employee" for
purposes of this Plan.
(g) "Expiration Date" means the date ten (10) years from the Effective
Date, unless the Plan is earlier terminated pursuant to Section 8.2 of the Plan
or unless the Plan is extended pursuant to Section 8.1 of the Plan.
(h) "Employer" means the Bank or a subsidiary of the Bank or a parent
of the Bank which has adopted the Plan pursuant to Article VI hereof.
(i) "Holding Company" means Woronoco Bancorp, Inc., the parent company
of the Bank.
(j) "Leave of Absence" and "LOA" mean the taking of an authorized or
approved leave of absence under the provisions of (i) the federal Family and
Medical Leave Act ("FMLA"), (ii) any state law providing qualitatively similar
benefits as the FMLA, or (iii) a leave of absence authorized under the policies
of the Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
3
<PAGE>
(k) "Payment" means the payment of severance compensation as provided
for in Article IV hereof.
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(m) "Plan" means this Woronoco Savings Bank Employee Severance
Compensation Plan.
(n) "Termination for Cause" shall include termination because of a
Participant's personal dishonesty, incompetence, willful misconduct, any breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or violation of any final cease-and
desist order. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institutions
industry.
(o) "Year of Service" means a consecutive twelve month period,
beginning with an Employee's date of hire and running without a termination of
employment in which an Employee is credited with at least one hour of service in
each of the twelve calendar months in such period. The taking of a LOA shall
not eliminate a period of time from the calculation of a year of Service if such
period of time otherwise qualifies as such. Further if a particular twelve
month period of time would not otherwise qualify under the Plan as a Year of
Service because one hour of service is not credited during each month of such
period due to the taking of a LOA, then such period of time shall be deemed to
be a Year of Service for all other purposes of this Plan.
2.2 Applicable Law
--------------
The laws of the Commonwealth of Massachusetts shall be the controlling
law in all matters relating to the Plan to the extent not preempted by Federal
law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
4
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Employer who
have completed a Three Years of Service with the Employer at the time of any
termination pursuant to Section 4.2 of the Plan. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of the Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his respective
Employer a Payment in the amount provided in Section 4.3 of the Plan if there
has been a Change in Control of the Bank or the Holding Company and if, within
one (1) year thereafter, the Participant's employment with the Employer shall
terminate for any reason specified in Section 4.2 of the Plan, whether the
termination is voluntary or involuntary. A Participant shall not be entitled to
a Payment if termination of employment occurs by reason of death, voluntary
retirement, voluntary termination other than for reasons specified in Section
4.2 of the Plan, Disability, or as a result of Termination for Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a
Payment if employment by the Employer is terminated, voluntarily or
involuntarily, for any one or more of the following reasons:
(a) The Employer reduces the Participant's (i) base salary (or
regularly scheduled hours are increased without a pro-rated increase in base
salary); (ii) rate of compensation in the case of hourly Employees; or (iii) the
product of hourly rate of compensation on regularly scheduled hours (without
regard to overtime) as in effect immediately prior to the Change in Control or
as the same may have been increased thereafter.
5
<PAGE>
(b) The Employer materially changes the Participant's function, duties
or responsibilities which would cause the Participant's position to be one of
lesser responsibility, importance or scope with the Employer than immediately
prior to the Change in Control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control, provided that such new
location is not closer to the Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Employer on a nondiscriminatory basis
would not trigger a payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer or any successor to the Employer breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Termination for Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Association, a lump sum cash payment equal to __________ of his
Annual Compensation for each year of service up to a maximum of ___% of such
Annual Compensation.
(b) Notwithstanding the provisions of paragraph (a) above, if a
Payment to a Participant who is a "Disqualified Individual" shall be in an
amount which includes an "Excess Parachute Payment," the Payment hereunder to
that Participant shall be reduced to the maximum amount which does not include
an Excess Parachute Payment. The terms "Disqualified Individual" and "Excess
Parachute Payment" shall have the same meanings as under Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision thereto.
The Participant shall not be required to mitigate damages on the
amount of a Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
6
<PAGE>
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on
the Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan
may be adopted by any "Subsidiary" or "Parent" of the Bank. Upon such adoption,
the Subsidiary or Parent shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority
of the voting power of the Bank's outstanding shares of capital stock.
7
<PAGE>
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Employer shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Employer, expressly and
unconditionally to assume and agree to perform the Employer's obligations under
this Plan, in the same manner and to the same extent that the Employer would be
required to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of
the Expiration Date, unless sooner terminated as provided in Section 8.2 of the
Plan, or unless extended for an additional period or periods by resolution
adopted by the Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to a Payment hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Bank, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive a Payment under
this Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by
8
<PAGE>
operation of law, and any attempt, voluntary or involuntary, to affect such
action shall be null, void, and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employees and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by
a party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Employer may terminate an Employee's employment at any time,
but any termination by the Employer, other than Termination for Cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan, except as otherwise provided for hereunder. Employee shall not have the
right to receive compensation or other benefits for any period after termination
which constitutes a Termination for Cause as defined herein.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
9
<PAGE>
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be
-------------------
under the supervision of the Board of Directors of the Bank or a Committee
appointed by the Board of Directors of the Bank (the "Board"). It shall be a
principal duty of the Board to see that the Plan is carried out in accordance
with its terms, for the exclusive benefit of persons entitled to participate in
the Plan without discrimination among them. The Board will have full power to
administer the Plan in all of its details subject, however, to the requirements
of ERISA if the Plan is subject to such requirements. For this purpose, the
Board's powers will include, but will not be limited to, the following
authority, in addition to all other powers provided by this Plan: (a) to make
and enforce such rules and regulations as it deems necessary or proper for the
efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of a Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize
Payments; (f) to appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the Plan; and (g) to
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA if applicable.
11.2 Named fiduciary. The Board will be a "named fiduciary" for
----------------
purposes of Section 402(a)(1) of ERISA with authority to control and manage the
operation and administration of the Plan, and will be responsible for complying
with all, if any, of the reporting and disclosure requirements of Part 1 of
Subtitle B of Title I of ERISA.
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be
written in a manner calculated to be understood by such person and will contain
(i) specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if the person wishes to submit a request for review. Such notification
will be given within 90 days after the claim is received by the Board (or within
180 days, if special circumstances require an extension of time for processing
the claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not
given within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
10
<PAGE>
(b) Review procedure. Within 60 days after the date on which a
-----------------
person receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred) such
person (or his duly authorized representative) may (i) file a written request
with the Board for a review of his denied claim and of pertinent documents and
(ii) submit written issues and comments to the Board. The Board will notify
such person of its decision in writing. Such notification will be written in a
manner calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent Plan
provisions. The decision on review will be made within 60 days after the
request for review is received by the Board (or within 120 days, if special
circumstances require an extension of time for processing the requests such as
an election by the Board to hold a hearing, and if written notice of such
extension and circumstances is given to such person within the initial 60 day
period). If the decision on review is not made within such period, the claim
will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to
-------------------------
the fullest extent permitted by law any person serving on the Board or as a
member of a committee designated as Board (including any person who formerly
served as a Board member or as a member of such committee) against all
liabilities, damages, costs and expenses (including attorneys fees and amounts
paid in settlement of any claims approved by the Bank) occasioned by any act or
omission to act in connection with the Plan, if such act or omission is in good
faith.
11.6 "Plan Year" means the period beginning on the Effective Date
-----------
and ending on December 31 and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided
------------------------------------
hereunder will be paid solely from the general assets of the Employer. Nothing
herein will be construed to require the Employer or the Board to maintain any
fund or segregate any amount for the benefit of any Participant, and no
Participant or other person shall have any claim against, right to, or security
or other interest in, any fund, account or asset of the Employer from which any
payment under the Plan may be made.
11
<PAGE>
Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __ day of __________, 199__.
Attest WORONOCO SAVINGS BANK
By:
- ----------------------------- --------------------------
Secretary
12
<PAGE>
EXHIBIT 10.7
FORM OF
WORONOCO SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
FORM OF
WORONOCO SAVINGS BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I - Introduction..................................................
Article II - Definitions..................................................
Article III - Eligibility and Participation...............................
Article IV - Benefits.....................................................
Article V - Accounts......................................................
Article VI - Supplemental Benefit Payments................................
Article VII - Claims Procedures...........................................
Article VIII - Amendment and Termination..................................
Article IX - General Provisions...........................................
Article X - Required Regulatory Provisions................................
</TABLE>
i
<PAGE>
ARTICLE I
INTRODUCTION
SECTION 1.01 PURPOSE, DESIGN AND INTENT.
--------------------------
(a) The purpose of the Woronoco Savings Bank Supplemental Executive Retirement
Plan (the "Plan") is to assist Woronoco Savings Bank (the "Bank") and its
affiliates in retaining the services of key employees until their
retirement, to induce such employees, to use their best efforts to enhance
the business of the Bank and its affiliates, and to provide certain
supplemental retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is specifically designed to
provide certain key employees with retirement benefits that would have been
payable under the various tax-qualified retirement plans sponsored by the
Bank but for the limitations placed on the benefits and contribution under
such plans by various provisions of the Internal Revenue Code of 1986, as
amended.
i
<PAGE>
ARTICLE II
DEFINITIONS
SECTION 2.01 DEFINITIONS. In this Plan, whenever the context so indicates,
-----------
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or Beneficiary, as the case may be, and, except as otherwise
provided, or unless the context otherwise requires, the capitalized terms shall
have the following meanings:
(a) "AFFILIATE" means any "parent corporation" or any "subsidiary corporation"
of the Bank, as such terms are defined in Sections 424(e) and 424(f),
respectively, of the Code.
(b) "APPLICABLE LIMITATIONS" means one of the following:
(i) the maximum limitation on annual benefits payable by a qualified
defined benefit plan under Section 415(b) of the Code;
(ii) the maximum limitations on annual additions to a qualified defined
contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the aggregate projected annual benefits
payable by qualified defined benefit plans and the annual additions
to qualified defined contribution plans under Section 415(e) of the
Code; and
(iv) the maximum limitation on the annual amount of compensation that may,
under Section 401(a)(17) of the Code, be taken into account in
determining contributions to and benefits under qualified plans.
(c) "BANK" means Woronoco Savings Bank, and its successors.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Bank.
(e) "CHANGE IN CONTROL" means with respect to the Bank or the Company, an event
of a nature that: (i) would be required to be reported in response to Item 1 of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act; or (ii) results in a "change in
control" of the Bank or the Company within the meaning of the Home Owners' Loan
Act of 1933, as amended, the Federal Deposit Insurance Act or the Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of "change in control" as set forth under the rules and
regulations of the OTS, the Committee shall substitute its judgment for that of
the OTS); or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of
ii
<PAGE>
securities of the Bank or the Company representing 20% or more of the Bank's or
the Company's outstanding securities except for any securities of the Bank
purchased by the Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax-qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors of
either the Bank or the Company on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination, in the case of the Company, for election
by the Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction occurs in which the
Bank or Company is not the resulting entity; provided, however, that such an
event listed above will be deemed to have occurred or to have been effectuated
upon the receipt of all required regulatory approvals not including the lapse of
any statutory waiting periods.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "COMMON STOCK" means the common stock of the Company.
(i) "COMPANY" means Woronoco Bancorp, Inc., and its successors.
(j) "ELIGIBLE INDIVIDUAL" means any Employee of the Bank or an Affiliate who
participates in the ESOP and whom the Board of Directors determines is one of a
"select group of management or highly compensated employees," as such phrase is
used for purposes of Sections 101, 201, and 301 of ERISA.
(k) "EMPLOYEE" means any person employed by the Bank or an Affiliate.
(l) "EMPLOYER" means the Bank or Affiliate that employs the Employee.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(n) "ESOP" means the Woronoco Savings Bank Employee Stock Ownership Plan, as
amended from time to time.
(o) "ESOP ACQUISITION LOAN" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
iii
<PAGE>
(p) "ESOP VALUATION DATE" means any day as of which the investment experience
of the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(q) "EFFECTIVE DATE" means [_________, 199__].
(r) "PARTICIPANT" means an Eligible Employee who is entitled to benefits under
the Plan.
(s) "PLAN" means this Woronoco Savings Bank Supplemental Executive Retirement
Plan.
(t) "RETIREMENT" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under either the
ESOP or the 401(k) Plan, as appropriate.
(u) "SUPPLEMENTAL ESOP ACCOUNT" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(v) "SUPPLEMENTAL ESOP BENEFIT" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(w) "SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT" means an account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
Supplemental Stock Ownership Benefit.
(x) "SUPPLEMENTAL STOCK OWNERSHIP BENEFIT" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
iv
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 ELIGIBILITY AND PARTICIPATION.
-----------------------------
(a) Each Eligible Employee may participate in the Plan. An Eligible Employee
shall become a Participant in the Plan upon designation as such by the
Board of Directors. An Eligible Employee whom the Board of Directors
designates as a Participant in the Plan shall commence participation as of
the date established by the Board of Directors. The Board of Directors
shall establish an Eligible Employee's date of participation at the same
time it designates the Eligible Employee as a Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee as
a Participant for any or all supplemental benefits provided for under
Article IV of the Plan.
v
<PAGE>
ARTICLE IV
BENEFITS
SECTION 4.01 SUPPLEMENTAL ESOP BENEFIT.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated to
the accounts of the Participant under the ESOP for the applicable plan year
if the provisions of the ESOP were administered without regard to and of
the Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such
allocation required by the limitations imposed by any of the Applicable
Limitations.
SECTION 4.02 SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
------------------------------------
(a) Upon a Participant's Retirement from the Employer, the Employer shall
credit to the Participant's Supplemental Stock Ownership Account a
Supplemental Stock Ownership Benefit equal to (i) less (ii), the result of
which is multiplied by (iii), where:
(i) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition
Loans) that would have been allocated or credited for the benefit of
the Participant under the ESOP and/or this Plan, as the case may be,
had the Participant continued in the employ of the Employer through
the first ESOP Valuation Date following the last scheduled payment
of principal and interest on all ESOP Acquisition Loans outstanding
at t he time of the Participant's Retirement; and
(ii) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition
Loans) and allocated for the benefit of the Participant under the
ESOP as of the first ESOP Valuation Date following the Participant's
Retirement; and
(iii) Equals the higher of the closing price of the Common Stock as of:
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<PAGE>
(A) The first ESOP Valuation Date following the Participant's
Retirement, or
(B) The last day of the Participant's employment with the Employer.
(b) For purposes of clause
(i) of subsection (a) of this Section 4.02, the total number of shares
of Common Stock shall be determined by multiplying the sum of (i)
and (ii) by (iii), where (i) equals the average of the total shares
of Common Stock acquired with the proceeds of an ESOP Acquisition
Loan and allocated for the benefit of the Participant under the ESOP
as of three most recent ESOP Valuation Dates preceding the
Participant's Retirement (or lesser number if the Participant has
not participated in the ESOP for three full years),
(ii) equals the average number of shares of Common Stock credited to the
Participant's Supplemental ESOP Account for the three most recent
plan years of the ESOP (such that the three recent plan years
coincide with the three most recent ESOP Valuation Dates referred to
in (i) above); and
(iii) equals the total number of scheduled annual payments remaining on
the ESOP Acquisition Loans as of the Participant's Retirement.
(c) In the event of a Change in Control:
(i) A Participant's Retirement shall be deemed to have occurred as of
the effective date of the Change in Control, as determined by the
Board of Directors, regardless of whether the Participant continues
in the employ of the Employer following the Change in Control; and
(ii) The determination of fair market value of the Common Stock shall be
made as the effective date of the Change in Control.
vii
<PAGE>
ARTICLE V
ACCOUNTS
SECTION 5.01 SUPPLEMENTAL ESOP BENEFIT ACCOUNT.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the limitations imposed by the
Code. Shares of Common Stock shall be valued under this Plan in the same manner
as under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
SECTION 5.02 SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT.
------------------------------------
The Employer shall establish, as a memorandum account on its books, a
Supplemental Stock Ownership Account. Upon a Participant's Retirement or in the
event of a Change in Control, the Committee shall credit to the Participant's
Supplemental Stock Ownership Account the amount of benefits determined under
Section 4.02 of the Plan. The Committee shall credit the account with an amount
equal to the appropriate number of shares of Common Stock or other medium of
contribution that would have otherwise been made to the Participant's accounts
under the ESOP but for the Participant's Retirement. Shares of Common Stock
shall be valued under this Plan in the same manner as under the ESOP. Cash
contributions credited to a Participant's Supplemental ESOP Account shall be
credited annually with interest at a rate equal to the combined weighted return
provided to the Participant's non-stock accounts under the ESOP.
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<PAGE>
ARTICLE VI
SUPPLEMENTAL BENEFIT PAYMENTS
SECTION 6.01 PAYMENT OF SUPPLEMENTAL ESOP BENEFIT.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or in the event of the Participant's death, to his beneficiary in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
SECTION 6.02 PAYMENT OF SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
-----------------------------------------------
(a) A Participant's Supplemental Stock Ownership Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, time and medium (i.e., cash and/or shares of Common
Stock) as his benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the
Supplemental Stock Ownership Benefit credited to him under this Plan.
SECTION 6.03 ALTERNATIVE PAYMENT OF BENEFITS
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Stock Ownership Benefit to which he is entitled, be paid commencing
at a different time, over a different period, in a different form, or to
different persons, than the benefit to which he or his beneficiary may be
entitled under the ESOP.
ix
<PAGE>
ARTICLE VII
CLAIMS PROCEDURES
SECTION 7.01 CLAIMS REVIEWER.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
SECTION 7.02 CLAIMS PROCEDURE.
----------------
(a) An initial claim for benefits under the Plan must be made by the
Participant or his or her beneficiary or beneficiaries in accordance with
the terms of this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant,
unless special circumstances require the extension of such 90-day period.
If such extension is necessary, the Claims Reviewer shall provide the
Participant or the Participant's beneficiary or beneficiaries with written
notification of such extension before the expiration of the initial 90-day
period. Such notice shall specify the reason or reasons for the extension
and the date by which a final decision can be expected. In no event shall
such extension exceed a period of ninety (90) days from the end of the
initial 90-day period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's
claim, the claimant may have a full and fair review of the claim by the
Committee upon written request submitted by the claimant or the claimant's
duly authorized representative and received by the Committee within sixty
(60) days after the claimant receives written notification that the
claimant's claim has been denied. In connection with such review, the
claimant or the claimant's duly authorized representative shall be entitled
to review pertinent documents and submit the claimant's views as to the
issues, in writing. The Committee shall act to deny or accept the claim
within sixty (60) days after receipt of the claimant's written request for
review unless special circumstances require the extension of such 60-day
period. If such extension is necessary, the Committee shall provide the
claimant with written notification of such extension before the expiration
of such initial 60-day period. In all events, the Committee shall act to
deny or accept the claim within 120 days of the receipt of the claimant's
written request for review. The action of the
x
<PAGE>
Committee shall be in the form of a written notice to the claimant and its
contents shall include all of the requirements for action on the original
claim.
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
xi
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.01 AMENDMENT OF THE PLAN.
---------------------
The Bank may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
SECTION 8.02 TERMINATION OF THE PLAN.
-----------------------
The Bank may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
xii
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 UNFUNDED, UNSECURED PROMISE TO MAKE PAYMENTS IN THE FUTURE.
----------------------------------------------------------
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the Bank or
its Affiliates and neither a Participant nor his designated beneficiary or
beneficiaries shall have any rights in or against any amount credited to any
account under this Plan or any other assets of the Bank or an Affiliate. The
Plan at all times shall be considered entirely unfunded both for tax purposes
and for purposes of Title I of ERISA. Any funds invested hereunder shall
continue for all purposes to be part of the general assets of the Bank or an
Affiliate and available to its general creditors in the event of bankruptcy or
insolvency. Accounts under this Plan and any benefits which may be payable
pursuant to this Plan are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's beneficiary. The
Plan constitute a mere promise by the Bank or Affiliate to make benefit payments
in the future. No interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such Participant or beneficiary, including claims
for alimony, support, separate maintenance and claims in bankruptcy proceedings.
SECTION 9.02 COMMITTEE AS PLAN ADMINISTRATOR.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Bank or Affiliate, as they may
deem appropriate. The Committee shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
retained by the Bank with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
SECTION 9.03 EXPENSES.
--------
Expenses of administration of the Plan shall be paid by the Bank or an
Affiliate.
SECTION 9.04 STATEMENTS.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
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<PAGE>
SECTION 9.05 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive
whatever benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in
any trust which may be established in connection with the Plan or assets of
the Bank or an Affiliate will be sufficient to pay any benefit hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as
creating any contract of employment or service between the Bank or an
Affiliate and any Participant or other individual. The Plan shall not
affect the right of the Bank or an Affiliate to deal with any Participants
in employment or service respects, including their hiring, discharge,
compensation, and conditions of employment or other service.
SECTION 9.06 INCOMPETENT INDIVIDUALS.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Bank or an Affiliate and
the Plan for such Participant or beneficiary.
SECTION 9.07 SALE, MERGER, OR CONSOLIDATION OF THE BANK.
------------------------------------------
The Plan may be continued after a sale of assets of the Bank, or a merger or
consolidation of the Bank into or with another corporation or entity only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. Additionally, upon a merger, consolidation or other change
in control any amounts credited to Participant's deferral accounts shall be
placed in a grantor trust to the extent not already in such a trust. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall be terminated subject to the provisions of
Section 7.2 of the Plan. Any legal fees incurred by a Participant in determining
benefits to which such Participant is entitled under the Plan following a sale,
merger, or consolidation of the Bank or an Affiliate of which the Participant is
an Employee or, if applicable, a member of the Board of Directors, shall be paid
by the resulting or succeeding entity.
xiv
<PAGE>
SECTION 9.08 LOCATION OF PARTICIPANTS.
------------------------
Each Participant shall keep the Bank informed of his or her current address and
the current address of his or her designated beneficiary or beneficiaries. The
Bank shall not be obligated to search for any person. If such person is not
located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
SECTION 9.09 LIABILITY OF THE BANK AND ITS AFFILIATES.
----------------------------------------
Notwithstanding any provision herein to the contrary, neither the Bank nor any
individual acting as an employee or agent of the Bank shall be liable to any
Participant, former Participant, beneficiary, or any other person for any claim,
loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Bank or any such
employee or agent of the Bank.
SECTION 9.10 GOVERNING LAW.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of the Commonwealth of
Massachusetts.
xv
<PAGE>
ARTICLE X
REQUIRED REGULATORY PROVISIONS
SECTION 10.01 REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Employer may terminate an Employee's employment at any time,
but any termination by the Employer, other than termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. An Employee shall not have the right to receive compensation or other
benefits for any period after a termination for cause as otherwise provided
hereunder.
(b) If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this Plan shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations of the Bank under
this Plan shall terminate as of the date of default, but this paragraph shall
not affect any vested rights of the Participants.
(e) Any payments made to Participants pursuant to this Plan, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
This Plan has been duly adopted this _______ day of __________________, 199__.
xvi
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-1 and Prospectus
of Woronoco Bancorp, Inc. (proposed holding company for Woronoco Savings Bank)
of our report dated February 27, 1998, except note 16 which is as of August 26,
1998, on the consolidated balance sheets of Woronoco Savings Bank as of December
31, 1997 and 1996, and the related consolidated statements of income, changes in
surplus and cash flows for each of the years in the three-year period ended
December 31, 1997 and to the use of our name and the statements with respect to
us, as appearing under the headings "Experts", "State Taxation", "Tax Aspects"
and "Legal and Tax Opinions" in the Prospectus.
We also consent to the use of our State Tax opinion, dated November 13, 1998,
appearing as an exhibit to the Registation Statement.
Wolf & Company, P.C.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
November 13, 1998
<PAGE>
Exhibit 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by Woronoco Bancorp, Inc., and all
amendments thereto, and in the Form H-(e)1-S for Woronoco Bancorp, Inc., and all
amendments thereto, relating to the conversion of Woronoco Savings Bank, from a
Massachusetts-chartered mutual savings bank to a Massachusetts-chartered stock
savings bank, the concurrent issuance of the Bank's outstanding capital stock to
Woronoco Bancorp, Inc., a holding company formed for such purpose, and the
offering of Woronoco Bancorp, Inc.'s common stock. 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, as amended.
MULDOON, MURPHY & FAUCETTE
/s/ Muldoon, Murphy & Faucette
Dated this 13th day of
November, 1998
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL APPEARS HERE]
November 10, 1998
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the filing of our opinion to you concerning
certain matters of Delaware law in connection with the subscription and
community offering (the "Offering") by Woronoco Bancorp, Inc., a Delaware
corporation (the "Company"), of shares of its common stock, par value $.01 per
share, in draft or final form, as an exhibit to (i) the Registration Statement
filed with the Securities and Exchange Commission by the Company in connection
with the Offering, and all amendments thereto, and (ii) the application to be
filed with Massachusetts banking authorities in connection with the conversion
of Woronoco Savings Bank, a state chartered savings bank, from the mutual form
of ownership to stock form of ownership, and all amendments thereto, and to the
reference to this firm in the "Legal Matters" section of the Prospectus relating
to the Offering.
Very truly Yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 23.4
November 13, 1998
Re: Valuation Appraisal of Woronoco Bancorp, Inc.
Woronoco Savings Bank
Westfield, Massachusetts
We hereby consent to the use of our firm's name, Keller & Company, Inc.
("Keller"), and the reference to our firm as experts in the Application for
Conversion filed by Woronoco Savings Bank and any amendments thereto and
references to our opinion regarding subscription rights filed as an exhibit to
the applications referred to hereafter. We also consent to the use of our firm's
name in the Form S-1 to be filed by Woronoco Bancorp, Inc. with the Securities
and Exchange Commission and any amendments thereto, and to the statements with
respect to us and the references to our Valuation Appraisal Report and in the
said Application for Conversion and any amendments thereto filed by the Woronoco
Savings Bank, Westfield, Massachusetts.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
- ----------------------------
Michael R. Keller
President
<PAGE>
November 13, 1998
The Board of Trustees
Woronoco Savings Bank
31 Court Street
Westfield, Massachusetts 01086
Re: Subscription Rights -- Conversion of Woronoco Savings Bank
Westfield, Massachusetts
To the Board:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Woronoco Bancorp, Inc.
("Woronoco Bancorp." or the "Corporation"), Westfield, Massachusetts in regard
to the conversion of Woronoco Savings Bank ("Woronoco Savings" or the "Bank")
form a state-chartered mutual savings bank to a state-chartered stock savings
bank.
Because the Subscription Rights to purchase shares of Common Stock in Woronoco
Bancorp., which are to be issued to the depositors of Woronoco Savings and the
other members of the Bank and will be acquired by such recipients without cost,
will be nontransferable and of short duration and will afford the recipients the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public in a District Community Offering, we are of the
opinion that:
(1) The Subscription Rights will have no ascertainable fair market
value, and;
(2) The price at which the Subscription Rights are exercisable will not
be more or less than the fair market value of the shares on the date
of the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
- ----------------------
Michael R. Keller
President
<PAGE>
Exhibit 24.0
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Cornelius D. Mahoney and Debra L. Murphy, and
each of them, as the true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for them and in their name, place and
stead, in any and all capacities to sign any or all amendments to the
Registration Statement on Form S-1 by Woronoco Bancorp, Inc. and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the U.S. Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents full power and authority to do and perform each and every act
and thing requisite and necessary to be done as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder, the foregoing Powers of Attorney
prepared in conjunction with the Registration Statement has been duly signed by
the following persons in the capacities and on the dates indicated.
NAME DATE
---- ----
/s/ Cornelius D. Mahoney November 13, 1998
- --------------------------------
Cornelius D. Mahoney
Chairman of the Board, President
and CEO
(principal executive officer)
Woronoco Bancorp, Inc.
President, CEO and Trustee
(principal executive officer)
Woronoco Savings Bank
/s/ Debra L. Murphy November 13, 1998
- --------------------------------
Debra L. Murphy
Senior Vice President and Chief Financial Officer
(principal accounting and financial officer)
Woronoco Bancorp, Inc.
Senior Vice President and Treasurer
(principal accounting and financial
officer)
Woronoco Savings Bank
<PAGE>
/s/ Asher Nesin November 13, 1998
- --------------------------------
Asher Nesin
Director
Woronoco Bancorp, Inc.
Chairman of the Board and Vice President
Woronoco Savings Bank
/s/ Paul S. Allen November 13, 1998
- --------------------------------
Paul S. Allen
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ James A. Adams November 13, 1998
- --------------------------------
James A. Adams
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ William G. Aiken November 13, 1998
- --------------------------------
William G. Aiken
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ Francis J. Ehrhardt November 13, 1998
- --------------------------------
Francis J. Ehrhardt
Director
Woronoco Bancorp, Inc.
Trusteee
Woronoco Savings Bank
<PAGE>
/s/ Joseph P. Keenan November 13, 1998
- --------------------------------
Joseph P. Keenan
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ Joseph M. Houser, Jr. November 13, 1998
- --------------------------------
Joseph M. Houser, Jr.
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ Richard L. Pomeroy November 13, 1998
- --------------------------------
Richard L. Pomeroy
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ Norman H. Storey November 13, 1998
- --------------------------------
Norman H. Storey
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ D. Jeffrey Templeton November 13, 1998
- --------------------------------
D. Jeffrey Templeton
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
/s/ Ann V. Schultz November 13, 1998
- --------------------------------
Ann V. Schultz
Director
Woronoco Bancorp, Inc.
<PAGE>
Trustee
Woronoco Savings Bank
- --------------------------------
Paul Tsatsos
Director
Woronoco Bancorp, Inc.
Trustee
Woronoco Savings Bank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF WORONOCO SAVINGS BANK AT AND FOR THE YEAR
ENDED DECEMBER 31, 1997 AND AT AND FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 8-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 AUG-31-1998
<CASH> 9,246 11,023
<INT-BEARING-DEPOSITS> 2,440 1,900
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 55,640 71,482
<INVESTMENTS-CARRYING> 2,433 2,984
<INVESTMENTS-MARKET> 2,433 2,984
<LOANS> 261,723 265,564
<ALLOWANCE> (1,952) (2,061)
<TOTAL-ASSETS> 341,909 366,218
<DEPOSITS> 262,679 273,567
<SHORT-TERM> 40,320 53,410
<LIABILITIES-OTHER> 4,172 4,482
<LONG-TERM> 1,406 1,382
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 33,332 33,377
<TOTAL-LIABILITIES-AND-EQUITY> 341,909 366,218
<INTEREST-LOAN> 19,682 14,140
<INTEREST-INVEST> 3,859 2,420
<INTEREST-OTHER> 117 90
<INTEREST-TOTAL> 23,658 16,650
<INTEREST-DEPOSIT> 10,159 6,876
<INTEREST-EXPENSE> 2,341 1,952
<INTEREST-INCOME-NET> 11,158 7,821
<LOAN-LOSSES> 180 160
<SECURITIES-GAINS> 1,895 1,218
<EXPENSE-OTHER> 9,743 6,677
<INCOME-PRETAX> 4,559 3,532
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,018 2,309
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 0 0
<LOANS-NON> 885 280
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 274 582
<LOANS-PROBLEM> 1,159 893
<ALLOWANCE-OPEN> 1,911 1,952
<CHARGE-OFFS> (171) (70)
<RECOVERIES> 32 19
<ALLOWANCE-CLOSE> 1,952 2,061
<ALLOWANCE-DOMESTIC> 1,952 2,061
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,952 2,061
</TABLE>
<PAGE>
Exhibit 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO WORONOCO SAVINGS CHARITABLE FOUNDATION
Woronoco Bancorp, Inc., 31 Court Street, Westfield, Massachusetts (the
"Company"), desires to make a gift of its common stock, par value $.01 per share
to Woronoco Savings Charitable Foundation (the "Foundation"), a nonprofit
corporation organized under the laws of the State of Delaware. The purpose of
the donation is to establish a bond between Woronoco Bancorp, Inc. and the
community in which it and its affiliates operate to enable the community to
share in the potential growth and success of the Company and its affiliates over
the long term. To that end, Woronoco Bancorp, Inc. now gives, transfers, and
delivers to the Foundation shares of its common stock, par value $.01
---------
per share, or total consideration of $0.01 per share, or $ , subject to
---------
the following conditions:
1. The Foundation shall use the donation solely for charitable purposes,
including community development, in the communities in which Woronoco Savings
Bank, Westfield, Massachusetts, maintains a banking office, in accordance with
the provisions of the Foundation's Certificate of Incorporation; and
2. Consistent with the Company's intent to form a long-term bond between
the Company and the community, the amount of Common Stock that may be sold by
the Foundation in any one year shall not exceed 5% of the market value of the
assets held by the Foundation, except that this restriction shall not prohibit
the board of directors of the Foundation from selling a greater amount of Common
Stock in any one year if the board of directors of the Foundation determines
that the failure to sell a greater amount of the Common Stock held by the
Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status.
Dated: , 1999 Woronoco Bancorp, Inc.
--------
By:
-----------------------
Cornelius D. Mahoney
President and Chief
Executive Officer
