<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1999
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CONNECTICUT BANCSHARES, INC.
THE SAVINGS BANK OF MANCHESTER SAVINGS PLAN
(exact name of registrant as specified in its charter)
<TABLE>
<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>
923 Main Street
Manchester, Connecticut 06040
(860) 646-1700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Richard P. Meduski
President and Chief Executive Officer
Connecticut Bancshares, Inc.
923 Main Street
Manchester, Connecticut 06040
(860) 646-1700
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Douglas P. Faucette, Esquire
Victor L. Cangelosi, Esquire
Kent M. Krudys, Esquire
Muldoon, Murphy & Faucette LLP
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
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price Aggregate Offering Registration
Per Unit Price (2) Fee
<S> <C> <C> <C> <C>
Common Stock 16,425,450
$.01 par value Shares(1) $10.00 $164,254,500 $45,663
Participation (3) _______ $ 9,720,330 (4)
Interests
</TABLE>
(1) Includes shares of Common Stock to be issued to SBM Charitable Foundation,
Inc., 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 Connecticut Bancshares, Inc. to be purchased by The
Savings Bank of Manchester Savings 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>
Interests in
The Savings Bank of Manchester
Savings Plan
and
Offering of 972,033 Shares of
Connecticut Bancshares, Inc.
Common Stock ($.01 Par Value)
This prospectus supplement relates to the offer and sale to participants in
The Savings Bank of Manchester Savings Plan of participation interests and
shares of common stock of Connecticut Bancshares.
The Board of Directors of Savings Bank of Manchester has adopted a plan to
convert Connecticut Bankshares, M.H.C., the mutual holding company for Savings
Bank of Manchester, to a stock holding company. As part of the conversion,
Connecticut Bancshares has been established to acquire all of the stock of
Savings Bank of Manchester and simultaneously offer Connecticut Bancshares
common stock to the public under certain purchase priorities in the plan of
conversion. After the conversion, Connecticut Bankshares, M.H.C. will cease to
exist.
In connection with the offering of Connecticut Bancshares Common Stock,
Savings Plan participants are now permitted to direct the trustee of the Savings
Plan to use their current account balances to subscribe for and purchase shares
of Connecticut Bancshares common stock through the Connecticut Bancshares, Inc.
Stock Fund. Based upon the value of the Savings Plan assets at June 30, 1999,
the trustee of the Savings Plan could purchase up to 972,033 shares of
Connecticut Bancshares common stock assuming a purchase price of $10.00 per
share. This prospectus supplement relates to the election of Savings Plan
participants to direct the trustee of the Savings Plan to invest all or a
portion of their Savings Plan accounts in Connecticut Bancshares common stock.
The prospectus dated __________, 2000, of Connecticut Bancshares, which we
have attached to this prospectus supplement, includes detailed information
regarding the conversion of Connecticut Bankshares, M.H.C., Connecticut
Bancshares common stock and the financial condition, results of operations and
business of Savings Bank of Manchester. This prospectus supplement provides
information regarding the Savings Plan. You should read this prospectus
supplement together with the prospectus and keep both for future reference.
Please refer to "Risk Factors" beginning on page __ of the prospectus.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any other state or
federal agency or any state securities commission, has approved or disapproved
these securities. Any representation to the contrary is a criminal offense.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
This prospectus supplement may be used only in connection with offers and
sales by Connecticut Bancshares of interests or shares of common stock under the
Savings Plan participants of the Savings Plan. No one may use this prospectus
supplement to reoffer or resell interests or shares of common stock acquired
through the Savings Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. Connecticut Bancshares, Savings Bank of
Manchester and the Savings Plan have not authorized anyone to provide you with
information that is different.
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 an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of Savings Bank of Manchester or the Savings Plan since
the date of this prospectus supplement, or that the information contained in
this prospectus supplement or incorporated by reference is correct as of any
time after the date of this prospectus supplement.
The date of this Prospectus Supplement is _____________, 2000.
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TABLE OF CONTENTS
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<CAPTION>
<S> <C>
THE OFFERING..................................................................... 1
Securities Offered.......................................................... 1
Election to Purchase Connecticut Bancshares Common Stock in the Conversion.. 1
Value of Participation Interests............................................ 1
Method of Directing Transfer................................................ 2
Time for Directing Transfer................................................. 2
Irrevocability of Transfer Direction........................................ 2
Purchase Price of Connecticut Bancshares Common Stock....................... 2
Nature of a Participant's Interest in Connecticut Bancshares Common Stock... 2
Voting and Tender Rights of Connecticut Bancshares Common Stock............. 2
DESCRIPTION OF THE SAVINGS PLAN.................................................. 3
Introduction................................................................ 3
Eligibility and Participation............................................... 3
Contributions Under the Savings Plan........................................ 3
Limitations on Contributions................................................ 4
Investment of Contributions................................................. 5
Benefits Under the Savings Plan............................................. 7
Withdrawals and Distributions From the Savings Plan......................... 7
Administration of the Savings Plan.......................................... 7
Reports to Savings Plan Participants........................................ 8
Plan Administrator 8
Amendment and Termination................................................... 8
Merger, Consolidation or Transfer........................................... 8
Federal Income Tax Consequences............................................. 8
Restrictions on Resale...................................................... 10
SEC Reporting and Short-Swing Profit Liability.............................. 11
LEGAL OPINIONS................................................................... 11
</TABLE>
CHANGE OF INVESTMENT ALLOCATION FORM
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THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement are
participation interests in the Savings Plan. Assuming a purchase price of
$10.00 per share, the trustee may acquire up to 972,033 shares of Connecticut
Bancshares common stock for the Connecticut Bancshares, Inc. Stock Fund. The
interests offered under this prospectus supplement are conditioned on the
completion of the conversion. Your investment in the Connecticut Bancshares,
Inc. Stock Fund in connection with the conversion is also governed by the
purchase priorities contained in the plan of conversion of Connecticut
Bankshares, M.H.C.
This prospectus supplement contains information regarding the Savings Plan.
The attached prospectus contains information regarding the conversion of
Connecticut Bankshares, M.H.C. and the financial condition, results of
operations and business of Savings Bank of Manchester. The address of the
principal executive office of Savings Bank of Manchester is 923 Main Street,
Manchester, Connecticut 06040. The telephone number of Savings Bank of
Manchester is (860) 646-1700.
Election to Purchase Connecticut Bancshares Common Stock in the Conversion
In connection with the conversion of Connecticut Bankshares, M.H.C. to a
stock holding company, the Savings Plan will permit you to direct the trustee to
transfer all or part of the funds which represent your current beneficial
interest in the assets of the Savings Plan to the Connecticut Bancshares, Inc.
Stock Fund. The trustee of the Savings Plan will subscribe for Connecticut
Bancshares common stock offered for sale in connection with the conversion of
Connecticut Bankshares, M.H.C., in accordance with each participant's direction.
If there is not enough Common Stock in the conversion to fill all subscriptions,
the Common Stock will be apportioned and the trustee for the Savings Plan may
not be able to purchase all of the Common Stock you requested. In such case, the
trustee will purchase shares in the open market, on your behalf, after the
conversion to fulfill your initial request. Such purchases may be at prices
higher than the initial public offering price.
All plan participants are eligible to direct a transfer of funds to the
Connecticut Bancshares, Inc. Stock Fund. However, such directions are subject
to the purchase priorities in the plan of conversion of Connecticut Bankshares,
M.H.C. Participants who have a savings account of $50 or more on deposit at
Savings Bank of Manchester as of July 31, 1998 have first priority to purchase
Connecticut Bancshares Common Stock in the offering and can direct the trustee
to make the purchase. No Savings Plan participant may purchase in the offering
more than $250,000 of Connecticut Bancshares common stock.
Value of Participation Interests
As of June 30, 1999, the market value of the assets of the Savings Plan
equaled approximately $9,720,333. The plan administrator has informed each
participant of the value of his or her beneficial interest in the Savings Plan.
The value of Savings Plan assets represents past contributions to the Savings
Plan on your behalf, plus or minus earnings or losses on the contributions, less
previous withdrawals and loans.
Method of Directing Transfer
The last three pages of this prospectus supplement is a form for you to
direct a transfer of some portion of your account under the Savings Plan to the
Connecticut Bancshares, Inc. Stock Fund (the "Change of Investment Allocation
Form"). If you wish to transfer all, or part, in multiples of not less than 1%,
of your beneficial interest in the assets of the Savings Plan to the Connecticut
Bancshares Stock Fund, you should complete the Change of Investment Allocation
Form. If you do not wish to make such
1
<PAGE>
an election at this time, you do not need to take any action. The minimum
investment in the Connecticut Bancshares, Inc. Stock Fund during the initial
public offering is $250.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Connecticut Bancshares, Inc. Stock Fund in connection with the conversion of
Savings Bank of Manchester is _____________. You should return the Change of
Investment Allocation Form to the Human Resources Department of Savings Bank of
Manchester by ____ __.m. on ___________, 2000.
Irrevocability of Transfer Direction
Your direction to transfer amounts credited to your account in the Savings
Plan to the Connecticut Bancshares, Inc. Stock Fund in connection with the
conversion cannot be changed.
Purchase Price of Connecticut Bancshares Common Stock
The trustee will use the funds transferred to the Connecticut Bancshares,
Inc. Stock Fund to purchase shares of Connecticut Bancshares common stock in the
conversion of Connecticut Bankshares, M.H.C. The trustee will pay the same
price for shares of Connecticut Bancshares common stock as all other persons who
purchase shares of Connecticut Bancshares common stock in the conversion of
Savings Bank of Manchester. If there is not enough Common Stock in the
conversion to fill all subscriptions, the Common Stock will be apportioned and
the trustee for the Savings Plan may not be able to purchase all of the Common
Stock you requested. In such case, the trustee will purchase shares in the open
market, on your behalf, after the conversion to fulfill your initial request.
Such purchases may be at prices higher than the initial public offering price.
Nature of a Participant's Interest in Connecticut Bancshares Common Stock
The trustee will hold Connecticut Bancshares common stock in the name of
the Savings Plan. The trustee will allocate shares of common stock acquired at
your direction to your account under the Savings Plan. Therefore, earnings with
respect to your account should not be affected by the investment designations of
other participants in the Savings Plan.
Voting and Tender Rights of Connecticut Bancshares Common Stock
The trustee generally will exercise voting and tender rights attributable
to all Connecticut Bancshares common stock held by the Connecticut Bancshares,
Inc. Stock Fund as directed by participants with interests in the Connecticut
Bancshares, Inc. Stock Fund. With respect to each matter as to which holders of
Connecticut Bancshares common stock have a right to vote, you will be given
voting instruction rights reflecting your proportionate interest in the
Connecticut Bancshares, Inc. Stock Fund. The number of shares of Connecticut
Bancshares common stock held in the Connecticut Bancshares, Inc. Stock Fund that
are voted for and against on each matter will be proportionate to the number of
voting instruction rights exercised in such manner. If there is a tender offer
for Connecticut Bancshares common stock, the Savings Plan provides that each
participant will be allotted a number of tender instruction rights reflecting
such participant's proportionate interest in the Connecticut Bancshares, Inc.
Stock Fund. The percentage of shares of Connecticut Bancshares common stock
held in the Connecticut Bancshares, Inc. Stock Fund that will be tendered will
be the same as the percentage of the total number of tender instruction rights
that are exercised in favor of tendering. The remaining shares of Connecticut
Bancshares common stock held in the Connecticut Bancshares, Inc. Stock Fund
will not be tendered. The Savings Plan makes provisions for participants to
exercise their voting instruction rights and tender instruction rights on a
confidential basis.
2
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DESCRIPTION OF THE SAVINGS PLAN
I. Introduction
Effective January 1, 1985, Savings Bank of Manchester adopted The Savings
Bank of Manchester Savings Plan. Savings Bank of Manchester intends for the
Savings Plan to comply, in form and in operation, with all applicable provisions
of the Internal Revenue Code and the Employee Retirement Income Security Act or
"ERISA." Savings Bank of Manchester may change the Savings Plan from time to
time in the future to ensure continued compliance with these laws. Savings Bank
of Manchester may also amend the Savings Plan from time to time in the future to
add, modify, or eliminate certain features of the plan, as it sees fit. As a
plan governed by the Employee Retirement Income Security Act of 1974, as
amended, federal law provides you with various rights and protections as a plan
participant. Although the Savings Plan is governed by many of the provisions of
the Employee Retirement Income Security Act of 1974, as amended, your benefits
under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.
Reference to Full Text of Plan. The following portions of this prospectus
supplement provide an overview of the material provisions of the Savings Plan.
Savings Bank of Manchester qualifies this overview in its entirety by reference
to the full text of the Savings Plan. You may obtain copies of the full Savings
Plan document by sending a request to the Human Resources Department at Savings
Bank of Manchester. You should carefully read the full text of the Savings Plan
document to understand your rights and obligations under the plan.
II. Eligibility and Participation
Any employee of Savings Bank of Manchester may participate in the Savings
Plan as of the first January 1 following completion of six months of service
with Savings Bank of Manchester.
As of June 30, 1999 of the ___ eligible employees of Savings Bank of
Manchester, elected to participate in the Savings Plan.
III. Contributions Under the Savings Plan
Savings Plan Participant Contributions. The Savings Plan permits each
participant to make pre-tax salary deferrals to the Savings Plan in amounts
ranging from 1% to 15% of compensation. In addition, participants may also make
post-tax deferrals up to 10% of a participant's compensation. Participants in
the Savings Plan may modify the amount contributed to the plan, effective on the
first day of each calendar quarter.
Savings Bank of Manchester Contributions. Savings Bank of Manchester has
discretion under the Savings Plan to make matching and/or other employer-
provided contributions. Savings Bank of Manchester currently makes matching
contributions to the Savings Plan equal to 50% of a participant's elective
deferrals up to 6% of a participant's base compensation. Matching contributions
are allocated to a participant's account for a plan year only if (i) the
participant was employed for at least 1,000 hours by Savings Bank of Manchester
or a participating employer as of the last day of the plan year, (ii) the
participant died or became a retired or disabled participant during the plan
year, or (iii) the participant separated from service with Savings Bank of
Manchester after becoming eligible for early retirement.
IV. Limitations on Contributions
Limitation on Employee Salary Deferral. Although the Savings Plan permits
you to defer up to 15% of your compensation, by law your total pre-tax deferrals
under the Savings Plan, together with similar plans, may not exceed $10,500 for
2000. The Internal Revenue Service will periodically increase this annual
limitation. Contributions in excess of this limitation, or excess deferrals,
will be included in
3
<PAGE>
an affected participant's gross income for federal income tax purposes in the
year they are made. In addition, a participant will have to pay federal income
taxes on any excess deferrals when distributed by the Savings Plan to the
participant, unless the excess deferral and any related income allocable 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. Under the requirements of
the Internal Revenue Code, the Savings Plan provides that the total amount of
contributions and forfeitures (annual additions) allocated to a participant
during any year may not exceed the lesser of 25% of the participant's
compensation for that year, or $30,000. The Savings Plan will also limit annual
additions to the extent necessary to prevent the limitations contained in the
Internal Revenue Code for all of the qualified defined benefit plans and defined
contribution plans maintained by Savings Bank of Manchester from being exceeded.
Limitation on Plan Contributions for Highly Compensated Employees. Special
provisions of the Internal Revenue Code limit the amount of salary deferrals and
matching contributions that may be made to the Savings Plan in any year on
behalf of highly compensated employees in relation to the amount of deferrals
and matching contributions made by or on behalf of all other employees eligible
to participate in the Savings Plan. If these limitations are exceeded, the
level of deferrals by highly compensated employees must be adjusted.
In general, a highly compensated employee includes any employee who, (1)
was a five percent owner of the sponsoring employer at any time during the year
or preceding year, or (2) had compensation for the preceding year in excess of
$85,000 and, if the sponsoring employer so elects, was in the top 20% of
employees by compensation for such year. The dollar amount in the foregoing
sentence are for 2000, but maybe adjusted annually to reflect increases in the
cost of living.
Top-Heavy Plan Requirements. If for any calendar year the Savings Plan is
a Top-Heavy Plan, then Savings Bank of Manchester may be required to make
certain minimum contributions to the Savings Plan on behalf of non-key
employees. In addition, certain additional restrictions would apply with
respect to the combination of contributions to the Savings Plan and projected
annual benefits under any defined benefit plan maintained by Savings Bank of
Manchester.
In general, the Savings Plan will be treated as a "Top-Heavy Plan" for any
calendar year if, as of the last day of the preceding calendar year, the
aggregate balance of the accounts of participants who are Key Employees exceeds
60% of the aggregate balance of the accounts of all participants. Key Employees
generally include any employee who, at any time during the calendar year or any
of the four preceding years, is:
(1) an officer of Savings Bank of Manchester 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 Savings
Bank of Manchester,
(3) a person who owns directly or indirectly more than 5% of the stock of
Connecticut Bancshares, or stock possessing more than 5% of the total combined
voting power of all stock of Connecticut Bancshares, or
(4) a person who owns directly or indirectly combined voting power of all
stock and more than 1% of the total stock of Connecticut Bancshares and has
annual compensation in excess of $150,000.
4
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The foregoing dollar amounts are for 2000.
V. Investment of Contributions
All amounts credited to participants' accounts under the Savings Plan are
held in trust. A trustee appointed by the Board of Directors of Savings Bank of
Manchester administers the trust.
Prior to the Conversion, the Savings Plan offered the following investment
choices with an annual percentage return for the past three (3) years as noted
below:
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<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Savings Bank of Manchester 401(k) Investment
Account 6.68% 6.67% 6.59%
Money Market Fund
Class B 3.74% 3.65% 3.54%
Class A 4.79% 4.69% 4.75%
Capital Growth Fund
Class B 31.31% 23.71% 16.17%
Class A 32.34% 24.58% 17.16%
Intermediate Income Fund
Class B 4.63% 4.91% 3.81%
Class A 5.63% 5.95% 4.89%
Total Return Fund
Class B 11.19% 19.87% 13.78%
Class A 11.91% 20.67% 14.60%
Emerging Growth Fund
Class B 23.56% 19.73% 13.85%
Class A 24.49% 20.64% 14.78%
Global Asset Fund
Class B 5.63% 9.66% 14.48%
Class A 6.21% 10.24% 15.23%
</TABLE>
The Savings Plan now provides the Connecticut Bancshares, Inc. Stock Fund as
an additional choice to these investment alternatives. The Connecticut
Bancshares, Inc. Stock Fund invests primarily in the common stock of Connecticut
Bancshares. Participants in the Savings Plan may direct the trustee to invest
all or a portion of their Savings Plan account balance in the Connecticut
Bancshares, Inc. Stock Fund.
The Connecticut Bancshares, Inc. Stock Fund consists of investments in the
common stock of Connecticut Bancshares made on the effective date of the
conversion of Connecticut Bancshares, M.H.C. After the conversion, the trustee
of the Savings Plan will, to the extent practicable, use all amounts held
by it in the Connecticut Bancshares, Inc. Stock Fund, including cash dividends
paid on the common stock held in the fund, to purchase additional shares of
common stock of Connecticut Bancshares.
As of the date of this prospectus supplement, none of the shares of
Connecticut Bancshares common stock have been issued or are outstanding and
there is no established market for the Connecticut Bancshares common stock.
Accordingly, there is no record of the historical performance of the Connecticut
Bancshares, Inc. Stock Fund. Performance of the Connecticut Bancshares, Inc.
Stock Fund depends on a number of factors, including the financial condition and
profitability of Connecticut Bancshares and Savings Bank of Manchester and
market conditions for Connecticut Bancshares common stock generally.
5
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Investments in the Connecticut Bancshares, Inc. Stock Fund may involve
certain special risks in investments in the common stock of Connecticut
Bancshares. For a discussion of these risk factors, see "Risk Factors"
beginning on page __ of the prospectus.
VI. Benefits Under the Savings Plan
Vesting. A participant is always 100% vested in his or her account under
the Savings Plan.
VII. Withdrawals and Distributions From the Savings Plan
Withdrawals Before Termination of Employment. You may receive in-service
distributions from the Savings Plan under limited circumstances in the form of
hardship distributions and withdrawal of rollover contributions. In order to
qualify for a hardship withdrawal, you must have an immediate and substantial
need to meet certain expenses and have no other reasonably available resources
to meet the financial need. If you qualify for a hardship distribution, the
trustee will make the distribution proportionately from the investment funds in
which you have invested your account balances. Restrictions are imposed upon
your participation in the Savings Plan if you take a hardship withdrawal.
Distribution Upon Retirement or Disability. Upon retirement or disability,
you may elect to receive your benefits in one of the following terms: (i) lump
sum payment; (ii) purchase from an insurer of a nontransferable annuity
contract; or (iii) installment payments and a fixed period of time or in fixed
amounts. Your distributable benefit will be equal to the vested value of your
accounts under the Savings Plan.
Distribution Upon Death. If you die before your benefits are paid from the
Savings Plan, your benefits will be paid to your surviving spouse or beneficiary
under one or more of the forms available under the Savings Plan.
Distribution Upon Termination for Any Other Reason. If you terminate
employment for any reason other than retirement, disability or death and your
account balance exceeds $3,500, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
does not exceed $3,500, the trustee will generally distribute your benefits to
you as soon as administratively practicable following termination of employment.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the Savings 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 Savings Plan shall be void.
Applicable federal tax law requires the Savings Plan to impose substantial
restrictions on your right to withdraw amounts held under the plan before your
termination of employment with Savings Bank of Manchester. Federal law may also
impose an excise tax on withdrawals made from the Savings Plan before you attain
59 1/2 years of age regardless of whether the withdrawal occurs during your
employment with Savings Bank of Manchester or after termination of employment.
Administration of the Savings Plan
The trustee with respect to the Savings Plan is the named fiduciary of the
Savings Plan for purposes of ERISA.
6
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Trustees. The board of directors of Savings Bank of Manchester appoints a
trustee to serve at its pleasure. Presently K. Craig Barnes, Richard T. Carter
and Francis J. Corriveau serve as trustees for the Savings Plan. The board of
directors has appointed ______________ as trustee of the Connecticut Bancshares,
Inc. Stock Fund.
The trustee receives, holds and invests the contributions to the Savings
Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the Savings Plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust.
Reports to Savings Plan Participants
The plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
Plan Administrator
The current plan administrator of the Savings Plan is Savings Bank of
Manchester. The plan administrator is responsible for the administration of the
Savings 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 Internal Revenue
Service, and for all disclosures required to be made to participants,
beneficiaries and others under Employee Retirement Income Security Act of 1974,
as amended.
Amendment and Termination
Savings Bank of Manchester intends to continue the Savings Plan
indefinitely. Nevertheless, Savings Bank of Manchester may terminate the
Savings Plan at any time. If Savings Bank of Manchester terminates the Savings
Plan in whole or in part, then regardless of other provisions in the plan, all
affected participants will become fully vested in their accounts. Savings Bank
of Manchester reserves the right to make, from time to time, changes 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 Savings Bank of Manchester may amend the plan as it
determines necessary or desirable, with or without retroactive effect, to comply
with the Employee Retirement Income Security Act of 1974, as amended, or the
Internal Revenue Code of 1986, as amended.
Merger, Consolidation or Transfer
If the Savings Plan merges or consolidates with another plan or transfers
the trust assets to another plan, and if either the Savings Plan or the other
plan is then terminated, the Savings Plan requires that you would receive a
benefit immediately after the merger, consolidation or transfer. The benefit
would be equal to or greater than the benefit you would have been entitled to
receive immediately before the merger, consolidation or transfer if the Savings
Plan had then terminated.
Federal Income Tax Consequences
The following is only a brief summary of the material federal income tax
aspects of the Savings Plan. You should not rely on this summary as a complete
or definitive description of the material federal income tax consequences
relating to the Savings Plan. Statutory provisions change, as do 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
7
<PAGE>
laws. You are urged to consult your tax advisor with respect to any distribution
from the Savings Plan and transactions involving the plan.
As a "qualified retirement plan," the Internal Revenue Code affords the
Savings Plan special tax treatment, including:
(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.
Savings Bank of Manchester will administer the Savings Plan to comply in
operation with the requirements of the Internal Revenue Code as of the
applicable effective date of any change in the law. If Savings Bank of
Manchester receives an adverse determination letter regarding its tax-exempt
status from the Internal Revenue Service, all participants would generally
recognize income equal to their vested interest in the Savings Plan, the
participants would not be permitted to transfer amounts distributed from the
Savings Plan to an Individual Retirement Account or to another qualified
retirement plan, and Savings Bank of Manchester may be denied certain deductions
taken with respect to the Savings Plan.
Lump Sum Distribution. A distribution from the Savings Plan to a
participant or the beneficiary of a participant will qualify as a lump sum
distribution if it is made within one taxable year, on account of the
participant's death, disability or separation from service, or after the
participant attains age 59 1/2; and consists of the balance to the credit of the
participant under this plan and all other profit sharing plans, if any,
maintained by Savings Bank of Manchester. The portion of any lump sum
distribution required to be included in your taxable income for federal income
tax purposes consists of the entire amount of the lump sum distribution less the
amount of after-tax contributions, if any, you have made to any other profit
sharing plans maintained by Savings Bank of Manchester which is included in the
distribution.
Averaging Rules. The portion of any lump sum distribution, required to be
included in your federal taxable income for federal income tax purposes,
attributable to participation after 1973 in the Savings Plan or in any other
profit-sharing plan maintained by Savings Bank of Manchester, known as
the "ordinary income portion," will be taxable generally as ordinary income for
federal income tax purposes. However, if you have completed at least five (5)
years of participation in the Savings Plan before the taxable year in which the
distribution is made, or receive a lump sum distribution on account of your
death, regardless of the period of your participation in this plan or any other
profit-sharing plan maintained by Savings Bank of Manchester, you may elect to
have the ordinary income portion of such lump sum distribution taxed according
to a special five-year averaging rule. The election of the special five-year
averaging rules may apply only to one lump sum distribution you or your
beneficiary receive, provided such amount is received on or after the date your
turn 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
five-year 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. These 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.
Connecticut Bancshares Common Stock Included in Lump Sum Distribution. If
a lump sum distribution includes Connecticut Bancshares common stock, the
distribution generally will be taxed in
8
<PAGE>
the manner described above, except that the total taxable amount may be reduced
by the amount of any net unrealized appreciation with respect to Connecticut
Bancshares common stock that is the excess of the value of Connecticut
Bancshares common stock at the time of the distribution over its cost or other
basis of the securities to the trust. The tax basis of Connecticut Bancshares
common stock for purposes of computing gain or loss on its subsequent sale
equals the value of Connecticut Bancshares 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 Connecticut Bancshares common
stock, to the extent of the amount of net unrealized appreciation at the time of
distribution, will constitute long-term capital gain regardless of the holding
period of Connecticut Bancshares common stock. Any gain on a subsequent sale or
other taxable disposition of Connecticut Bancshares 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
Connecticut Bancshares common stock. Any gain on a subsequent sale or other
taxable disposition of Connecticut Bancshares 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 Connecticut Bancshares common stock. The
recipient of a distribution may elect to include the amount of any net
unrealized appreciation in the total taxable amount of the 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. You may roll over virtually all distributions from the Savings Plan
to another qualified plan or to an individual retirement account generally in
accordance with the terms of the other plan or account.
We have provided you with a brief description of the material federal
income tax aspects of the Savings Plan which are of general application under
the Code. It is not intended to be a complete or definitive description of the
federal income tax consequences of participating in or receiving distributions
from the Savings Plan. Accordingly, you are urged to consult a tax advisor
concerning the federal, state and local tax consequences of participating in and
receiving distributions from the Savings Plan.
Restrictions on Resale
Any person receiving a distribution of shares of common stock under the
Savings Plan who is an "affiliate" of Connecticut Bancshares under Rules 144 and
405 under the Securities Act of 1933, as amended, may reoffer or resell such
shares only under a registration statement filed under the Securities Act of
1933, as amended, assuming the availability of a registration statement, under
Rule 144 or some other exemption of the registration requirements of the
Securities Act of 1933, as amended. Directors, officers and substantial
shareholders of Connecticut Bancshares are generally considered "affiliates."
Any person who may be an "affiliate" of Savings Bank of Manchester may wish to
consult with counsel before transferring any common stock they own. In addition,
participants are advised to consult with counsel as to the applicability of
Section 16 of the Securities Exchange Act of 1934, as amended, which may
restrict the sale of Connecticut Bancshares common stock acquired under the
Savings Plan, or other sales of Connecticut Bancshares common stock.
Persons who are not deemed to be "affiliates" of Savings Bank of Manchester
at the time of resale will be free to resell any shares of Connecticut
Bancshares common stock distributed to them under the Savings 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 under federal law. An
"affiliate" of Savings Bank of Manchester is someone who directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control, with Savings Bank of Manchester. 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
Savings Bank of Manchester at the time of a proposed resale will be permitted to
make public resales of the common stock only under a "reoffer" prospectus or in
accordance with the
9
<PAGE>
restrictions and conditions contained in Rule 144 under the Securities Act of
1933, as amended, 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 common stock which any such affiliate may publicly resell
under Rule 144 in any three-month period may not exceed the greater of one
percent of Connecticut Bancshares 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 before the sale. Such
sales may be made only through brokers without solicitation and only at a time
when Connecticut Bancshares is current in filing the reports required of it
under the Securities Exchange Act of 1934, as amended.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934, as amended, imposes
reporting and liability requirements on officers, directors and persons
beneficially owning more than ten percent of public companies such as
Connecticut Bancshares. Section 16(a) of the Securities Exchange Act of 1934,
as amended, requires the filing of reports of beneficial ownership. Within ten
days of becoming a person required to file reports under 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 Savings Bank of Manchester' fiscal year. Participation in the
Connecticut Bancshares, Inc. Stock Fund of the Savings Plan by officers,
directors and persons beneficially owning more than ten percent of common stock
of Connecticut Bancshares must be reported to the SEC annually on a Form 5 by
such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Securities Exchange Act of 1934 provides for the recovery by Connecticut
Bancshares of profits realized by any officer, director or any person
beneficially owning more than ten percent of the common stock 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 exempt many transactions involving the
Savings Plan from the "short-swing" profit recovery provisions of Section 16(b).
The exemptions generally involve restrictions upon the timing of elections to
buy or sell employer securities for the accounts of any officer, director or any
person beneficially owning more than ten percent of the common stock.
Except for distributions of the common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons who are governed by Section 16(b) may, under limited
circumstances involving the purchase of common stock within six months of the
distribution, be required to hold shares of the common stock distributed from
the Savings Plan for six months following the distribution date.
LEGAL OPINIONS
The validity of the issuance of the common stock of Connecticut Bancshares
will be passed upon by Muldoon, Murphy & Faucette LLP, Washington, D.C.
Muldoon, Murphy & Faucette LLP acted as special counsel for Savings Bank of
Manchester in connection with the conversion of Savings Bank of Manchester.
10
<PAGE>
The Savings Bank of Manchester Savings Plan
CHANGE OF INVESTMENT ALLOCATION
- -------------------------------
1. Member Data
_______________________________________________________________________________
Print your full name (Last, first, middle initial) Social Security Number
above
_______________________________________________________________________________
Street Address City State Zip
2. Instructions
The Savings Bank of Manchester Savings Plan (the "Plan" or "Savings Plan") is
giving members a special opportunity to invest their Savings Plan account
balances in a new investment fund - the Connecticut Bancshares, Inc. Stock Fund
- - which is comprised primarily of common stock ("Common Stock") issued by
Connecticut Bancshares, Inc. (the "Company") in connection with the conversion
of Connecticut Bankshares, M.H.C. to a stock holding company. The percentage of
a member's account transferred at the direction of the member into the
Connecticut Bancshares, Inc. Stock Fund will be used to purchase shares of
Common Stock during the Subscription and Community Offering. Please review the
Prospectus (the "Prospectus") and the Prospectus Supplement ( the "Supplement")
before making any decision.
If there is not enough Common Stock in the conversion to fill all subscriptions,
the Common Stock will be apportioned and the trustee for the Plan may not be
able to purchase all of the Common Stock you requested. In such case, the
trustee will purchase shares in the open market, on your behalf, after the
conversion to fulfill your initial request. Such purchases may be at prices
higher than the initial public offering price.
Investing in Common Stock entails some risks, and we encourage you to discuss
this investment decision with your spouse and investment advisor. The Plan
trustee and the Plan administrator are not authorized to make any
representations about this investment other than what appears in the Prospectus
and Prospectus Supplement, and you should not rely on any information other than
what is contained in the Prospectus and Prospectus Supplement. For a discussion
of certain factors that should be considered by each member as to an investment
in the Common Stock, see "Risk Factors" beginning on page __ of the Prospectus.
Any shares purchased by the Plan pursuant to your election will be subject to
the conditions or restrictions otherwise applicable to Common Stock, as
discussed in the Prospectus and Prospectus Supplement.
3. Investment Directions (Applicable to Accumulated Balances Only)
To direct a transfer of all or part of the funds credited to your accounts to
the Connecticut Bancshares, Inc. Stock Fund, you should complete and file this
form with the Human Resources Department at Savings Bank of Manchester, no later
than _____________ at ____ p.m. If you need any assistance in completing this
form, please contact Human Resources. If you do not complete and return this
form to Human Resources by ____ p.m., the funds credited to accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Savings Plan if no investment
direction had been provided.
<PAGE>
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following funds, to the extent
permissible, be transferred out of the specified fund and invested (in whole
percentages) in the Connecticut Bancshares, Inc. Stock Fund as follows:
Fund Percentage to be transferred
---- ----------------------------
Savings Bank of Manchester 401(k) Account _____%
Money Market Fund _____%
Capital Growth Fund _____%
Intermediate Income Fund _____%
Total Return Fund _____%
Emerging Growth Fund _____%
Global Asset Fund _____%
Note: The total amount transferred may not exceed the total value of your
accounts.
4. Investment Directions (Applicable to Future Contributions Only)
I hereby revoke any previous investment instructions and now direct that any
future contributions and/or loan repayments, if any, made by me or on my behalf
by Savings Bank of Manchester, including those contributions and/or repayments
received by The Savings Bank of Manchester Savings Plan during the same
reporting period as this form, be invested in the following whole percentages.
If I elect to invest in Connecticut Bancshares Common Stock, such future
contributions or loan repayments, if any, will be invested in the Connecticut
Bancshares, Inc. Stock Fund the month following the conclusion of the Offering.
Fund Percentage
---- ----------
Savings Bank of Manchester 401(k) Account _____%
Money Market Fund _____%
Capital Growth Fund _____%
Intermediate Income Fund _____%
Total Return Fund _____%
Emerging Growth Fund _____%
Global Asset Fund _____%
100 %
<PAGE>
5. Participant Signature and Acknowledgment - Required
By signing this Change Of Investment Allocation Form, I authorize and direct the
Plan administrator and trustee to carry out my instructions. I acknowledge that
I have been provided with and read a copy of the Prospectus and Supplement
relating to the issuance of Common Stock. I am aware of the risks involved in
the investment in Common Stock, and understand that the trustee and Plan
administrator are not responsible for my choice of investment.
MEMBER'S SIGNATURE
_________________________________ __________________________
Signature of Member Date
__________________ is hereby authorized to make the above listed change(s) to
this member's record.
__________________________________________ __________________________
Signature of The Savings Bank of Manchester Date
Authorized Representative
Minimum Stock Purchase is $250.
Maximum Stock Purchase is $250,000.
PLEASE COMPLETE AND RETURN TO HUMAN RESOURCES AT
THE SAVINGS BANK OF MANCHESTER BY ____ P.M. ON _____________, 2000.
<PAGE>
[To be used in connection with Syndicated Community Offering only]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] CONNECTICUT BANCSHARES, INC.
(Proposed Holding Company for The Savings Bank of Manchester)
923 Main Street
Manchester, Connecticut 06040
(860) 646-1700
================================================================================
Connecticut Bankshares, M.H.C., the mutual holding company for The Savings
Bank of Manchester, is converting to a stock holding company. After the
conversion, Connecticut Bancshares will own all of Manchester Bank's stock.
Connecticut Bancshares has already received subscriptions for _________ shares.
Up to ________ shares will be sold in the conversion. The conversion will not be
completed and no common stock will be sold unless additional subscriptions are
received for at least the minimum number of shares in the offering.
Connecticut Bancshares will hold all funds of subscribers in an interest-bearing
savings account at Manchester Bank until the conversion is completed or
terminated. Funds will be returned promptly with interest if the conversion is
terminated.
Sandler O'Neill & Partners, L.P. will use its best efforts to assist
Connecticut Bancshares in selling at least the minimum number of shares but
does not guarantee that this number will be sold. Neither Sandler O'Neill nor
any selected broker-dealer is obligated to purchase any shares of common stock
in the syndicated community offering. Sandler O'Neill intends to make a market
in the common stock.
================================================================================
PRICE PER SHARE: $10.00
EXPECTED TRADING MARKET AND SYMBOL: Nasdaq National Market "____"
This offering will expire no later than 12:00 noon, Eastern time, on
____________, 2000, unless extended.
. Number of Shares
Minimum/Maximum
. Estimated Underwriting Commissions and Other Expenses
Minimum/Maximum
. Estimated Net Offering Proceeds to Connecticut Bancshares
Minimum/Maximum
. Estimated Net Offering Proceeds per Share to Connecticut Bancshares
Minimum/Maximum
Please refer to "Risk Factors" beginning on page __ of the attached Prospectus
dated ________ __, 2000.
These securities are not deposits or accounts and are not insured or guaranteed
by Connecticut Bancshares, Manchester Bank, the Federal Deposit Insurance
Corporation or any other government agency. The common stock is subject to
investment risk, including the possible loss of money invested.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the State of Connecticut Department of Banking, nor any state
securities commission has approved or disapproved these securities or determined
if this prospectus supplement is truthful or complete. Any representations to
the contrary is a criminal offense.
Sandler O'Neill & Partners, L.P.
The date of this Prospectus Supplement is _______________, 2000
1
<PAGE>
THE SYNDICATED COMMUNITY OFFERING
Connecticut Bancshares is offering for sale between ___________ and
__________ shares of common stock at price of $10.00 per share in a syndicated
community offering. These shares are to be sold in connection with the
conversion of Connecticut Bankshares, M.H.C., the mutual holding company for
Manchester Bank, from a mutual to stock form of organization and the issuance of
Manchester Bank's outstanding capital stock to Connecticut Bancshares. The
remaining __________ shares of common stock to be sold in connection with the
conversion have been subscribed for in subscription and direct community
offerings. The prospectus in the form used in the subscription and direct
community offerings is attached to this prospectus supplement. The purchase
price for all shares sold in the syndicated community offering will be the same
as the price paid by subscribers in the subscription and direct community
offerings.
Funds sent with purchase orders will earn interest at the Manchester Bank's
passbook rate from the date Manchester Bank receives them until the completion
or termination of the conversion. If the syndicated community offering is not
completed by _________________, 2000, and the State of Connecticut Department of
Banking allows more time to complete the conversion, Manchester Bank will
contact everyone who subscribed for shares to see if they still want to purchase
stock, and subscribers will be able to confirm, modify or cancel their
subscriptions. A failure to respond will be treated as a cancellation of the
purchase order. If payment for the stock was made by check or money order,
subscription funds will be returned with accrued interest. If payment was
authorized by withdrawal of funds on deposit at Manchester Bank, that
authorization would terminate. The conversion must be completed by _______,
2001.
The minimum number of shares which may be purchased is 25 shares. Except for
the Manchester Bank employee stock ownership plan, which intends to purchase up
to 5% of the total number of shares of common stock sold in the conversion, no
person, together with related persons and persons acting together, may purchase
more than $250,000 of common stock (25,000 shares) in the syndicated community
offering. However, the maximum amount of shares of common stock that may be
subscribed for or purchased in all categories of the conversion by any person,
related persons or persons acting together is 1.0% of the shares of common stock
sold in the conversion. Connecticut Bancshares 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. If a subscription is
rejected in part, you cannot cancel the remainder of your order.
Connecticut Bancshares and Manchester Bank have engaged Sandler O'Neill &
Partners, L.P. as their financial advisor to assist them in the sale of the
common stock in the syndicated community offering. Sandler O'Neill expects to
use the services of other registered broker-dealers and that fees to Sandler
O'Neill and other selected broker-dealers will not exceed ____% of the
aggregate purchase price of the shares sold in the syndicated community
offering.
Before 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. The absence or discontinuance of an active
and liquid trading market may hurt the market price of the common stock. See
"Risk Factors--Connecticut Bancshares cannot assure or guarantee an active
trading market for the common stock." in the attached prospectus.
2
<PAGE>
PROSPECTUS [LOGO]
CONNECTICUT BANCSHARES, INC.
(Proposed Holding Company for The Savings Bank of Manchester)
13,225,000 Shares of Common Stock
Connecticut Bankshares, M.H.C., the mutual holding company for The Savings Bank
of Manchester, is converting to a stock holding company. After the conversion,
Connecticut Bancshares will own all of Savings Bank of Manchester's common
stock.
Price Per Share: $10.00
Expected Trading Market and Symbol: Nasdaq National Market "____"
<TABLE>
<CAPTION>
Minimum Maximum
----------- ------------
<S> <C> <C>
Number of shares: 9,775,000 13,225,000
Gross offering proceeds: $97,750,000 $132,250,000
Estimated underwriting commissions
and other offering expenses: $ 3,979,000 $ 4,469,000
Estimated net proceeds: $93,771,000 $127,781,000
Estimated net proceeds per share: $ 9.59 $ 9.66
</TABLE>
If the appraiser increases the estimated value, Connecticut Bancshares may
increase the maximum number of shares by up to 15%, to 15,208,750 shares.
Sandler O'Neill will use its best efforts to assist Connecticut Bancshares in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. Sandler O'Neill is not obligated to purchase any shares of
common stock in the offering. Sandler O'Neill intends to make a market in the
common stock.
The offering to depositors, officers, directors and employees of Savings Bank of
Manchester will end at 12:00 Noon, Eastern Time, on ________, 2000. An offering
to the general public may also be held and may end as early as 12:00 Noon,
Eastern Time, on _________ __, 2000. If the conversion is not completed by
_________ __, 2000, and the State of Connecticut Department of Banking allows
more time to complete the conversion, all subscribers will be able to increase,
decrease or cancel their orders. All extensions may not go beyond
_____________, 2001. Connecticut Bancshares will hold all funds of subscribers
in an interest-bearing savings account until the conversion is completed or
terminated. Funds will be returned promptly with interest if the conversion is
terminated.
- -------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by Savings Bank of Manchester, Connecticut Bancshares, the Federal Deposit
Insurance Corporation or any other federal or state government agency. The
common stock is subject to investment risk, including the possible loss of money
invested.
For a discussion of certain risks that you should consider, see "Risk Factors"
beginning on page __.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the State of Connecticut Department of Banking, nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
- -------------------------------------------------------------------------------
For assistance, please contact the conversion center at (___) ___-____.
SANDLER O'NEILL & PARTNERS, L.P.
The date of this prospectus is ________, 2000.
<PAGE>
TABLE OF CONTENTS
Page
----
Summary..................................................................
Risk Factors.............................................................
Selected Consolidated Financial Information..............................
Use of Proceeds..........................................................
Dividend Policy..........................................................
Market for Common Stock..................................................
Capitalization...........................................................
Historical and Pro Forma Regulatory Capital Compliance...................
Pro Forma Data...........................................................
Comparison of Independent Valuation and Pro Forma Financial
Information With and Without the Foundation...........................
Connecticut Bankshares, M.H.C. and Subsidiary Consolidated
Statements of Operations..............................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................
Business of Connecticut Bankshares, M.H.C. ..............................
Business of Connecticut Bancshares.......................................
Business of Savings Bank of Manchester...................................
Management of Connecticut Bancshares.....................................
Management of Savings Bank of Manchester.................................
Regulation and Supervision...............................................
Federal and State Taxation of Income.....................................
Shares to Be Purchased by Management with Subscription Rights............
The Conversion...........................................................
Restrictions on Acquisition of Connecticut Bancshares and
Savings Bank of Manchester............................................
Description of Connecticut Bancshares Stock..............................
Description of Savings Bank of Manchester Stock..........................
Transfer Agent and Registrar.............................................
Registration Requirements................................................
Legal and Tax Opinions...................................................
Experts..................................................................
Where You Can Find More Information......................................
Index to Consolidated Financial Statements--Connecticut..................
Bankshares, M.H.C. and Subsidiary.....................................
<PAGE>
SUMMARY
You should read the entire prospectus carefully before you decide to
invest. For assistance, please contact the conversion center at (___) ___-____.
The Companies
<TABLE>
<S> <C>
Connecticut Bankshares, M.H.C. (page __) Connecticut Bankshares, M.H.C. was formed in 1996 as the
923 Main Street mutual holding company for Savings Bank of Manchester. In
Manchester, Connecticut 06040 the mutual holding company reorganization, Savings Bank of
(860) 646-1700 Manchester converted from mutual to stock form and issued
all of its outstanding stock to Connecticut Bankshares,
M.H.C. Connecticut Bankshares, M.H.C. is governed by a
Board of Directors. All voting control of Connecticut
Bankshares, M.H.C. lies in its Board of Corporators. To date,
Connecticut Bankshares, M.H.C.'s business activities have
been limited to directing, planning and coordinating Savings
Bank of Manchester's business activities. After the
conversion, Connecticut Bankshares, M.H.C. will no longer
exist.
Connecticut Bancshares, Inc. (page __) Savings Bank of Manchester recently formed Connecticut
923 Main Street Bancshares to be its new holding company. To date,
Manchester, Connecticut 06040 Connecticut Bancshares has only conducted organizational
(860) 646-1700 activities. After the conversion, it will own all of Savings
Bank of Manchester's capital stock and will direct, plan and
coordinate Savings Bank of Manchester's business activities.
After the conversion, Connecticut Bancshares might become
an operating company or acquire or organize other operating
subsidiaries, including other financial institutions or financial
services companies. Connecticut Bancshares intends to retain
50% of the net conversion proceeds.
The Savings Bank of Manchester (page __) Savings Bank of Manchester is a Connecticut-chartered stock
923 Main Street savings bank that operates as a community bank dedicated to
Manchester, Connecticut 06040 serving the financial service needs of consumers and small
(860) 646-1700 businesses within its primary market area. Currently, Savings
Bank of Manchester operates out of its main office in
Manchester, Connecticut and its 22 other branch offices in
Hartford, Tolland and Windham counties, which Savings
Bank of Manchester considers its primary market area for
making loans and attracting deposits.
Historically, Savings Bank of Manchester's principal business
has been attracting deposits from the general public and using
those funds to originate loans secured by residential real
estate, which accounted for 57.1% of Savings Bank of
Manchester's total loan portfolio at August 31, 1999. More
recently, Savings Bank of Manchester has increased its
emphasis on commercial real estate and business lending,
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
which accounted for 30.0% of its total loan portfolio at
August 31, 1999. Savings Bank of Manchester also invests in
U.S. government and agency securities, U.S. government
insured or guaranteed mortgage-backed securities, corporate
bonds and marketable equity securities. At August 31, 1999,
Savings Bank of Manchester had total assets of $1.18 billion,
deposits of $887.3 million and total capital of $118.0 million.
Recently, Savings Bank of Manchester expanded the products
and services that it offers to include Internet banking, debit
cards, a bank issued credit card and merchant credit card
processing. In 1997, it added annuities to its existing sales of
mutual funds and other non-deposit investment products.
For a discussion of Savings Bank of Manchester's business
strategy and recent results of operations, see "Management's
Discussion and Analysis of Financial Condition and Results
of Operations." For a discussion of Savings Bank of
Manchester's business activities, see "Business of Savings
Bank of Manchester."
The Conversion
What is the Conversion (page __) The conversion is a change in Connecticut Bankshares,
M.H.C.'s legal form of organization. Currently, Connecticut
Bankshares, M.H.C. owns all of the outstanding capital stock of
Savings Bank of Manchester. Connecticut Bankshares, M.H.C.
is a mutual holding company and has no stock or stockholders.
Instead, Connecticut Bankshares, M.H.C. operates for the
mutual benefit of Savings Bank of Manchester's depositors.
Connecticut Bankshares, M.H.C.'s corporators elect directors
and vote on other important matters. After the conversion,
Connecticut Bankshares, M.H.C. and its Board of Corporators
will cease to exist and Savings Bank of Manchester will continue
as a stock savings bank but will be owned and controlled by the
new holder of all its stock, Connecticut Bancshares. Voting
rights in Savings Bank of Manchester will belong to Connecticut
Bancshares. Voting rights in Connecticut Bancshares will belong
to its stockholders.
Savings Bank of Manchester is conducting the conversion under the
terms of its plan of conversion. The corporators of Connecticut
Bankshares, M.H.C. approved and adopted the plan of conversion at
a special meeting of corporators called for that purpose
on _________, 1999. The State of Connecticut Department of Banking
approved the plan of conversion on ____________, 2000. In addition,
the Federal Deposit Insurance Corporation and the Federal Reserve
Board have reviewed the application for conversion.
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Reasons for the Conversion (page __) By converting Connecticut Bankshares, M.H.C. to the stock form of
organization, Savings Bank of Manchester will be structured in the
form used by commercial banks, most business entities and a large
number of savings institutions. The conversion will be important to
Savings Bank of Manchester's future growth and performance because it
will:
. enhance its ability to diversify into other
financial services related activities;
. enhance its ability to expand through the
acquisition of other financial institutions or their
assets;
. enhance its ability to attract and retain
qualified management through stock-based compensation
plans; and
. provide a larger capital base from which to operate and
expand its ability to serve the public.
Currently, neither Connecticut Bancshares nor Savings Bank of
Manchester has any specific contracts, understandings, or
arrangements for the acquisition of other financial service companies or
their assets.
SBM Charitable Foundation, Inc. To continue its long-standing commitment to its local
(page ) communities, Savings Bank of Manchester intends to establish a
charitable foundation, SBM Charitable Foundation, Inc., as
part of the conversion. The foundation will be funded with
Connecticut Bancshares common stock equal to 8% of the shares
sold in the conversion. This would range from 782,000 shares,
assuming 9,775,000 shares are sold in the conversion, to
1,058,000 shares, assuming 13,225,000 shares are sold in the
conversion, or 1,216,700 shares if the number of shares sold
in the conversion is increased to 15,208,750 shares. Based on
the purchase price of $10.00 per share, the foundation would be
funded with between $7.8 million and $10.6 million of common
stock, or $12.2 million, if the number of shares sold in the
conversion is increased to 15,208,750 shares. SBM
Foundation will make grants and donations to non-profit and
community groups within the communities where Savings Bank of
Manchester operates. If SBM Foundation was not established
as part of the conversion, then the amount of common stock sold
would be greater than if the conversion was completed with the
foundation. For a further discussion of the financial impact
of the foundation, including its dilutive effect on those who
purchase shares in the conversion, see "Risk Factors--The
contribution to SBM Foundation means that a stockholder's total
ownership interest will be 7.4% less after the contribution,"
"Pro Forma Data" and "Comparison of Independent Valuation
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and Pro Forma Financial Information With and Without the
Foundation."
SBM Foundation will complement the activities of the Savings
Bank of Manchester Foundation, Inc., a private foundation
established by Savings Bank of Manchester in 1998. In 1998,
Savings Bank of Manchester contributed marketable equity
securities with a fair market value of $3.0 million to initially
fund the foundation. Savings Bank of Manchester Foundation,
Inc., which had assets of $2.9 million at August 31, 1999,
provides grants to individuals and not-for-profit organizations
within the communities that Savings Bank of Manchester serves.
Savings Bank of Manchester does not expect to make any further
contributions to the Savings Bank of Manchester Foundation, Inc.
after the conversion.
Benefits of the Conversion to Connecticut Bancshares and Savings Bank of Manchester intend to
Management (page __) adopt the following benefit plans and employment agreements:
. Employee Stock Ownership Plan. This plan intends to
acquire an amount of shares equal to 8% of the shares
issued in the conversion. This would range from 844,560
shares, assuming 10,557,000 shares are issued in the
conversion, to 1,142,640 shares, assuming 14,283,000 shares
are issued in the conversion, or 1,314,036 shares if the
number of shares issued in the conversion is increased to
16,425,450 shares. This plan intends to acquire such
shares by subscribing for 5% of the shares sold in the
conversion and by purchasing the remaining amount of shares
in the open market. Savings Bank of Manchester will allocate
these shares to employees over a period of years in proportion
to their compensation.
. Stock-Based Incentive Plan. Under this plan, which will be
adopted after the conversion and will be submitted to
stockholders for their approval, Connecticut Bancshares may
award stock options to key employees and directors of Connecticut
Bancshares and its affiliates. No decisions have been made as
to who will be awarded options or the amounts that will
be awarded. The number of options available under this plan will
equal 10% of the number of shares issued in the conversion.
This would range from 1,055,700 shares, assuming 10,557,000
shares are issued in the conversion, to 1,428,300 shares,
assuming 14,283,000 shares are issued in the
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conversion, or 1,642,545 shares if the number of shares
issued in the conversion is increased to 16,425,450
shares.
In addition to awarding options, this plan may also award
shares of stock to key employees and directors at no cost
to the recipient. No decisions have been made as to who
will be awarded shares of stock or the amounts that will be
awarded. The number of shares available for stock awards
will equal an additional 4% of the number of shares issued
in the conversion. This would range from 422,280 shares,
assuming 10,557,000 shares are issued in the conversion, to
571,320 shares, assuming 14,283,000 shares are issued in
the conversion, or 657,018 shares if the number of shares
issued in the conversion is increased to 16,425,450 shares.
. Employment Agreements. Connecticut Bancshares and Savings
Bank of Manchester intend to enter into employment agreements
with six officers of Savings Bank of Manchester. These
agreements will provide for severance benefits if the executive
is terminated following a change in control of Connecticut
Bancshares or Savings Bank of Manchester.
. Change in Control Agreements. Savings Bank of Manchester
intends to enter into change in control agreements with seven
officers of Savings Bank of Manchester who will not be covered
by an employment agreement. These agreements will provide for
the payment of severance compensation in the event of a change
in control of Savings Bank of Manchester or Connecticut
Bancshares.
. Supplemental Executive Retirement Plan. This plan will provide
benefits to eligible employees if their retirement benefits
under the employee stock ownership plan, pension plan or 401(k)
plan are reduced because of federal tax law limitations. The
plan will also provide benefits to eligible employees if they
retire or are terminated following a change in control of
Connecticut Bancshares or Savings Bank of Manchester but before
the complete allocation of shares under the employee stock
ownership plan.
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. Employee Severance Compensation Plan. This plan will
provide severance benefits to eligible employees if
there is a change in control of Connecticut Bancshares
or Savings Bank of Manchester.
The following table summarizes the total number and dollar value
of the shares of common stock which the employee stock ownership plan
expects to acquire and total value of all stock awards that are
expected to be available under the incentive plan, assuming
14,283,000 shares are issued in the conversion. The table assumes
the value of the shares is $10.00 per share. The table does not
include a value for stock options because their value would be equal
to the fair market value of the common stock on the day that the
options are granted. As a result, financial gains can be realized
on an option only if the market price of common stock increases above
the price at which the options are granted.
<CAPTION>
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
---------------------------------
<S> <C> <C> <C>
Employee stock ownership plan....... 1,142,640 $11,426,400 8.0%
Stock awards........................ 571,320 5,713,200 4.0
Stock options....................... 1,428,300 -- 10.0
--------- ----------- ----
Total....................... 3,142,260 $17,139,600 22.0%
========= =========== ====
For a discussion of risks associated with these plans and agreements,
see "Risk Factors--Implementation of additional benefit plans will
increase future compensation expense and lower Savings Bank of
Manchester's profits," "Risk Factors--Issuance of shares for benefit
program may lower your ownership interest" and "Risk Factors--
Employment and change in control agreements, the employee stock
ownership plan, supplemental executive retirement plan and the
severance plan could make takeover attempts more difficult to achieve."
For a further discussion of these plans and agreements, see "Management
of Savings Bank of Manchester--Executive Compensation."
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<CAPTION>
The Offering
<S> <C>
Subscription Offering (page __) Savings Bank of Manchester has granted subscription rights in the
following order of priority to:
Note: Subscription rights are not
transferable, and persons with 1. Persons with $50 or more on deposit at Savings Bank
subscription rights may not of Manchester as of July 31, 1998.
subscribe for shares for the benefit
of any other person. If you violate 2. The Savings Bank of Manchester employee stock
this prohibition, you may lose your ownership plan.
rights to purchase shares and may
face criminal prosecution and/or 3. Savings Bank of Manchester's directors, officers
other sanctions. and employees who do not have a higher priority right.
To ensure that Savings Bank of Manchester properly identifies
your subscription rights, you must list all of your deposit
accounts as of the eligibility dates on the stock order form.
If you fail to do so, your subscription may be reduced or
rejected if the offering is oversubscribed.
The subscription offering will end at 12:00 Noon, Eastern time,
on _________ __, 2000. If the offering is oversubscribed, shares
will be allocated in order of the priorities described above
under a formula outlined in the plan of conversion.
Direct Community Offering (page __) Connecticut Bancshares may offer shares not sold in the subscription
offering to the general public in a direct community offering.
Residents of Hartford, Tolland and Windham Counties, Connecticut,
will have first preference to purchase shares in a direct community
offering. If shares are available, Connecticut Bancshares expects
to offer them to the general public immediately after the end of the
subscription offering, but may begin a direct community offering at
any time during the subscription offering.
Connecticut Bancshares and Savings Bank of Manchester may reject
orders received in the direct community offering either in whole or
in part. If your order is rejected in part, you cannot cancel the
remainder of your order.
Time Period for Completing the If the conversion is not completed by _________ __, 2000, and the
Conversion State of Connecticut Department of Banking allows more time to
complete the conversion, everyone who subscribed for shares will be
contacted to see if they still want to purchase stock. This is
known as a "resolicitation offering." A material change in the
independent appraisal of Connecticut Bancshares and Savings Bank of
Manchester would be the most likely, but not necessarily the only,
reason for a delay in completing the conversion. The conversion
must be completed by ________, 2001, unless the State of Connecticut
Department of Banking allows more time to complete the conversion.
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In the resolicitation offering, if you previously subscribed
for stock, you will receive a supplement to this prospectus
which will instruct you how to confirm, modify or cancel your
subscription. If you fail to respond to the resolicitation
offering, it would be as if you had canceled your order. If
you paid for stock by check or money order, your subscription
funds would be returned to you, together with accrued interest.
If you authorized payment by withdrawal of funds on deposit at
Savings Bank of Manchester, that authorization would terminate.
If you affirmatively confirm your subscription order during the
resolicitation offering, your subscription funds will be held
until the end of the resolicitation offering. You would be
unable to cancel your resolicitation order without the approval
of Connecticut Bancshares and Savings Bank of Manchester until
the conversion is completed or terminated.
Purchase Price The purchase price is $10.00 per share. The Boards of Directors
of Connecticut Bancshares and Savings Bank of Manchester
consulted with Sandler O'Neill in determining it. You will not
pay a commission to buy any shares in the conversion.
Number of Shares to be Sold (page __) Connecticut Bancshares will sell between 9,775,000 and 13,225,000
shares of its common stock in this offering. With regulatory
approval, Connecticut Bancshares may increase the number of
shares to be sold to 15,208,750 shares without giving you further
notice.
The amount of common stock that Connecticut Bancshares will offer
in the conversion is based on an independent appraisal of the
estimated market value of Connecticut Bancshares and Savings Bank
of Manchester as if the conversion had occurred as of the date of
the appraisal. RP Financial, LC., an independent appraiser, has
estimated that, in its opinion, as of October 22, 1999, the
estimated market value ranged between $97.8 million and $132.3
million, with a midpoint of $115.0 million. The appraisal was based
in part on Savings Bank of Manchester's financial condition and
results of operations and the effect on Savings Bank of Manchester
of the additional capital raised by the sale of common stock in this
offering. The independent appraisal will be updated before the
conversion is completed.
In preparing its independent appraisal, RP Financial focused primarily
on the price/earnings and price/book valuation methodologies, both of
which are discussed in the appraisal report. See "Where You Can Find
More Information" for how you may obtain a copy of the appraisal report.
The following table, which is derived from data contained in the
independent appraisal report, compares Savings Bank of Manchester's
pro forma price/earnings and price/book ratios at the minimum and
maximum of the offering range to the medians for all publicly
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traded thrift institutions, all publicly traded Connecticut thrift
institutions and a peer group of 10 publicly traded thrift
institutions identified in the appraisal report, based on the
closing prices as of October 22, 1999. Thrift institutions in the
mutual holding company structure that have publicly issued stock
are excluded from each comparison group.
The pro forma price/earnings ratios for Savings Bank of Manchester
presented in the following table are based on earnings for the
trailing 12 months as required by regulatory appraisal guidelines.
Therefore, these ratios differ from the ratios presented in the
tables under "Pro Forma Data."
Price/ Price/
Earnings Book
Ratio Ratio
-------- --------
Savings Bank of Manchester:
Minimum.................................... 9.61x 52.36%
Maximum.................................... 12.23x 61.54%
Median for all publicly traded thrifts........ 13.87x 101.46%
Median for all publicly traded
Connecticut thrifts....................... 12.82x 157.08%
Median for the peer group..................... 14.29x 92.38%
The independent appraisal does not necessarily indicate market
value. Do not assume or expect that Savings Bank of Manchester's
valuation as shown in the above table means that the common stock
will trade above the $10.00 purchase price after the conversion.
Connecticut Bancshares cannot guarantee that anyone who purchases
shares in the conversion will be able to sell their shares at or
above the $10.00 purchase price.
Purchase Limitations (page __) The minimum purchase is 25 shares.
The maximum purchase in the subscription offering by any person
or group of persons through a single deposit account or similarly
titled deposit accounts is $250,000 of common stock, which equals
25,000 shares.
The maximum purchase by any person, related persons or persons
acting together in the direct community offering is $250,000 of
common stock, which equals 25,000 shares.
The maximum purchase in the subscription offering and direct
community offering combined by any person, related persons or
persons acting together is 1% of the common stock offered for
sale, which is $1,322,500 of common stock, which equals
132,250 shares.
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How to Purchase Common Stock (page __) If you want to subscribe for shares in the direct subscription
offering or place a purchase order for shares in the community
Note: Once Savings Bank of Manchester offering, you must complete an original stock order form and
receives your order, you cannot cancel send it together with full payment to Savings Bank of Manchester
or change it without Savings Bank of in the postage-paid envelope provided. You must sign the
Manchester's consent. If Connecticut certification that is part of the stock order form. Savings Bank
Bancshares and Savings Bank of of Manchester must receive your stock order form before the
Manchester intend to sell fewer than end of the subscription offering or the end of the direct
9,775,000 shares or more than 15,208,750 community offering, as appropriate.
shares, all subscribers will be notified and
given the opportunity to change or cancel You may pay for shares in the subscription offering or the direct
their orders. If you do not respond to community offering in any of the following ways:
this notice, Savings Bank of Manchester
will return your funds promptly with . By cash, if delivered in person to a full-service banking
interest. office of Savings Bank of Manchester.
. By check or money order made payable to Connecticut
Bancshares, Inc.
. By withdrawal from an account at Savings Bank of Manchester.
To use funds in an Individual Retirement Account at Savings
Bank of Manchester, you must transfer your account to an
unaffiliated institution or broker-dealer. Please contact
the conversion center as soon as possible for assistance.
Savings Bank of Manchester will pay interest on your
subscription funds at the rate it pays on passbook
accounts from the date it receives your funds until
the conversion is completed or terminated. All funds
authorized for withdrawal from deposit accounts with
Savings Bank of Manchester will earn interest at the
applicable account rate until the conversion is completed.
There will be no early withdrawal penalty for withdrawals
from certificates of deposit used to pay for stock.
No prospectus will be mailed later than five days before
the end of the offering or hand-delivered less than 48 hours
before the end of the offering.
Use of Proceeds (page __) Connecticut Bancshares will use 50% of the net offering
proceeds to buy all of the common stock of Savings Bank of
Manchaster and will retain the remaining net proceeds for
general business purposes. These purposes may include
investment in securities, paying cash dividends or repurchasing
shares of its common stock, although Connecticut Bancshares
has no specific plans to pay dividends or repurchase its common
stock at this time. Savings Bank of Manchaster will use the
funds it receives for general purposes, including originating loans
and purchasing securities.
Connecticut Bancshares will also lend an amount equal to 8% of
the total dollar value of the stock to be issued in the conversion.
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to the employee stock ownership plan to fund its purchase of
common stock both in the conversion and in the open market
after the conversion.
Connecticut Bancshares and Savings Bank of Manchester may also
use the proceeds of the offering to expand and diversify their
businesses, although they do not have any specific contracts,
understandings or arrangements to acquire other financial service
companies or their assets.
Purchases by Directors and Executive Savings Bank of Manchester's directors and executive officers
Officers (page __) intend to subscribe for 292,500 shares, which equals 2.21% of
the 13,225,000 shares that would be sold at the maximum of the
offering range. If fewer shares are sold in the conversion, then
directors and executive officers will own a greater percentage
of Connecticut Bancshares. Directors and executive officers will
pay the $10.00 per share price as will everyone else who purchases
shares in the conversion. For a further discussion of the impact
of management's ownership interests in Connecticut Bancshares,
see "Risk Factors--Expected voting control by management and
employees may make takeover attempts more difficult to achieve"
and "Restrictions on Acquisition of Connecticut Bancshares and
Savings Bank of Manchester."
Market for Common Stock (page __) Connecticut Bancshares intends to have its common stock quoted
on the Nasdaq National Market under the trading symbol "____."
After shares of the common stock begin trading, you may contact
a stock broker to buy or sell shares. Connecticut Bancshares
cannot assure you that there will be an active trading market
for the common stock.
Dividend Policy (page __) Connecticut Bancshares intends to adopt a policy of paying
regular cash dividends, but has not yet decided on the exact
amount or range of amounts, or the frequency of payments.
For a further discussion of Savings Bank of Manchester's and
Connecticut Bancshares' dividend policies, see "Dividend Policy."
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RISK FACTORS
Before investing in Connecticut Bancshares common stock please carefully
consider the matters discussed below.
Savings Bank of Manchester's lower than average return on equity may decrease
the market price of the common stock
Return on average equity, which equals net income divided by average
equity, is a ratio used by many investors to compare the performance of a
particular company with other companies. In recent years, Savings Bank of
Manchester's return on average equity has been below the average return on
equity for publicly-traded savings associations and banks of comparable size.
As a result of the additional capital that will be raised in this offering,
Savings Bank of Manchester's equity will increase substantially. Savings Bank
of Manchester will not be able to immediately deploy the increased capital from
the offering into higher-yielding loans. Savings Bank of Manchester's ability
to invest in loans will depend on market interest rates, demand in its market
area and its ability to compete successfully for loans. Unless and until the
capital can be invested in higher-yielding loans, Savings Bank of Manchester
expects that its return on average equity will continue to be below average. In
addition, compensation expense will increase as a result of the new benefit
plans. Over time, Connecticut Bancshares and Savings Bank of Manchester intend
to use the net proceeds from this offering to increase earnings per share and
book value per share, without assuming undue risk, with the goal of achieving a
return on average equity competitive with other publicly traded financial
institutions. This goal could take a number of years to achieve, and
Connecticut Bancshares and Savings Bank of Manchester cannot assure you that
they can reach this goal. Consequently, you should not expect a return on equity
that is average or better than average in the near future. See "Pro Forma Data"
for an illustration of the financial effects of this stock offering.
Competition has hurt Savings Bank of Manchester's net interest income
Savings Bank of Manchester faces intense competition both in making high
yield and quality loans and in attracting deposits. This competition has forced
Savings Bank of Manchester to offer higher deposit rates in its market area.
This competition from other providers of financial services for loans and
deposits has contributed to a recent narrowing of its interest rate spread,
which has hurt net interest income. Savings Bank of Manchester expects that the
competition for loans and deposits will continue to be intense and is likely to
increase in the future. For more information about Savings Bank of Manchester's
market area and the competition it faces, see "Business of Savings Bank of
Manchester--Market Area" and "Business of Savings Bank of Manchester--
Competition."
Savings Bank of Manchester's increased emphasis on commercial lending may hurt
both asset quality and profits
Savings Bank of Manchester has increased its emphasis on commercial real
estate and commercial business lending. Commercial business lending involves
loans secured by business assets other than real estate, such as equipment,
inventory and accounts receivable. Commercial loans generally offer a higher
rate of return but also possess a greater risk of loss than loans secured by
residential real estate. Savings Bank of Manchester cannot assure you that the
level of nonperforming commercial real estate and business loans will not be
higher in future periods which would reduce net interest income, or that it will
not have to charge-off material amounts of commercial loans in future periods,
which could lead to a material increase in the provision for loan losses in
future periods which would also reduce profits. See "Business of Savings Bank
of Manchester--Lending Activities--Nonperforming Assets, Delinquencies and
Impaired Loans" and "Business of Savings Bank of Manchester--Lending Activities-
- -Commercial Loans" for additional information.
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Establishment of the SBM Foundation will hurt Connecticut Bancshares's profits
for the year 2000
Connecticut Bancshares intends to contribute to SBM Foundation shares of
its common stock equal to 8% of the shares sold in the conversion. This
contribution will hurt operating results during the fiscal year in which the
foundation is established, which is expected to be 2000, possibly resulting in
an operating loss for such year. For a further discussion regarding the effect
of the contribution to the foundation, see "The Conversion--Establishment of the
Charitable Foundation."
Management will have substantial discretion over investment of the offering
proceeds and may make investments with which you may disagree
The net offering proceeds to Savings Bank of Manchester are estimated to
range from $46.9 million to $63.9 million. The net offering proceeds to
Connecticut Bancshares are estimated to range from $38.4 million to $52.5
million after it loans a portion of the proceeds to Savings Bank of Manchester's
employee stock ownership plan to purchase shares of common stock. Connecticut
Bancshares and Savings Bank of Manchester intend to use these funds for general
business purposes, giving management substantial discretion over their
investment. You may disagree with investments that management makes. See "Use
of Proceeds" for further discussion.
Implementation of additional benefit plans will increase future compensation
expense and lower Savings Bank of Manchester's profits
Savings Bank of Manchester will recognize additional material employee
compensation and benefit expenses stemming from the shares purchased or granted
to employees and executives under new benefit plans. Savings Bank of Manchester
cannot predict the actual amount of these new expenses because applicable
accounting practices require that they be based on the fair market value of the
shares of common stock at specific points in the future. Savings Bank of
Manchester would recognize expenses for its employee stock ownership plan when
shares are committed to be released to participants' accounts and would
recognize expenses for the stock-based incentive plan over the vesting period of
awards made to recipients. These expenses have been estimated in the pro forma
financial information under "Pro Forma Data" assuming the $10.00 per share
purchase price as fair market value. Actual expenses, however, may be higher or
lower. For further discussion of these plans, see "Management of Savings Bank
of Manchester--Benefits."
Declining interest rates could hurt Savings Bank of Manchester's profits
Like most financial institutions, Savings Bank of Manchester's ability to
make a profit depends largely on its net interest income, which is the
difference between the interest income it receives from its loans and securities
and the interest it pays on deposits and borrowings. A large percentage of
Savings Bank of Manchester's interest-earning assets have shorter maturities.
Therefore, if interest rates decline, Savings Bank of Manchester anticipates
that its net interest income would decline because interest earned on its assets
would decrease more quickly than the interest paid on deposits. For further
discussion of how changes in interest rates could impact Savings Bank of
Manchester, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Management of Interest Rate Risk and Market Risk
Analysis."
Year 2000 data processing problems could interrupt and hurt Savings Bank of
Manchester's operations
Computer programs that use only two digits to identify a year could fail or
create erroneous results at or after the year 2000. Although Savings Bank of
Manchester maintains an internal computer system for its operating functions,
its data processing is provided substantially by a core banking software system
that is supported by a third party vendor. If the vendor is unable to complete
its year 2000 adjustments in a timely fashion, or if it fails to successfully
make all the necessary year 2000 adjustments, resulting computer malfunctions
could interrupt the operations of Savings Bank of Manchester and have a
significant adverse impact on Savings Bank of Manchester's financial condition
and results of operations. For further discussion of Savings Bank of
Manchester's year 2000
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compliance program, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness."
A downturn in the local economy could hurt Savings Bank of Manchester's profits
The vast majority of Savings Bank of Manchester's loans are made to
borrowers who live and work in Central Connecticut. A prolonged economic
recession in Central Connecticut would likely cause significant increases in
nonperforming loans and assets, which would create operating losses for Savings
Bank of Manchester and would hurt its profits. For a further discussion of
Savings Bank of Manchester's market area and competition, see "Business of
Savings Bank of Manchester--Market Area" and "Business of Savings Bank of
Manchester--Competition."
Issuance of shares for benefit program may lower your ownership interest
If stockholders approve the new stock-based incentive plan, Connecticut
Bancshares intends to issue shares to its officers and directors through this
plan. If the restricted stock awards under the stock-based incentive plan are
granted from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the options under the stock-based
incentive plan are granted from authorized but unissued stock, your ownership
interest could be further reduced by up to approximately 9.09%. See "Pro Forma
Data" and "Management of Savings Bank of Manchester--Benefits."
Expected voting control by management and employees may make takeover attempts
more difficult to achieve
The shares of common stock that Savings Bank of Manchester's directors and
executive officers intend to purchase in the conversion, when combined with the
shares that may be awarded to participants under Savings Bank of Manchester's
employee stock ownership plan and Connecticut Bancshares' stock-based incentive
plan, could result in management and employees controlling a significant
percentage of Connecticut Bancshares' common stock. If these individuals were
to act together, they could have significant influence over the outcome of any
stockholder vote. This voting power may discourage takeover attempts you might
like to see happen. In addition, the total voting power of management and
employees could exceed 20% of Connecticut Bancshares' outstanding stock, which
would enable management and employees as a group to defeat any stockholder
matter that requires an 80% vote. For information about management's intended
stock purchases and the number of shares that may be awarded under new benefit
plans, see "Management of Savings Bank of Manchester--Executive Compensation,"
"Shares to Be Purchased by Management with Subscription Rights" and
"Restrictions on Acquisition of Connecticut Bancshares and Savings Bank of
Manchester."
The contribution to SBM Foundation means that a stockholder's total ownership
interest will be 7.4% less after the contribution
Purchasers of shares will have their ownership and voting interests in
Connecticut Bancshares diluted by 7.4% at the close of the conversion when
Connecticut Bancshares issues an additional 8% of its shares and contributes
those shares to the foundation. For a further discussion regarding the effect
of the contribution to the foundation, see "Pro Forma Data" and "Comparison of
Independent Valuation and Pro Forma Financial Information With and Without the
Foundation."
Contribution to SBM Foundation may not be tax deductible which could hurt
Connecticut Bancshares' profits
Connecticut Bancshares believes that its contribution to the SBM Foundation
should be deductible for federal income tax purposes. However, Connecticut
Bancshares does not have any assurance that the Internal Revenue Service will
grant tax-exempt status to the foundation. If the contribution is not
deductible, Connecticut Bancshares would not receive any tax benefit from the
contribution. In addition, even if the contribution is tax
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deductible, Connecticut Bancshares may not have sufficient profits to be able to
fully use the deduction. For a further discussion of the contribution to the
charitable foundation, see "The Conversion--Establishment of the Charitable
Foundation--Tax Considerations."
Anti-takeover provisions and statutory provisions could make takeover attempts
more difficult to achieve and may decrease the market price of common stock
Provisions in Connecticut Bancshares' Certificate of Incorporation and
Bylaws, the corporate law of the State of Delaware, Connecticut banking law, and
federal banking regulations may make it difficult and expensive to pursue a
takeover attempt that management opposes. These provisions may discourage or
prevent takeover attempts you might like to see happen and may decrease the
market price of the common stock. These provisions will also make the removal
of the current board of directors or management of Connecticut Bancshares, or
the appointment of new directors, more difficult. These provisions include:
limitations on voting rights of beneficial owners of more than 5% or 10% of
Connecticut Bancshares' common stock; supermajority voting requirements for
certain business combinations; the election of directors to staggered terms of
three years; and the elimination of cumulative voting for directors. The
Certificate of Incorporation of Connecticut Bancshares also contains provisions
regarding the timing and content of stockholder proposals and nominations and
limiting the calling of special meetings. Similar provisions in the Amended and
Restated Articles of Incorporation and Bylaws of Savings Bank of Manchester
would also discourage takeover attempts and make takeovers less likely to
succeed without the support of management. For further information about these
provisions, see "Restrictions on Acquisition of Connecticut Bancshares and
Savings Bank of Manchester."
Employment and change in control agreements, the employee stock ownership plan,
supplemental executive retirement plan and the severance plan could make
takeover attempts more difficult to achieve
The employment and change in control agreements to be entered into with
officers of Connecticut Bancshares and Savings Bank of Manchester provide for
cash severance payments and/or the continuation of health, life and disability
benefits if the officers are terminated following a change in control of
Connecticut Bancshares or Savings Bank of Manchester. If a change in control
had occurred at December 31, 1998, the aggregate value of the severance benefits
available to these officers under the agreements would, based on 1998
compensation data, have been approximately $___ million. In addition, if a
change in control had occurred at December 31, 1998 and all eligible employees
had been terminated, the aggregate payment due under the supplemental executive
retirement plan would have been approximately $___ million and the aggregate
payment due under the severance plan would have been approximately $____
million. These estimates do not take into account future salary adjustments or
bonus payments or the value of the continuation of other employee benefits. All
of these arrangements may have the effect of increasing the costs of acquiring
Connecticut Bancshares, thereby discouraging future attempts to take over
Connecticut Bancshares or Savings Bank of Manchester. For information about the
proposed employment, change in control and severance agreements and severance
plan, see "Management of Savings Bank of Manchester--Executive Compensation."
Banking reform legislation restricts the activities in which Connecticut
Bancshares may engage compared to existing unitary holding companies
The U.S. Congress has enacted and the President is expected to sign
legislation intended to modernize the financial services industry. The
legislation provides for greater affiliations by commercial bank holding
companies with financial companies such as securities and insurance companies.
Under the legislation, newly formed unitary savings and loan holding companies
will not have the broad powers formerly available to unitary savings and loan
holding companies. Connecticut Bancshares will be a unitary savings and loan
holding company after the conversion. Certain unitary savings and loan holding
companies would be grandfathered under the proposed legislation; however,
Connecticut Bancshares will not qualify for the grandfathering. Consequently,
Connecticut Bancshares will be restricted in terms of activities in which it may
engage to a greater extent than previously existing unitary savings and loan
holding companies. For example, Connecticut Bancshares would not be permitted
to engage in commercial activities whereas a grandfathered unitary holding
company would have such authority.
15
<PAGE>
Connecticut Bancshares cannot assure or guarantee an active trading market for
the common stock
Because Connecticut Bancshares has never issued stock, there is no current
trading market for the common stock. Consequently, Connecticut Bancshares
cannot assure or guarantee that an active trading market for the common stock
will develop or that an active trading market, if developed, will continue. An
active and orderly trading market will depend on the existence and individual
decisions of willing buyers and sellers at any given time over which neither
Connecticut Bancshares nor any market maker will have any control. If an active
trading market does not develop or is sporadic, this may hurt the market value
of the common stock. Furthermore, Connecticut Bancshares cannot assure or
guarantee that purchasers of common stock in the offering will be able to sell
their shares after the conversion at or above the $10.00 per share purchase
price. For further information, see "Market for Common Stock."
Sandler O'Neill has not given an opinion or recommendation that the common stock
is a good investment
Connecticut Bancshares and Savings Bank of Manchester have engaged Sandler
O'Neill to consult with and to advise Savings Bank of Manchester and Connecticut
Bancshares with respect to the conversion and to assist, on a best-efforts
basis, with the solicitation of subscriptions and purchase orders for shares of
common stock. Sandler O'Neill has not prepared or delivered any opinion or
recommendation on the prices at which the common stock may trade after the
conversion or the appropriateness of the amount of common stock to be issued in
the conversion. Sandler O'Neill also has neither verified the accuracy or
completeness of the information contained in this prospectus, nor prepared a
report or opinion making recommendations to Savings Bank of Manchester or
Connecticut Bancshares.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain certain information concerning the financial
position and results of operations of Connecticut Bankshares, M.H.C. and
Subsidiary at the dates and for the periods indicated. The data as of December
31, 1998, 1997 and 1996 and for the years then ended are derived from the
audited consolidated financial statements of Connecticut Bankshares, M.H.C. and
Subsidiary. The data as of August 31, 1999 and 1998 and for the eight month
periods then ended are derived from unaudited consolidated financial statements
but, in the opinion of management, reflects all adjustments necessary to present
fairly the results for these interim periods. These adjustments consist only of
normal recurring adjustments. The results of operations for the eight months
ended August 31, 1999 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 1999. This
information should be read in conjunction with the Consolidated Financial
Statements included in this prospectus.
<TABLE>
<CAPTION>
At August 31, At December 31,
--------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------------------- --------------------------------------------------------
(In thousands)
Selected Consolidated Financial Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets...................... $1,181,669 $1,076,676 $1,108,287 $1,033,086 $968,252 $935,833 $848,628
Cash and cash equivalents......... 42,823 31,004 45,048 14,660 22,850 39,972 23,870
Loans, net........................ 899,692 789,853 806,787 798,292 732,448 695,797 682,944
Securities held to maturity:
Mortgage-backed securities..... 22,477 24,555 22,742 14,409 8,047 4,280 -
Other investment securities.... 22,388 34,763 29,855 35,874 39,518 47,123 38,761
Securities available for sale:
Mortgage-backed securities..... 12,143 14,567 12,859 17,985 24,570 26,818 18,194
U.S. Government and agency
obligations................. 67,753 64,323 71,703 48,767 35,907 14,333 -
Marketable equity securities... 42,968 30,173 42,773 40,635 37,797 29,038 25,894
Other securities............... 36,600 42,845 40,816 24,202 32,987 46,250 32,717
Deposits.......................... 887,322 824,231 855,117 827,667 792,833 764,789 691,137
Short-term borrowed funds......... 97,847 85,050 79,545 71,179 58,747 64,262 46,571
Advances from Federal Home
Loan Bank...................... 66,899 45,000 45,000 17,987 15,000 17,593 33,910
Capital........................... 118,042 105,842 112,807 101,191 88,535 77,143 65,484
Premises and equipment, net....... 9,089 9,307 9,077 8,969 7,650 6,878 5,509
Nonperforming assets(1)........... 6,863 4,596 3,283 7,543 12,760 13,198 13,715
</TABLE>
<TABLE>
<CAPTION>
For the Eight Months Ended
August 31, For the Year Ended December 31,
--------------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------------------------- ------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest and dividend income........... $51,437 $51,680 $76,858 $73,931 $69,973 $64,840 $55,944
Total interest and dividend expense.......... 23,976 24,786 37,200 35,856 34,714 32,728 26,388
-------- ------- -------- ------- ------- ------- -------
Net interest income....................... 27,461 26,894 39,658 38,075 35,259 32,112 29,556
Provision for loan losses.................... 400 800 1,200 1,200 1,200 1,550 2,555
-------- ------- -------- ------- ------- ------- -------
Net interest income after provision
for loan losses........................ 27,061 26,094 38,458 36,875 34,059 30,562 27,001
Noninterest income:
Gains on sales of securities, net......... 246 3,035 2,621 4,007 842 2,522 317
Other..................................... 5,172 5,719 9,539 7,460 8,155 5,788 4,591
-------- ------- -------- ------- ------- ------- -------
Total noninterest income............... 5,418 8,754 12,160 11,467 8,997 8,310 4,908
-------- ------- -------- ------- ------- ------- -------
Noninterest expense.......................... 22,681 24,861 37,092 31,556 27,772 24,539 24,025
-------- ------- -------- ------- ------- ------- -------
Income before provision
for income taxes....................... 9,798 9,987 13,526 16,786 15,284 14,333 7,884
Provision for income taxes................... 3,135 3,132 4,208 6,584 5,853 5,927 3,274
-------- ------- -------- ------- ------- ------- -------
Net income................................ $6,663 $6,855 $9,318 $10,202 $9,431 $8,406 $4,610
======== ======= ======== ======= ======= ======= =======
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
At or For the Eight
Months Ended August 31, At or For the Year Ended December 31,
------------------------ ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- --------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Ratios and
Other Data (2):
Performance Ratios:
Average yield on interest-
earning assets.............................. 7.13% 7.63% 7.54% 7.69% 7.63% 7.85% 7.30%
Average rate paid on interest-bearing
liabilities................................. 3.73 4.06 4.02 4.11 4.15 4.04 3.54
Average interest rate spread (3)............... 3.40 3.57 3.52 3.58 3.48 3.81 3.76
Net interest margin (4)........................ 3.81 3.97 3.89 3.96 3.85 3.89 3.85
Interest-earning assets
to interest-bearing liabilities............. 1.05 1.05 1.05 1.07 1.05 1.02 1.02
Net interest income after provision for
loan losses to noninterest expense.......... 1.19 1.05 1.04 1.17 1.23 1.25 1.12
Noninterest expense as a percentage
of average assets........................... 1.98 2.35 3.46 3.15 2.92 2.75 2.83
Return on average assets....................... 0.87 0.97 0.87 1.02 0.99 0.94 0.57
Return on average capital...................... 10.08 9.93 8.71 10.75 11.38 11.78 7.49
Ratio of average capital to average assets..... 10.08 9.80 9.99 9.48 8.70 7.99 7.80
Regulatory Capital Ratios (2):
Leverage capital ratio......................... 9.06 9.30 9.33 8.98 8.41 7.60 7.80
Total risk-based capital ratio................. 14.42 14.46 13.89 13.67 13.09 12.68 12.33
Asset Quality Ratios (2):
Nonperforming loans and troubled
debt restructurings as a percentage
of total loans (5).......................... 0.65 0.32 0.19 0.35 0.98 1.20 1.15
Nonperforming assets and troubled debt
restructurings as a percentage of
total assets (1)............................ 0.58 0.43 0.29 0.73 1.32 1.41 1.62
Allowance for loan losses as a percentage
of total loans.............................. 1.19 1.33 1.30 1.23 1.23 1.20 1.11
Allowance for loan losses as a percentage
of nonperforming loans and troubled
debt restructurings......................... 181.00(6) 416.86 694.55 350.79 125.46 100.41 96.50
Net loans charged-off to
average interest-earning loans.............. 0.04 0.05 0.13 0.12 0.25 0.21 0.48
Full service offices at end of period.......... 23 23 23 23 22 20 21
</TABLE>
- --------------------------------------
(1) Nonperforming assets consist of nonperforming loans, troubled debt
restructurings, and other real estate owned.
(2) Asset Quality and Regulatory Capital Ratios are end of period ratios. With
the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods and are annualized for interim
periods.
(3) Average interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate paid on interest-
bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(5) Nonperforming loans consist of nonperforming loans and loans 90 days or more
past due and accruing interest.
(6) Excluding the effect of a $4.3 million loan, which management believes is
fully secured, the ratio is 643.85%.
18
<PAGE>
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering,
the amount to be retained by Connecticut Bancshares, the amount to be
contributed to Savings Bank of Manchester, and the amount of Connecticut
Bancshares' loan to the employee stock ownership plan. See "Pro Forma Data" for
the assumptions used to arrive at these amounts.
<TABLE>
<CAPTION>
9,775,000 13,225,000 15,208,750
Shares at Shares at Shares at
$10.00 $10.00 $10.00
Per Share Per Share Per Share
----------------- --------------------- ----------------
(In thousands)
<S> <C> <C> <C>
Gross proceeds..................................................... $97,750 $132,250 $152,088
Less: estimated underwriting commissions and
other offering expenses.................................. 3,979 4,469 4,750
------- -------- --------
Net proceeds....................................................... $93,771 $127,781 $147,338
======= ======== ========
Net proceeds to be retained by Connecticut Bancshares ............. $46,886 $63,891 $73,669
Net proceeds to be contributed to Savings Bank of Manchester....... $46,886 $63,891 $73,669
Amount of loan by Connecticut Bancshares to employee
stock ownership plan............................................ $8,446 $11,426 $13,140
</TABLE>
Connecticut Bancshares will purchase all of the capital stock of Savings
Bank of Manchester to be issued in the conversion in exchange for 50% of the net
proceeds of the stock offering. Receipt of the 50% of the net proceeds of the
sale of the common stock will increase Savings Bank of Manchester's capital and
will support the expansion of Savings Bank of Manchester's existing business
activities. Savings Bank of Manchester will use the funds contributed to it for
general business purposes, including, loan originations and investment in short-
to intermediate-term investment grade securities as well as government issued
mortgage-backed securities.
Connecticut Bancshares intends to loan to the employee stock ownership plan
the amount necessary for the plan to acquire an amount of shares equal to 8% of
the shares issued in the conversion, including shares issued to SBM Foundation.
Accordingly, acquisitions by the employee stock ownership plan would range
between 844,560 shares at the minimum of the offering range and 1,142,640 shares
at the maximum of the offering range. At the midpoint of the offering range,
the employee stock ownership plan would acquire 993,600, shares. If 16,425,450
shares are issued in the conversion, the employee stock ownership plan would
acquire 1,314,036 shares. The employee stock ownership plan plans to acquire
such amount of stock by subscribing for 5% of the shares sold in the conversion
in the stock offering and acquiring the remaining balance of shares through open
market purchases after the completion of the conversion. For purposes of the
above table, it is assumed that any shares of common stock to be purchased by
the employee stock ownership plan in the open market will be purchased at $10.00
per share. If there are not enough shares to satisfy the employee stock
ownership plan's subscription for shares sold in the conversion, the plan may
purchase such shares in the open market after conversion. It is anticipated
that the employee stock ownership plan loan will have a 15-year term with a
fixed rate of interest equal to the prime rate published in The Wall Street
Journal on the closing date of the conversion. The loan will be repaid
primarily from Savings Bank of Manchester's contributions to the employee stock
ownership plan and from any dividends paid on shares of common stock held by the
employee stock ownership plan.
The remaining net proceeds retained by Connecticut Bancshares will
initially be invested primarily in short- to intermediate-term investment grade
securities. Connecticut Bancshares may also use the funds it retains to support
future expansion of operations or diversification into other banking or
financial services related businesses and for other business or investment
purposes. However, there are no specific plans, arrangements, agreements or
understandings, written or oral, regarding any expansion activities.
19
<PAGE>
Connecticut Bancshares may also use available funds to repurchase shares of
common stock and for the payment of dividends, subject to any limitations set
forth in applicable laws and regulations. Following the conversion, the Board
of Directors will have the authority to adopt plans that meet statutory and
regulatory requirements for repurchases of common stock. Since Connecticut
Bancshares has not yet issued stock, there currently is insufficient information
upon which an intention to repurchase stock could be based and consequently, no
such intention currently exists. The Board of Directors will consider many
facts and circumstances in determining whether to repurchase stock in the
future. These factors include market and economic factors such as the price at
which the stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of return
and risk involved in the investment, the ability to increase the book value
and/or earnings per share of the remaining outstanding shares, and the ability
to improve Connecticut Bancshares' return on equity. 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 is another factor that
will be considered. The Board of Directors will also consider any other
circumstances in which repurchases would be in the best interests of Connecticut
Bancshares and its stockholders.
Before undertaking any stock repurchases, the Board of Directors must
determine that both Connecticut Bancshares and Savings Bank of Manchester will
be capitalized in excess of all applicable regulatory requirements after any
repurchases and that capital will be adequate, taking into account, among other
things, Savings Bank of Manchester's level of nonperforming and classified
assets, Connecticut Bancshares' and Savings Bank of Manchester's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. For a discussion of
the regulatory limitations applicable to stock repurchases, see "The Conversion-
- -Restrictions on Repurchase of Stock."
Except as described above, neither Connecticut Bancshares nor Savings Bank
of Manchester has specific plans for the investment of the proceeds of this
offering. For a discussion of management's business reasons for undertaking the
conversion, see "The Conversion--Reasons for the Conversion."
DIVIDEND POLICY
General
Connecticut Bancshares' Board of Directors intends to adopt a policy of
paying regular cash dividends after the conversion, but has not decided the
exact amount or range of amounts that may be paid, when the payments may begin
or the frequency of any payments. In addition, the Board of Directors may
declare and pay periodic special cash dividends in addition to, or in lieu of,
regular cash dividends. When deciding whether to declare or pay any dividends,
whether regular or special, the Board of Directors will take into account the
amount of the net proceeds retained by Connecticut Bancshares, Connecticut
Bancshares' financial condition, results of operations, tax considerations,
capital requirements, industry standards, and economic conditions. The Board of
Directors will also consider the regulatory restrictions discussed below that
affect the payment of dividends by Savings Bank of Manchester to Connecticut
Bancshares. Connecticut Bancshares is also subject to Delaware law, which
generally limits dividends to an amount equal to an excess of the net assets of
a company (the amount by which total assets exceed total liabilities) over
statutory capital, or if there is no excess, to the company's net profits for
the current and/or immediately preceding fiscal year. In order to pay cash
dividends, however, Connecticut Bancshares must have available cash either from
the net proceeds raised in the conversion and retained by Connecticut
Bancshares, borrowings by Connecticut Bancshares, dividends received from
Savings Bank of Manchester or earnings on Connecticut Bancshares' assets. No
assurances can be given that any dividends, either regular or special, will be
declared or paid, or if declared and paid, what the amount of dividends will be
or whether they will continue uninterrupted.
20
<PAGE>
Regulatory Restrictions
Dividends from Connecticut Bancshares may depend, in part, upon receipt of
dividends from Savings Bank of Manchester because Connecticut Bancshares will
initially have no source of income other than dividends from Savings Bank of
Manchester and earnings from the investment of the net proceeds from the
offering retained by Connecticut Bancshares. Savings Bank of Manchester, as a
Connecticut-chartered savings bank, must also comply with Connecticut law when
considering paying a dividend. Unless specifically approved by the Connecticut
Banking Commissioner, Connecticut law limits all cash dividends declared by a
bank in any calendar year to the total of net profits for that year and retained
net profits for the preceding two years. Net profits are defined as the
remainder of all earnings from current operations. Subject to the approval of
the Connecticut Banking Commissioner, stock dividends may be declared and paid
up to the amount of the bank's surplus earnings. In addition, Savings Bank of
Manchester may not declare or pay a cash dividend on its capital stock if the
effect would be to reduce its regulatory capital below the amount required for
the liquidation account to be established under the plan of conversion and below
amounts required to be maintained by the Federal Deposit Insurance Corporation.
See "The Conversion--Effects of Conversion to Stock Form--Liquidation Account."
Tax Considerations
In addition to the foregoing, retained earnings of Savings Bank of
Manchester appropriated to bad debt reserves and previously deducted for federal
income tax purposes cannot be used to pay cash dividends to Connecticut
Bancshares without the payment of federal income taxes by Savings Bank of
Manchester at the then current income tax rate on the amount deemed distributed,
which would include the amounts of any federal income taxes relating to the
distribution. See "Federal and State Taxation of Income--Federal Income
Taxation." Connecticut Bancshares does not contemplate any distribution by
Savings Bank of Manchester that would result in a recapture of its bad debt
reserve or create the above-mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
Because Connecticut Bancshares and Savings Bank of Manchester have not
issued capital stock, no established market for the common stock exists.
Connecticut Bancshares expects to receive approval to have its common stock
quoted on the Nasdaq National Market under the symbol "____" upon completion of
the conversion. To receive that approval, Connecticut Bancshares must satisfy
various conditions, including selling the stock and meeting certain listing
criteria. There can be no assurance that the common stock will be able to meet
the applicable listing criteria to maintain its quotation on the Nasdaq National
Market or that an active and liquid trading market will develop or, if
developed, will be maintained. 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.
21
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Connecticut
Bankshares, M.H.C. at August 31, 1999, and the pro forma capitalization of
Connecticut Bancshares after giving effect to the assumptions listed under "Pro
Forma Data," based on the sale of the number of shares of common stock indicated
in the table. Pro forma capitalization does not reflect the issuance of
additional shares under the proposed stock-based incentive plan. A change in
the number of shares to be issued in the conversion may materially affect pro
forma capitalization.
<TABLE>
<CAPTION>
Connecticut Bancshares Pro Forma
Capitalization Based Upon the Sale of
-----------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
-------------- ------------- -------------
Connecticut
Bankshares, M.H.C. 9,775,000 13,225,000 15,208,750
Capitalization Shares at Shares at Shares at
as of $10.00 $10.00 $10.00
August 31, 1999 Per Share Per Share Per Share
------------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Deposits (1).................................................. $ 887,322 $ 887,322 $ 887,322 $ 887,322
Short-term borrowed funds..................................... 97,847 97,847 97,847 97,847
Advances from Federal Home Loan Bank.......................... 66,899 66,899 66,899 66,899
---------- ----------- ---------- ----------
Total deposits and borrowed funds............................. $1,052,068 $1,052,068 $1,052,068 $1,052,068
========== =========== ========== ==========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding............... $ - $ - $ - $ -
Common stock:
45,000,000 shares, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding (2)............. - 106 143 164
Additional paid-in capital.................................... - 93,665 127,638 147,174
Surplus....................................................... 14,957 14,957 14,957 14,957
Undivided profits (3)......................................... 95,260 95,260 95,260 95,260
Net unrealized gain on available for sale securities.......... 7,825 7,825 7,825 7,825
Plus:
Contribution to foundation................................. - 7,820 10,580 12,167
Less:
Expense of contribution to foundation, net of taxes (4).... - (5,318) (7,194) (8,274)
Less:
Common stock acquired by employee - (8,446) (11,426) (13,140)
stock ownership plan (5)................................
Common stock to be acquired by stock-based
incentive plan (6)...................................... - (4,223) (5,713) (6,570)
---------- ----------- ---------- ----------
Total stockholders' equity.................................... $118,042 $201,646 $232,070 $249,563
========== =========== ========== ==========
</TABLE>
- ------------------------------------------------------
(1) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals to purchase common stock will reduce pro forma
deposits by the amounts of the withdrawals.
(2) After conversion, Savings Bank of Manchester's authorized capital will
consist solely of 10,000, shares of common stock, without par value, 1,000
shares of which will be issued to Connecticut Bancshares, and 1,000 shares
of preferred stock, without par value, none of which will be issued in
connection with the conversion.
(3) Undivided profits are restricted by applicable regulatory capital
requirements. Additionally, Savings Bank of Manchester will be prohibited
from paying any dividend that would reduce its regulatory capital below the
amount in the liquidation account, which will be established for the benefit
of its eligible depositors as of July 31, 1998 at the time of the conversion
and decreased subsequently as these account holders reduce their balances or
cease to be depositors. See "The Conversion--Effects of Conversion to Stock
Form--Liquidation Account."
(4) Represents the expense, net of tax, of the contribution of common stock to
SBM Foundation based on an estimated tax rate of 32%. The realization of
the tax benefit is limited annually to 10% of Connecticut Bancshares' annual
taxable income. However, for federal tax and state purposes, Connecticut
Bancshares can carry forward any unused portion of the deduction for five
years following the year in which the contribution is made.
(5) Assumes that 8% of the common stock issued in the conversion will be
acquired by the employee stock ownership plan in the conversion and in the
open market after the conversion at $10.00 per share with funds borrowed
from Connecticut Bancshares. The employee stock ownership plan intends to
purchase 5% of the shares sold in the conversion in the stock offering and
will acquire the remaining percentage through open market purchases after
the completion of the conversion. Under generally accepted accounting
principles, the amount of common stock to be purchased by the employee stock
ownership plan represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released to employee
stock ownership plan participants' accounts, a corresponding reduction in
the charge against capital will occur. See "Management of Savings Bank of
Manchester--Benefits--Employee Stock Ownership Plan."
(6) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock issued in the conversion. The shares are
reflected as a reduction of stockholders' equity. See "Risk Factors--
Issuance of shares for benefit program may lower your ownership interest,"
"Pro Forma Data" and "Management of Savings Bank of Manchester--Benefits--
Stock-Based Incentive Plan." The stock-based incentive plan will be
submitted to stockholders for approval at a meeting following the
conversion.
22
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents Savings Bank of Manchester's historical and
pro forma capital position relative to its regulatory capital requirements at
August 31, 1999. The amount of capital infused into Savings Bank of Manchester
for purposes of the following table is 50% of the net proceeds of the offering.
For purposes of the table, the amount expected to be borrowed by the employee
stock ownership plan and the cost of the shares expected to be awarded under the
stock-based incentive plan as restricted stock are deducted from pro forma
regulatory capital. For a discussion of the assumptions underlying the pro
forma capital calculations presented below, see "Use of Proceeds,"
"Capitalization" and "Pro Forma Data." The definitions of the terms used in the
table are those provided in the capital regulations issued by the Federal
Deposit Insurance Corporation. For a discussion of the capital standards
applicable to Savings Bank of Manchester, see "Regulation and Supervision--
Federal Regulations--Capital Requirements."
<TABLE>
<CAPTION>
Savings Bank of Manchester Pro Forma Regulatory Capital Compliance at
August 31, 1999 Based Upon the Sale of
------------------------------------------------------------------------
15% Above
Savings Bank Minimum of Estimated Maximum of Estimated Maximum of Estimated
of Manchester Valuation Range Valuation Range Valuation Range
----------------------- ----------------------- ------------------------
Historical at 9,775,000 Shares 13,225,000 Shares 15,208,750 Shares
August 31, 1999 (1) at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
----------------------- ---------------------- ---------------------- -----------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets (2) Amount Assets Amount Assets Amount Assets
--------- ------------- --------- ----------- ---------------------- -----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted accounting $118,042 9.99% $152,259 12.44% $164,794 13.29% $172,001 13.77%
principles capital............. ======== ==== ======== ===== ======== ===== ======== =====
Leverage Capital:
Capital level (3).............. $107,073 9.06% $141,290 11.46% $153,824 12.32% $161,031 12.80%
Requirement.................... 47,627 4.00 49,334 4.00 49,954 4.00 50,311 4.00
-------- ---- -------- ----- -------- ----- -------- -----
Excess......................... $59,446 5.06% $91,956 7.46% $103,870 8.32% $110,720 8.80%
======== ==== ======== ===== ======== ===== ======== =====
Total Risk-Based Capital:
Total risk-based capital (4)... $117,243 14.42% $151,460 18.15% $163,994 19.47% $171,201 20.22%
Requirement.................... 65,039 8.00 66,746 8.00 67,366 8.00 67,723 8.00
-------- ---- -------- ----- -------- ----- -------- -----
Excess......................... $52,204 6.42% $84,714 10.15% $96,628 11.47% $103,478 12.22%
======== ==== ======== ===== ======== ===== ======== =====
</TABLE>
- --------------------------------
(1) Includes $50,000 in cash held by Connecticut Bankshares, M.H.C. that will
be added to Savings Bank of Manchester=s capital upon conversion.
(2) Leverage capital levels are shown as a percentage of adjusted total assets
of $1.2 billion. Risk-based capital levels are shown as a percentage of
risk-weighted assets of $813.0 million.
(3) A portion of the net unrealized gains on available-for-sale investment
securities accounts for the difference between generally accepted
accounting principles capital and leverage capital.
(4) Percentage represents total core and supplementary capital divided by
total risk-weighted assets. Assumes net proceeds are invested in assets
that carry a 50% risk-weighting.
23
<PAGE>
PRO FORMA DATA
The plan of conversion requires that the common stock must be sold at a
price equal to the estimated market value of Connecticut Bancshares and Savings
Bank of Manchester, as converted, based upon an independent appraisal by RP
Financial, LC. The estimated valuation range as of October 22, 1999, is from a
minimum of $97.8 million to a maximum of $132.3 million with a midpoint of
$115.0 million. At a price per share of $10.00, this results in a minimum
number of shares of 9,775,000, a maximum number of shares of 13,225,000 and a
midpoint number of shares of 11,500,000.
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds indicated in
the following tables are based upon the following assumptions:
(1) All shares of common stock will be sold in the subscription and direct
community offerings;
(2) Sandler O'Neill will receive a fee equal to 1.50% of the aggregate
purchase price of the shares sold in the subscription and direct
community offerings, except that no fee will be paid with respect to
shares purchased by the employee plans, officers, employees, directors
of Savings Bank of Manchester or Connecticut Bancshares and their
associates. See "The Conversion--Plan of Distribution for the
Subscription, Direct Community and Syndicated Community Offerings"; and
(3) conversion expenses, excluding the 1.50% fee paid to Sandler O'Neill,
will total approximately $2.6 million regardless of the number of
shares sold in the conversion.
Actual expenses may vary from this estimate, and the fees paid will depend
upon whether a syndicate of broker-dealers or other means is necessary to sell
the shares, and other factors.
Connecticut Bancshares and Savings Bank of Manchester prepared the
following pro forma data with the assistance of RP Financial. The following
tables summarize the historical net income and capital of Connecticut
Bankshares, M.H.C. and the pro forma net income and stockholders' equity of
Connecticut Bancshares at and for the eight months ended August 31, 1999 and at
and for the year ended December 31, 1998. Pro forma net income for the eight
months ended August 31, 1999 has been calculated as if the conversion was
completed on January 1, 1999 and the estimated net proceeds had been invested at
5.11% beginning on that date, which represents the one-year U.S. Treasury Bill
yield as of August 31, 1999. Pro forma net income for the year ended December
31, 1998 has been calculated as if the conversion was completed on January 1,
1998 and the estimated net proceeds had been invested at 4.52% beginning on that
date, which represents the one-year U.S. Treasury Bill yield as of December 31,
1998.
A pro forma after-tax return of 3.47% and 3.07% is used for both
Connecticut Bancshares and Savings Bank of Manchester for the eight months ended
August 31, 1999 and the year ended December 31, 1998, respectively, after giving
effect to a combined federal and state income tax rate of 32%. Historical and
pro forma per share amounts have been calculated by dividing historical and pro
forma amounts by the number of shares of common stock indicated in the table.
When reviewing the following tables you should consider the following:
. The final column gives effect to the sale of an additional 1,983,750
shares in the conversion, which may be issued without any further
notice if RP Financial increases its appraisal to reflect the results
of this offering or changes in the financial condition or results of
operations of Savings Bank of Manchester or changes in market
conditions after the date of the appraisal. See "The Conversion--Stock
Pricing and Number of Shares to be Issued."
24
<PAGE>
. Since funds on deposit at Savings Bank of Manchester may be withdrawn
to purchase shares of common stock, the amount of funds available for
investment will be reduced by the amount of withdrawals for stock
purchases. The pro forma tables do not reflect withdrawals from
deposit accounts.
. Historical per share amounts have been computed as if the shares of
common stock expected to be issued in the conversion had been
outstanding at January 1, 1998 or January 1, 1999, as applicable.
However, neither historical nor pro forma stockholders' equity has
been adjusted to reflect the investment of the estimated net proceeds
from the sale of the shares in the conversion, the additional employee
stock ownership plan expense or the proposed stock-based incentive
plan.
. Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of Savings Bank of Manchester's
assets and liabilities. The amounts shown do not reflect the
liquidation account, which will be established for the benefit of
eligible depositors as of July 31, 1998, or the federal income tax
consequences of the restoration to income of Savings Bank of
Manchester's special bad debt reserves for income tax purposes, which
would be required in the unlikely event of liquidation. See "Federal
and State Taxation of Income" and "The Conversion--Effects of
Conversion to Stock Form." The amounts shown for book value do not
represent fair market values or amounts available for distribution to
stockholders in the unlikely event of liquidation.
. The amounts shown as pro forma stockholders' equity per share do not
represent possible future price appreciation or depreciation of
Connecticut Bancshares' common stock.
. The amounts shown do not account for the shares to be reserved for
issuance upon the exercise of stock options that may be granted under
the proposed stock-based incentive plan, which requires stockholder
approval at a meeting following the conversion.
The following pro forma data, which are based on Connecticut Bankshares,
M.H.C.'s capital at August 31, 1999, and net income for the year ended December
31, 1998 and for the eight months ended August 31, 1999, may not represent the
actual financial effects of the conversion or the operating results of
Connecticut Bancshares after the conversion. The pro forma data rely
exclusively on the assumptions outlined above. The pro forma data do not
represent the fair market value of Connecticut Bancshares' common stock, the
current fair market value of Savings Bank of Manchester's or Connecticut
Bancshares' assets or liabilities, or the amount of money that would be
available for distribution to stockholders if Connecticut Bancshares is
liquidated after the conversion.
The following tables assume that SBM Foundation is funded as part of the
conversion and therefore gives effect to the issuance of authorized but unissued
shares of Connecticut Bancshares common stock to the SBM Foundation. The
valuation range accounts for the dilutive impact of the issuance of shares to
the SBM Foundation.
25
<PAGE>
<TABLE>
<CAPTION>
At or For the Eight Months Ended August 31, 1999
--------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
--------------- ------------- -------------
9,775,000 13,225,000 15,208,750
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
--------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds.................................................................. $97,750 $132,250 $152,088
Plus: shares issued to the foundation (equal to 8% of the shares
issued in the conversion).................................................... 7,820 10,580 12,167
-------- -------- --------
Pro forma market capitalization................................................. $105,570 $142,830 $164,255
======== ======== ========
Gross proceeds.................................................................. $97,750 $132,250 $152,088
Less: estimated expenses....................................................... (3,979) (4,469) (4,750)
-------- -------- --------
Estimated net proceeds.......................................................... 93,771 127,781 147,338
Less: common stock acquired by employee stock ownership plan................... (8,446) (11,426) (13,140)
Less: common stock to be acquired by stock-based incentive plan................ (4,223) (5,713) (6,570)
-------- -------- --------
Net investable proceeds...................................................... $81,102 $110,642 $127,628
======= ======== ========
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share............... 9,749,976 13,191,144 15,169,816
Pro forma net income (1):
Historical................................................................... $6,663 $6,663 $6,663
Pro forma income on net investable proceeds.................................. 1,879 2,563 2,957
Less: pro forma employee stock ownership plan adjustments (2)............... (255) (345) (397)
Less: pro forma stock-based incentive plan adjustments (3).................. (383) (518) (596)
------ ------ ------
Pro forma net income...................................................... $7,904 $8,363 $8,627
====== ====== ======
Pro forma net income per share (1):
Historical................................................................... $0.68 $0.51 $0.44
Pro forma income on net investable proceeds.................................. 0.19 0.19 0.19
Less: pro forma employee stock ownership plan adjustments (2)............... (0.03) (0.03) (0.03)
Less: pro forma stock-based incentive plan adjustments (3).................. (0.04) (0.04) (0.04)
----- ----- -----
Pro forma net income per share (4)........................................ $0.80 $0.63 $0.56
===== ===== =====
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders' equity 10,557,000 14,283,000 16,425,450
per share....................................................................
Pro forma stockholders' equity (book value) (1):
Historical................................................................... $118,042 $118,042 $118,042
Estimated net proceeds....................................................... 93,771 127,781 147,338
Plus: stock issued to the foundation......................................... 7,820 10,580 12,167
Less: stock contribution to the foundation.................................. (7,820) (10,580) (12,167)
Plus: tax benefit of the contribution to the foundation...................... 2,502 3,386 3,893
Less: common stock acquired by the employee stock ownership plan............. (8,446) (11,426) (13,140)
Less: common stock acquired by stock-based incentive plan (3)................ (4,223) (5,713) (6,570)
-------- -------- --------
Pro forma stockholders' equity (4)........................................ $201,646 $232,070 $249,563
======== ======== ========
Pro forma stockholders' equity per share (1):
Historical................................................................... $11.18 $8.26 $7.19
Estimated net proceeds....................................................... 8.88 8.95 8.97
Plus: tax benefit to the foundation......................................... 0.74 0.74 0.74
Less: common stock acquired by employee stock ownership plan................ (0.74) (0.74) (0.74)
Plus: tax benefit of the contribution to the foundation...................... 0.24 0.24 0.24
Less: common stock acquired by the employee stock ownership plan............. (0.80) (0.80) (0.80)
Less: common stock acquired by stock-based incentive plan (3)................ (0.40) (0.40) (0.40)
------ ------ ------
Pro forma stockholders' equity per share.................................. $19.10 $16.25 $15.20
====== ====== ======
Offering price as a percentage of pro forma stockholders' equity
per share.................................................................... 52.36% 61.54% 65.79%
Offering price as a multiple of pro forma net income per share (annualized).... 8.33x 10.58x 11.90x
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1998
--------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
---------- ---------- ----------
9,775,000 13,225,000 15,208,750
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
--------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds............................................................... $ 97,750 $132,250 $152,088
Plus: shares issued to the foundation (equal to 8% of the shares
issued in the conversion)................................................. 7,820 10,580 12,167
-------- -------- --------
Pro forma market capitalization.............................................. $105,570 $142,830 $164,255
======== ======== ========
Gross proceeds............................................................... $97,750 $132,250 $152,088
Less: estimated expenses.................................................... (3,979) (4,469) (4,750)
-------- -------- --------
Estimated net proceeds....................................................... 93,771 127,781 147,338
Less: common stock acquired by employee stock ownership plan................ (8,446) (11,426) (13,140)
Less: common stock to be acquired by stock-based incentive plan............. (4,223) (5,713) (6,570)
-------- -------- --------
Net investable proceeds................................................... $81,102 $110,642 $127,628
======== ======== ========
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share............ 9,768,744 13,216,536 15,199,016
Pro forma net income (1):
Historical................................................................ $ 9,318 $ 9,318 $ 9,318
Pro forma income on net investable proceeds............................... 2,493 3,401 3,923
Less: pro forma employee stock ownership plan adjustments (2)............ (383) (518) (596)
Less: pro forma stock-based incentive plan adjustments (3)............... (574) (777) (894)
------- ------- -------
Pro forma net income................................................... $10,854 $11,424 $11,751
======= ======= =======
Pro forma net income per share (1):
Historical................................................................ $0.95 $0.71 $0.61
Pro forma income on net investable proceeds............................... 0.26 0.26 0.26
Less: pro forma employee stock ownership plan adjustments (2)............ (0.04) (0.04) (0.04)
Less: pro forma stock-based incentive plan adjustments (3)............... (0.06) (0.06) (0.06)
----- ----- -----
Pro forma net income per share (4)..................................... $1.11 $0.87 $0.77
===== ===== =====
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders' equity 10,557,000 14,283,000 16,425,450
per share.................................................................
Pro forma stockholders' equity (book value) (1):
Historical................................................................ $112,807 $112,807 $112,807
Estimated net proceeds.................................................... 93,771 127,781 147,338
Plus: stock issued to the foundation...................................... 7,820 10,580 12,167
Less: stock contribution to the foundation................................ (7,820) (10,580) (12,167)
Plus: tax benefit of the contribution to the foundation................... 2,502 3,386 3,893
Less: common stock acquired by the employee stock ownership plan.......... (8,446) (11,426) (13,140)
Less: common stock acquired by stock-based incentive plan (3)............. (4,223) (5,713) (6,570)
-------- -------- --------
Pro forma stockholders' equity (4)..................................... $196,411 $226,835 $244,328
======== ======== ========
Pro forma stockholders' equity per share (1):
Historical................................................................ $10.69 $ 7.90 $ 6.87
Estimated net proceeds.................................................... 8.88 8.95 8.97
Plus: stock issued to the foundation..................................... 0.74 0.74 0.74
Less: stock contribution to the foundation............................... (0.74) (0.74) (0.74)
Plus: tax benefit of the contribution to the foundation................... 0.24 0.24 0.24
Less: common stock acquired by the employee stock ownership plan.......... (0.80) (0.80) (0.80)
Less: common stock acquired by stock-based incentive plan (3)............. (0.40) (0.40) (0.40)
------ ------ ------
Pro forma stockholders' equity per share............................... $18.61 $15.89 $14.88
====== ====== ======
Offering price as a percentage of pro forma stockholders' equity
per share................................................................. 53.73% 62.93% 67.20%
Offering price as a multiple of pro forma net income per share............... 9.01x 11.49x 12.99x
</TABLE>
27
<PAGE>
- -------------------------------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in 2000 as a result of the contribution of common stock to the SBM
Foundation. The following table shows the estimated after-tax expense
associated with the contribution to the foundation, as well as pro forma
net income and pro forma net income per share assuming the contribution to
the foundation was expensed during the periods presented. The pro forma
data assumes that Connecticut Bancshares will realize 100% of the income
tax benefit as a result of the contribution to the foundation based on a
32% tax rate. The realization of the tax benefit is limited annually to
10% of Connecticut Bancshares' annual taxable income. However, for federal
and state tax purposes, Connecticut Bancshares can carry forward any
unused portion of the deduction for five years following the year in which
the contribution is made.
<TABLE>
<CAPTION>
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
------------ ----------- -----------
9,775,000 13,225,000 5,208,750
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
After-tax expense of contribution to foundation:
Eight months ended August 31, 1999...................... $5,318 $7,194 $8,274
Year ended December 31, 1998............................ 5,318 7,194 8,274
Pro forma net income:
Eight months ended August 31, 1999...................... 2,586 1,169 353
Year ended December 31, 1998............................ 5,536 4,230 3,477
Pro forma net income per share:
Eight months ended August 31, 1999...................... 0.27 0.09 0.02
Year ended December 31, 1998............................ 0.57 0.32 0.23
</TABLE>
(2) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock issued in the conversion.
The employee stock ownership plan intends to purchase 5% of the shares
sold in the conversion in the stock offering and acquire the remaining
percentage through open market purchases after the completion of the
conversion. Shares purchased in the open market are assumed to be
purchased at $10.00 per share. The employee stock ownership plan will
borrow the funds used to acquire these shares from the net proceeds from
the conversion retained by Connecticut Bancshares. The amount of this
borrowing, which will have an interest rate equal to the prime rate as
published in The Wall Street Journal, which was 8.00% at August 31, 1999,
has been reflected as a reduction from gross proceeds to determine
estimated net investable proceeds. Savings Bank of Manchester intends to
make contributions to the employee stock ownership plan in amounts at
least equal to the principal and interest requirement of the debt. As the
debt is paid down, stockholders' equity will be increased. Savings Bank of
Manchester's payment of the employee stock ownership plan debt is based
upon equal installments of principal over a 15-year period, assuming a
combined federal and state income tax rate of 32%. Interest income earned
by Connecticut Bancshares on the loan to the employee stock ownership plan
offsets the interest paid on the loan by Savings Bank of Manchester. No
reinvestment is assumed on proceeds contributed to fund the employee stock
ownership plan. Applicable accounting principles require that compensation
expense for the employee stock ownership plan be based upon shares
committed to be released and that unallocated shares be excluded from
earnings per share computations. The valuation of shares committed to be
released would be based upon the average market value of the shares during
the year, which, for purposes of this calculation, was assumed to be equal
to the $10.00 per share purchase price. See "Management of Savings Bank of
Manchester--Benefits--Employee Stock Ownership Plan."
(3) Assumes that the stock-based incentive plan will acquire an amount of
stock equal to 4% the common stock issued in the conversion for award to
key employees and directors. In calculating the pro forma effect of the
stock-based incentive plan, it is assumed that the required stockholder
approval has been received, that the shares were acquired by the stock-
based incentive plan at the beginning of the respective period in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense during the period, that the
combined federal and state income tax rate is 32%, and that stock options
which may be issued under the stock-based incentive plan are not granted
or exercised. The issuance of authorized but unissued shares of the common
stock instead of open market purchases would dilute the voting interests
of existing stockholders by approximately 3.85%.
28
<PAGE>
For purposes of this table, shares issued under the stock-based incentive plan
vest 20% per year and compensation expense is recognized on a straight-line
basis over each vesting period. If the fair market value per share is greater
than $10.00 per share on the date shares are awarded under the stock-based
incentive plan, total stock-based incentive plan expense would be greater. The
total estimated stock-based incentive plan expense was multiplied by 20%, which
is the total percent of shares for which expense is recognized in the first
year.
The following table shows the estimated pro forma net income and stockholders'
equity per share if shares for the stock-based incentive plan were authorized
but unissued shares instead of repurchased shares. The table also shows the
estimated pre-tax stock-based incentive plan expense.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
---------------- ----------------- ------------------
9,775,000 13,225,000 15,208,750
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
---------------- ----------------- ------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Eight months ended August 31, 1999....................... $0.78 $0.61 $0.55
Year ended December 31, 1998............................. 1.07 0.84 0.75
Pro forma stockholders' equity per share:
At August 31, 1999....................................... 18.76 16.02 15.00
At December 31, 1998..................................... 18.28 15.66 14.69
Pre-tax stock-based incentive plan expense:
Eight months ended August 31, 1999....................... 563 762 876
Year ended December 31, 1998............................. 845 1,143 1,314
</TABLE>
(4) In calculating the pro forma effect of the stock-based incentive plan, no
effect has been given for any shares that may be reserved for issuance
upon the exercise of stock options that may be granted under the stock-
based incentive plan. The number of options available under the stock-
based incentive plan will be equal to 10% of the number of shares issued
in the conversion. The issuance of authorized but unissued shares of
common stock instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 9.09%.
The following table shows the estimated pro forma net income and
stockholders' equity per share if shares for stock issued as a result of
the exercise of stock options were authorized but unissued shares instead
of repurchased shares.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
---------------------- --------------------- ------------------
9,775,000 13,225,000 15,208,750
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
---------------------- --------------------- ------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Eight months ended August 31, 1999 ............ $0.76 $0.60 $0.54
Year ended December 31, 1998 .................. 1.03 0.81 0.72
Pro forma stockholders' equity per share:
At August 31, 1999 ............................ 18.27 15.68 14.72
At December 31, 1998 .......................... 17.82 15.35 14.43
</TABLE>
29
<PAGE>
COMPARISON OF INDEPENDENT VALUATION AND
PRO FORMA FINANCIAL INFORMATION WITH AND WITHOUT THE FOUNDATION
As set forth in the following table, if the SBM Foundation is not
established and funded as part of the conversion, RP Financial estimates that
the pro forma valuation of Connecticut Bancshares and Savings Bank of Manchester
would be greater than if the foundation is included, and would result in an
increase in the amount of common stock offered for sale in the conversion. If
the foundation is not established, there is no assurance that the appraisal
prepared at that time of conversion would conclude that the pro forma market
value of Connecticut Bancshares and Savings Bank of Manchester would be the same
as the estimate set forth in the table below. Any appraisal prepared at the
time of conversion would be based on the facts and circumstances existing at
that time, including, among other things, market and economic conditions.
The information presented in the following table is for comparative
purposes only. It assumes that the conversion was completed at August 31, 1999,
based on the assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum of At the Maximum of as Adjusted, of
Estimated Valuation Estimated Valuation Estimated Valuation
Range Range Range
----------------------- ---------------------- -----------------------
With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation
----------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Estimated pro forma valuation (1)......................... $ 97,750 $ 110,500 $ 132,250 $ 149,500 $ 152,088 $ 171,925
Pro forma market capitalization........................... 105,570 110,500 142,830 149,500 164,255 171,925
Total assets.............................................. 1,280,485 1,291,625 1,295,696 1,308,507 1,313,189 1,327,921
Total liabilities......................................... 1,063,627 1,063,627 1,063,627 1,063,627 1,063,627 1,063,627
Pro forma stockholders' equity............................ 201,646 211,115 232,070 244,880 249,563 264,294
Pro forma net income (2).................................. 7,904 8,151 8,363 8,698 8,627 9,012
Pro forma stockholders' equity per share.................. 19.10 19.10 16.25 16.38 15.20 15.38
Pro forma net income per share (2)........................ 0.80 0.79 0.63 0.62 0.56 0.56
Pro Forma Pricing Ratios:
Offering price as a percentage of pro forma
stockholders' equity.......................... 52.36% 52.34% 61.54% 61.05% 65.79% 65.05%
Offering price as a multiple of pro forma net
income per share (2).......................... 8.33x 8.44x 10.58x 10.75x 11.90x 11.90x
Offering price to assets......................... 8.24% 8.56% 11.02% 11.43% 12.51% 12.95%
Pro Forma Financial Ratios:
Return on assets (annualized).................... 0.93% 0.95% 0.97% 1.00% 0.99% 1.02%
Return on stockholders' equity (annualized)...... 5.88% 5.79% 5.41% 5.33% 5.19% 5.11%
Stockholders' equity to total assets............. 15.75% 16.34% 17.91% 18.71% 19.00% 19.90%
</TABLE>
________________________________
(1) Based on independent valuation prepared by RP Financial as of October 22,
1999.
(2) Net income and net income per share data are annualized based on the eight
month period ended August 31, 1999.
30
<PAGE>
CONNECTICUT BANKSHARES, M.H.C. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
The following Consolidated Statements of Operations for each of the years in
the three year period ended December 31, 1998 have been audited by Arthur
Andersen LLP, independent public accountants. The report of Arthur Andersen LLP
on these Consolidated Statements of Operations appears on page F-2 of this
prospectus. Information for the eight months ended August 31, 1999 and 1998,
which is unaudited, includes all adjustments which, in the opinion of
management, are of a normal recurring nature and are necessary for a fair
presentation of these interim periods. Results for the eight months ended
August 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. These statements should be read
in conjunction with the Consolidated Financial Statements and Notes and with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Year Ended December 31,
------------------------ ------------------------------
1999 1998 1998 1997 1996
---------- --------- ---------- -------- --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income on loans.................................................. $43,299 $43,736 $64,511 $63,314 $59,480
Interest and dividends on investment securities........................... 8,138 7,944 12,347 10,617 10,493
------- ------- ------- ------- -------
Total interest and dividend income.................................. 51,437 51,680 76,858 73,931 69,973
------- ------- ------- ------- -------
Interest and dividend expense:
Dividends on deposits.................................................. 22,012 23,414 34,893 34,880 33,492
Interest on borrowings................................................. 1,964 1,372 2,307 976 1,222
------- ------- ------- ------- -------
Total interest and dividend expense.............................. 23,976 24,786 37,200 35,856 34,714
------- ------- ------- ------- -------
Net interest income....................................................... 27,461 26,894 39,658 38,075 35,259
Provision for loan losses................................................. 400 800 1,200 1,200 1,200
------- ------- ------- ------- -------
Net interest income after provision for loan losses....................... 27,061 26,094 38,458 36,875 34,059
------- ------- ------- ------- -------
Noninterest income:
Service charges and fees............................................... 3,632 3,537 5,448 5,120 5,104
Gains on sales of securities, net...................................... 246 3,035 2,621 4,007 842
Gains on mortgage loan sales........................................... 438 1,079 2,415 410 924
Gain on sale of merchant credit card operations........................ -- -- -- -- 1,500
Other.................................................................. 1,102 1,103 1,676 1,930 627
------- ------- ------- ------- -------
Total noninterest income......................................... 5,418 8,754 12,160 11,467 8,997
------- ------- ------- ------- -------
Noninterest expense:
Salaries............................................................... 8,782 8,353 14,091 12,582 10,910
Pension and other employee benefits.................................... 2,681 2,594 3,959 3,293 3,065
Occupancy, net......................................................... 2,180 2,083 3,162 2,929 2,480
Fees and services...................................................... 2,482 2,080 3,215 2,922 2,766
Furniture and equipment................................................ 2,037 1,987 2,852 2,271 1,908
Marketing.............................................................. 1,104 983 1,664 1,400 1,231
Foreclosed real estate expense......................................... 209 391 385 903 1,129
Net losses (gains) on sales of other real estate owned................. 41 319 (324) 404 135
Securities contributed to Savings Bank of Manchester Foundation, Inc... -- 3,000 3,000 -- --
Other operating expenses............................................... 3,165 3,071 5,088 4,852 4,148
------- ------- ------- ------- -------
Total noninterest expense........................................ 22,681 24,861 37,092 31,556 27,772
------- ------- ------- ------- -------
Income before provision for income taxes.................................. 9,798 9,987 13,526 16,786 15,284
Provision for income taxes................................................ 3,135 3,132 4,208 6,584 5,853
------- ------- ------- ------- -------
Net income................................................................ $6,663 $6,855 $9,318 $10,202 $9,431
======= ======= ======= ======= =======
</TABLE>
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<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 Information" and the Consolidated Financial Statements
and Notes thereto 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
Savings Bank of Manchester's results of operations depend primarily on net
interest income, which is the difference between the interest income earned on
its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowings.
Savings Bank of Manchester also generates non-interest income primarily from
fees charged on customers' accounts and fees earned on activities such as
investment services provided through a third party registered broker-dealer.
Gains on the sales of securities is another source of non-interest income.
Savings Bank of Manchester's non-interest expenses primarily consist of employee
compensation and benefits, occupancy expense, advertising and other operating
expenses. Savings Bank of Manchester's results of operations are also affected
by general economic and competitive conditions, notably changes in market
interest rates, government policies and regulations. Savings Bank of Manchester
exceeded all of its regulatory capital requirements at August 31, 1999.
Forward Looking Statements
This prospectus contains forward looking statements that are based on
assumptions and describe future plans, strategies, and expectations of Savings
Bank of Manchester and Connecticut Bancshares These forward looking statements
are generally identified by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. Savings Bank of
Manchester's and Connecticut Bancshares' 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 Savings Bank of
Manchester and Connecticut Bancshares and their 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 and composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
Savings Bank of Manchester's and Connecticut Bancshares' market area,
unanticipated delays or failures in achieving Year 2000 compliance, and changes
in relevant accounting principles. These risks and uncertainties should be
considered in evaluating forward looking statements and undue reliance should
not be placed on such statements. Savings Bank of Manchester and Connecticut
Bancshares do not undertake--and specifically disclaim 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 the
statements or to reflect the occurrence of anticipated or unanticipated events.
Operating Strategy
Savings Bank of Manchester is an independent, community-oriented savings
bank, delivering quality customer service and offering a wide range of deposit,
loan and investment products to its customers. In recent years, Savings Bank of
Manchester's strategy has been to enhance profitability by emphasizing the
origination of commercial real estate and business loans, increasing sources of
noninterest income and by improving operating efficiencies while managing its
capital position and limiting its credit and interest rate risk exposure. To
accomplish these objectives, Savings Bank of Manchester has sought to:
. Operate as a full service community bank.
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. Provide superior customer service and innovative products by
expanding delivery systems through the opening of new branch offices,
offering a bank-issued credit card and debit card services,
establishing Internet banking and a call center that provides interest
rate information for deposit and loan products and other customer
services.
. Increase fee income by broadening non-depository product offerings
and services, including the establishment of a relationship with a
third party registered broker-dealer to provide a wide array of
investment offerings through financial service specialists and
representatives.
. Increase fee income by providing merchant credit card processing
services.
. Originate high quality commercial real estate and commercial business
loans which increase the yields earned on its overall loan portfolio,
without incurring unacceptable credit risk.
. Control credit risk by focusing on the origination of single-family,
owner-occupied residential mortgage loans and consumer loans,
consisting primarily of home equity loans and lines of credit.
. Monitor and control interest rate risk primarily by selling longer-
term fixed rate loans as market interest rate conditions dictate, by
investing in shorter-term mortgage-backed securities and by
selectively utilizing off-balance sheet hedging transactions.
. Invest funds in excess of loan demand primarily in mortgage-backed
securities, investment grade debt and equity mutual funds.
. Invest in technological enhancements to increase productivity and
efficiency.
Comparison of Financial Condition at August 31, 1999 and December 31, 1998
Total assets increased $73.4 million, or 6.6%, to $1.18 billion at August
31, 1999 from $1.11 billion at December 31, 1998. This increase was primarily
the result of a $92.9 million increase in net loans primarily funded by
increases in deposits of $22.2 million, short-term borrowed funds of $18.3
million and Federal Home Loan Bank borrowings of $21.9 million.
Deposits totalled $887.3 million at August 31, 1999, representing an
increase of $32.2 million, or 3.7%, compared to $855.1 million at December 31,
1998. The deposit growth primarily reflects a $20.1 million, or 52.3%, increase
in money market accounts, a $6.3 million, or 2.8%, increase in savings accounts,
a $4.4 million, or 3.9%, increase in NOW accounts, and a $3.4 million, or 0.8%,
increase in certificates of deposit. The overall increase in deposits and the
slight change in the composition of the deposit base were due primarily to the
effects of broadening Savings Bank of Manchester's deposit products offered to
customers and the more aggressive marketing and pricing of deposit products.
Advances from the Federal Home Loan Bank increased $21.9 million, or 48.7%, to
$66.9 million at August 31, 1999 from $45.0 million at December 31, 1998. The
Federal Home Loan Bank advances were used primarily for the origination of
residential mortgage loans.
Savings Bank of Manchester's commercial transactional repurchase accounts,
which are included in short-term borrowed funds, totalled $96.6 million, or
9.1%, of liabilities as of August 31, 1999. This was an increase of $17.9
million, or 22.7%, from the balance of $78.7 million as of December 31, 1998.
Nonperforming assets totalled $6.9 million at August 31, 1999 compared to
$3.3 million at December 31, 1998, representing an increase of $3.6 million, or
109%. The increase was primarily due to the addition of a $4.3 million
commercial real estate loan which management believes is fully-secured and is in
the process of foreclosure. Excluding the effect of this loan, nonperforming
assets decreased 27.4% to $2.6 million. The amount of properties held as Other
Real Estate Owned decreased from $1.8 million at December 31, 1998 to $901,000
at August 31, 1999 due to sales of properties during the 1999 period.
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<PAGE>
Total capital increased $5.2 million to $118.0 million at August 31, 1999
as compared to $112.8 million at December 31, 1998. This increase was due to
net income of $6.7 million for the eight months ended August 31, 1999 partially
offset by a $1.4 million decrease in accumulated other comprehensive income to
$7.8 million at August 31, 1999 from $9.3 million at December 31, 1998 as a
result of a decrease in the after-tax net unrealized gain on available for sale
securities.
Comparison of Financial Condition at December 31, 1998 and 1997
Total assets increased $75.2 million, or 7.3%, to $1.11 billion at December
31, 1998 as compared to $1.03 billion at December 31, 1997. This increase was a
result of increases of $36.6 million in securities available for sale due to
reinvestment of the proceeds from mortgage loan sales, $30.4 million in cash and
cash equivalents and $8.5 million in net loans. The growth in assets was funded
by growth in deposits and Federal Home Loan Bank advances. Loans increased
primarily due to an improving state and local economy, expansion of loan
products offered by Savings Bank of Manchester, increased marketing efforts and
expansion of its market area in 1998 and lower market interest rates in 1998,
which resulted in an increase in loan refinancing. The effect of loan
originations was offset by the sale of approximately $94.3 million of fixed rate
loans in 1998.
Deposits totalled $855.1 million at December 31, 1998, representing an
increase of $27.4 million, or 3.3%, compared to $827.7 million at December 31,
1997. The deposit growth reflects an increase of $14.1 million, or 6.8%, in
savings accounts, an increase of $24.6 million, or 28.6%, in NOW accounts, and
an increase of $6.2 million, or 19.1%, in money market accounts. These
increases were partially offset by a decrease of $29.6 million, or 6.2%, in
certificates of deposit. The increase in deposits was primarily attributable to
the more aggressive marketing and pricing of deposit products. In addition,
borrowings from the Federal Home Loan Bank increased $35.0 million, or 350%, to
$45.0 million at December 31, 1998 from $10.0 million at December 31, 1997, and
were used primarily to fund the origination of loans and the purchase of U.S.
Government and agency obligation securities.
Savings Bank of Manchester's commercial transactional repurchase accounts,
which are included in short-term borrowed funds, totalled $78.7 million, or
7.9%, of liabilities as of December 31, 1998. This was an increase of $8.4
million, or 11.9%, from the balance of $70.3 million as of December 31, 1997.
Nonperforming assets totalled $3.3 million at December 31, 1998 compared to
$7.5 million at December 31, 1997, representing a decrease of $4.2 million, or
56.5%. The decrease was primarily due to a $2.9 million, or 62.6%, decrease in
the amount of other real estate owned from $4.7 million as of December 31, 1997
to $1.8 million as of December 31, 1998 and a decrease of $1.3 million, or
46.2%, in the amount of nonperforming loans from $2.8 million as of December 31,
1997 to $1.5 million as of December 31, 1998. The decrease in other real estate
owned and nonperforming loans during this period was primarily due to an
improving state and local economy and, to a lesser extent, sales of properties
during the 1999 period and the implementation of more focused loan collection
efforts.
Total capital increased $11.6 million, or 11.5%, to $112.8 million at
December 31, 1998 compared to $101.2 million at December 31, 1997. This
increase was due to net income of $9.3 million and an increase of $2.3 million
in accumulated other comprehensive income related to unrealized gains on
available for sale securities for the year ended December 31, 1998.
Comparison of Operating Results for the Eight Months Ended August 31, 1999 and
1998
Net Income. Net income decreased $192,000, or 2.8%, to $6.7 million for
the eight months ended August 31, 1999 from $6.9 million for the eight months
ended August 31, 1998. The decrease was primarily attributable to a $2.8
million reduction in gains on sales of securities and a $641,000 reduction in
gains on mortgage loan sales partially offset by a $3.0 million reduction in
noninterest expense related to securities contributed to the Savings Bank of
Manchester Foundation, Inc. The reduction in the gains on sales of securities
was primarily due to a $2.3 million gain recognized in the eight months ended
August 31, 1998, resulting from funding the 1998 contribution to
34
<PAGE>
the foundation with the transfer of investment securities owned by Savings Bank
of Manchester. The gain represents the excess of the fair value of the
transferred securities over the cost basis at the date of the transfer. Savings
Bank of Manchester recognized an expense for the contribution in an amount equal
to the fair value of the securities transferred of $3.0 million in the 1998
period. There was no similar contribution made in the eight months ended August
31, 1999. Gains on mortgage loan sales deceased for the eight months ended
August 31, 1998 compared to the 1999 period because Savings Bank of Manchester
limited the sales of fixed rate mortgages in early 1999. Savings Bank of
Manchester anticipates that it will continue its strategy of limiting the sales
of fixed-rate mortgage loans.
Net Interest Income. Net interest income for the eight months ended August
31, 1999 increased by $567,000, or 2.1%, to $27.5 million for the eight months
ended August 31, 1999 from $26.9 million for the eight months ended August 31,
1998. This increase was primarily due to reduced interest expense on deposit
accounts due to a lower interest rate environment which was offset, in part, by
higher interest expense on borrowings due to an increase in the average balance
of Federal Home Loan Bank advances. Interest and dividend income for the eight
months ended August 31, 1999 and 1998 was $51.4 million and $51.7 million,
respectively. The yield on interest-earning assets was 7.13% and 7.63% for the
eight months ended August 31, 1999 and 1998, respectively, due to a lower market
interest rate environment. Interest income on loans decreased by $437,000, or
1.0%, to $43.3 million for the eight months ended August 31, 1999 from $43.8
million for the same period in 1998. The decrease was attributable to a
decrease in the average yield on loans from 8.17% during the first eight months
of 1998 to 7.56% during the same period in 1999 due to a lower interest rate
environment. The effect of the rate decrease was partially offset by an
increase of $54.9 million in the average balance of loans for the 1999 period
compared to the 1998 period. Interest and dividend income on investment
securities increased $194,000, or 2.4%, to $8.1 million for the eight months
ended August 31, 1999 from $7.9 million for the eight months ended August 31,
1998. This increase was primarily attributable to a $16.0 million increase in
the average balance of investment securities to $212.5 million for the eight
months ended August 31, 1999, which was partially offset by a 31 basis point
decrease in the average yield earned on such investments due to a lower interest
rate environment.
Interest expense decreased $810,000, or 3.3%, from $24.8 million for the
eight-month period ended August 31, 1998 to $24.0 million for the eight-month
period ended August 31, 1999. The cost of interest-bearing liabilities
decreased by 33 basis points from 4.06% for the eight months ended August 31,
1998 to 3.73% for the same period in 1999 primarily due to a lower interest rate
environment. Interest on deposits decreased $1.4 million, or 6.0%, despite a
$19.5 million, or 2.2%, increase in deposits, primarily due to a 46 basis point
decrease in the average rate paid on deposits resulting from a lower interest
rate environment. The decrease in interest expense on deposits was offset by an
increase of $592,000 in interest on Federal Home Loan Bank advances for the
eight months ended August 31, 1999 compared to the same period in the prior year
due to an increase in the average balance of Federal Home Loan Bank advances
which were used primarily for the origination of residential mortgage loans.
Provision for Loan Losses. The provision for loan losses decreased by
$400,000, or 50%, to $400,000 for the eight months ended August 31, 1999 from
$800,000 for the eight months ended August 31, 1998. The decrease in the
provision for loan losses reflects management's assessment of the losses
inherent in the loan portfolio. During the 1999 period, Savings Bank of
Manchester added to its nonperforming loans a $4.3 million commercial real
estate loan which management believes is fully secured. Excluding this
nonperforming loan, there was a 2% decrease in the remaining nonperforming loans
for the eight months ended August 31, 1999. Nonperforming loans totalled $6.0
million and $2.6 million at August 31, 1999 and 1998, respectively, and
represented 0.65% and 0.32% of total loans at August 31, 1999 and 1998,
respectively. At August 31, 1999 and 1998, the allowance for loan losses was
$10.8 million and $10.7 million, respectively, which represented 181.00% of
nonperforming loans and 1.19% of total loans at August 31, 1999 as compared to
416.86% of nonperforming loans and 1.33% of total loans at August 31, 1998.
Savings Bank of Manchester's management 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 quality of the loan
portfolio. While management believes that, based on information currently
available, Savings Bank of Manchester's allowance for loan losses is sufficient
to cover probable losses inherent in its loan portfolio at this
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<PAGE>
time, no assurances can be given that Savings Bank of Manchester's level of
allowance for loan losses will be sufficient to cover loan losses incurred by
Savings Bank of Manchester 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
increase its level of allowance for loan losses as a percentage of total loans
and nonperforming loans if the level of commercial, multi-family, construction
or consumer lending as a percentage of total loan portfolio increases. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review Savings Bank of Manchester's allowance for loan
losses. Such agencies may require Savings Bank of Manchester to provide
additions to the allowance based on judgments different from those of
management.
Noninterest Income. Noninterest income decreased $3.3 million, or 38.1%,
to $5.4 million for the eight months ended August 31, 1999 from $8.8 million in
the same period in the prior year primarily due to a decrease in gains on sales
of securities of $2.8 million, or 91.9%, from $3.0 million for the eight months
ended August 31, 1998 to $246,000 for the eight months ended August 31, 1999.
The decrease was due to the 1998 contribution of appreciated securities to the
Savings Bank of Manchester Foundation, Inc. whereby Savings Bank of Manchester
recognized a $2.3 million gain which was not subject to income taxes. However,
due to the planned establishment of SBM Foundation as part of the conversion,
Savings Bank of Manchester does not intend to make further contributions of
securities to Savings Bank of Manchester Foundation, Inc. and, therefore, it is
not expected that future gains on the contribution of appreciated securities
will be recognized. There was no similar contribution of securities during the
eight months ended August 31, 1999. Gains on mortgage loan sales decreased
$641,000, or 59.4%, to $438,000 for the eight months ended August 31, 1999 from
$1.1 million for the eight months ended August 31, 1998 since Savings Bank of
Manchester limited sales of fixed rate mortgages in early 1999.
Noninterest Expense. Noninterest expense for the eight months ended August
31, 1999 was $22.7 million, a decrease of $2.2 million, or 8.8%, compared to
$24.9 million for the eight months ended August 31, 1998. The decrease is
primarily attributable to the $3.0 million expense associated with the
contribution of securities to the Savings Bank of Manchester Foundation, Inc.
during the eight months ended August 31, 1998 and no similar contribution during
the eight months ended August 31, 1999. This decrease was offset in part by
increased salaries of $429,000, or 5.1%, to $8.8 million for the eight months
ended August 31, 1999 from $8.4 million for the same period in 1998.
Provision for Income Taxes. The provision for income taxes was $3.1
million for each of the eight months ended August 31, 1999 and 1998. The
effective tax rate was 32% and 31% for eight months ended August 31, 1999 and
1998, respectively. The 1999 effective tax rate reflects the benefit associated
with the establishment of a passive investment company which is expected to
eliminate state income taxes effective January 1, 1999. The 1998 effective tax
rate reflects the effect of the gain related to the appreciated securities
contributed to the Savings Bank of Manchester Foundation, Inc. not being
subject to income taxes.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
Net Income. Net income decreased by $884,000, or 8.7%, to $9.3 million for
1998 from $10.2 million for 1997. The decrease was primarily attributable to a
$5.5 million increase in noninterest expense and a $1.4 million decrease in
gains on sale of securities partially offset by a $1.6 million increase in net
interest income, a $693,000 increase in noninterest income and $2.4 million
decrease in the provision for income taxes.
Net Interest Income. Net interest income increased by $1.6 million, or
4.2%, to $39.7 million for 1998 from $38.1 million for 1997. This increase was
primarily a result of higher interest income from an increase in the level of
average interest-earning assets and a decrease in the average rate paid on
interest-bearing liabilities due to a lower interest rate environment. Interest
and dividend income increased $2.9 million, or 4.0%, to $76.9 million for 1998
from $73.9 million for 1997. The average yield on interest-earning assets
declined 15 basis points to 7.54% in 1998 from 7.69% in 1997 primarily due to a
decline in market interest rates. Interest income on loans increased $1.2
million, or 1.9%, to $64.5 million for 1998, compared to $63.3 million for the
prior year. This increase was due to a $42.5 million increase in the average
balance of loans outstanding, offset by a 28 basis point decrease in the
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<PAGE>
average yield on such loans primarily due to a decline in market interest rates.
Interest and dividend income from investment securities increased $1.7 million,
or 16.3%, from $10.6 million for 1997 to $12.3 million for 1998. The increase in
interest and dividend income from investment securities was due to an increase
in the average balance of investment securities of $21.0 million, or 11.6%, to
$201.3 million for the year ended December 31, 1998, and a 23 basis point
increase in the average yield.
Interest expense increased $1.3 million, or 3.7%, to $37.2 million for 1998
from $35.9 million for 1997 primarily due to an increase in interest expense on
Federal Home Loan Bank advances. The average balance of such advances was $12.5
million for 1997 and $22.5 million for 1998, an increase of $10.0 million, or
80.0%. These advances were used primarily to fund loan originations. The
average rate paid on Federal Home Loan Bank advances decreased 113 basis points
to 6.13% in 1998 from 7.26% in 1997 due to a lower market interest rate
environment. Interest on deposits remained fairly constant at approximately
$34.9 million for 1998 and 1997 due to a decrease in the average rate paid on
deposits of 16 basis points during 1998 offset by an increase in the average
balance of $31.2 million.
Provision for Loan Losses. The provision for loan losses remained constant
at $1.2 million for 1998 and 1997. The allowance for loan losses was 1.30% of
total loans and 694.55% of nonperforming loans at December 31, 1998 compared to
1.23% and 350.79%, respectively, at December 31, 1997 due to the overall
improvement of the loan portfolio.
Noninterest Income. Noninterest income totalled $12.2 million and $11.5
million for 1998 and 1997, respectively. The $693,000 increase in noninterest
income was attributable to an increase in gains on mortgage sales of $2.0
million, or 489%, to $2.4 million for 1998 from $410,000 for 1997. This
increase was attributable primarily to sales of fixed rate residential mortgages
to manage interest rate risk in 1998. This increase was partially offset by a
decrease in gains on sale of securities of $1.4 million, or 34.6%, to $2.6
million for the year ended December 31, 1998 from $4.0 million for the year
ended December 31, 1997. The $1.4 million decrease in gains on sales of
securities was primarily due to management's decision to defer the realization
of additional gains for tax purposes.
Noninterest Expense. Noninterest expense increased by $5.5 million, or
17.5%, to $37.1 million for 1998 from $31.6 million for 1997. The increase in
noninterest expense was primarily attributable to an increase in salaries and
employee benefits of $1.5 million, or 12.0%, to $14.1 million for 1998, from
$12.6 million for 1997 resulting from a combination of additional commercial
lending staff, the development of the Merchant Services Center program,
conversion to a new computer system in late 1997, and the Year 2000 project. In
addition, 1998 noninterest expense includes a $3.0 million expense associated
with the contribution of appreciated securities to Savings Bank of Manchester
Foundation, Inc. There was no such contribution in 1997. These increases were
partially offset by a $518,000 decrease in foreclosed real estate expense in
1998 due primarily to reduced holding periods for foreclosed properties in 1998
compared to 1997.
Provision for Income Taxes. The provision for income taxes decreased $2.4
million to $4.2 million for 1998, compared to $6.6 million for 1997. The
effective tax rates were 31.1% and 39.2% for 1998 and 1997, respectively. The
lower effective tax rate for 1998 was primarily the result of the gain on the
securities contributed to the Savings Bank of Manchester Foundation, Inc. not
being subject to income taxes.
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
Net Income. Net income increased $771,000, or 8.2%, to $10.2 million for
1997 from $9.4 million for 1996. The increase was primarily attributable to a
$2.8 million increase in net interest income and a $2.5 million increase in
noninterest income, partially offset by a $3.8 million increase in noninterest
expense. Net income for 1996 includes a one-time gain of $1.5 million from the
assignment of an agreement related to Savings Bank of Manchester's merchant
credit card operations. Excluding this one-time gain, net income for 1996 would
have been $8.6 million, on an after-tax basis. For further information
concerning this one-time gain, see Note 10 of the Notes to Consolidated
Financial Statements included in this prospectus.
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Net Interest Income. Net interest income increased by $2.8 million, or
8.0%, from $35.3 million for 1996 to $38.1 million for 1997. The increase was
primarily due to increased interest income from an increase in the average
balance of interest-earning assets combined with a decrease in interest expense
on Federal Home Loan Bank advances. Interest and dividend income increased $3.9
million, or 5.7%, to $73.9 million for 1997 from $70.0 million for 1996. The
increase in interest and dividend income was primarily attributable to a $3.8
million, or 6.4%, increase in interest income on loans to $63.3 million for the
year ended December 31, 1997 from $59.5 million in the prior year. The average
balance of loans increased $51.9 million, or 7.2%, from $723.0 million during
1996 to $774.9 million during 1997 due to the improving economy and growth in
all segments of Savings Bank of Manchester's loan portfolio. The increase in
interest income due to the increase in loan volume was augmented slightly by a
three basis point increase in the average yield earned on loans while the
average cost of funds declined slightly due to a lower interest rate
environment. Interest and dividends on investment securities increased
$124,000, or 1.2%, to $10.6 million in 1997 from $10.5 million in 1996 due to an
increase in the average balance of investment securities of $7.0 million, or
4.0%, from $173.4 million for 1996 to $180.4 million for 1997 and offset by a 18
basis point increase in the average yield earned on investment securities.
These increases were offset in part by a decrease in interest income on federal
funds sold of $210,000 from $620,000 for 1996 to $410,000 for 1997 primarily due
to a decrease in the average balance of federal funds sold.
Interest and dividend expense increased $1.2 million, or 3.3%, to $35.9
million for 1997 from $34.7 million for 1996. The increase in interest expense
was primarily attributable to a $1.4 million, or 4.1%, increase in interest
expense on deposits due to an increase in the average balance of interest-
earning deposits. Interest expense on borrowings decreased $246,000 from $1.2
million in 1996 to $976,000 in 1997. The average balance of Federal Home Loan
Bank advances decreased from $15.2 million for 1996 to $12.5 million for 1997
and the average rate paid on such advances increased 21 basis points from 7.05%
in 1996 to 7.26% in 1997. The additional Federal Home Loan Bank advances were
used primarily to fund loan growth.
Provision for Loan Losses. The provision for loan losses remained constant
at $1.2 million for 1996 and 1997. Nonperforming loans decreased as a
percentage of total loans to 0.35% at December 31, 1997 from 0.98% at December
31, 1996, because total loans increased to $808.2 million at December 31, 1997
from $741.6 million at December 31, 1996. As a result, the allowance for loan
losses represented 1.23% of total loans at December 31, 1997 and 1996, and
represented 350.79% and 125.46% of nonperforming loans at December 31, 1997 and
1996, respectively.
Noninterest Income. Noninterest income totalled $11.5 million and $9.0
million for 1997 and 1996, respectively. The $2.5 million increase in
noninterest income was attributable to a $3.2 million increase in gains on sales
of securities. Additionally, Savings Bank of Manchester realized a one-time
gain of $1.5 million from the assignment of an agreement related to its merchant
credit card operations. The increase in gains on sales of securities was
primarily due to management decisions to realize gains in the common stock
portfolio during 1997.
Noninterest Expense. Noninterest expense increased $3.8 million, or 13.6%,
to $31.6 million for the year ended December 31, 1997 from $27.8 million for the
year ended December 31, 1996. The increase in noninterest expense was primarily
attributable to an increase of $1.7 million in salaries and employee benefits, a
$449,000 increase in occupancy costs, and a $704,000 increase in other operating
expenses. The increase in expenses during 1997 is attributable to payroll and
other costs associated with the conversion to a new computer system in December
1997 and to branch premium amortization in 1997 related to branch acquisitions
during the latter part of 1996 which had their full expense impact in 1997.
Provision for Income Taxes. The provision for income taxes was $6.6
million for 1997 compared to $5.9 million for 1996. The effective tax rate
increased to 39.2% in 1997 from 38.3% in 1996 primarily as a result of the
benefit for tax credits from the settlement of a class action suit with the
State of Connecticut concerning investment income on federal securities which
was recorded in 1996.
38
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table presents certain information for the periods indicated
regarding average balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the periods indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances were
derived from average monthly balances. The yields and rates include fees which
are considered adjustments to yields.
<TABLE>
<CAPTION>
For the Eight Months Ended August 31,
-----------------------------------------------------------
At August 31, 1999 1999 1998
-------------------- -----------------------------------------------------------
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>
Interest-earning assets:
Loans (1):
Real estate............................. $ 706,067 7.42% $662,459 $32,754 7.42% $ 622,961 $33,078 7.96%
Consumer................................ 73,054 7.87 71,163 3,641 7.67 71,109 3,873 8.17
Commercial.............................. 131,362 8.31 121,004 6,904 8.56 109,886 6,785 9.26
------- ---- ------- ----- ---- ------- ----- ----
Total loans.......................... 910,483 7.36 854,626 43,299 7.60 803,956 43,736 8.16
------- ---- ------- ------ ---- ------- ------ ----
Mortgage-backed securities (2)............. 34,620 6.97 34,846 1,531 6.59 35,213 1,616 6.88
Investment securities (3):
U.S. Government and agency
obligations.......................... 67,753 5.97 71,481 2,585 5.42 74,369 2,353 4.75
Corporate securities.................... 36,168 5.90 38,294 1,596 6.25 32,415 1,334 6.17
Marketable equity securities............ 42,968 2.20 42,871 688 2.41 30,760 876 4.27
Other equity securities................. 3,562 3.29 3,552 117 4.94 3,260 117 5.38
Asset-backed securities................. 19,258 5.92 21,231 883 6.24 25,881 1,128 6.54
Other interest-bearing assets:
Federal Home Loan Bank stock............ 5,909 -- 5,909 285 7.23 5,796 275 7.12
Federal funds sold...................... 16,000 5.13 11,666 453 4.54 5,000 245 5.19
------ ---- ------ --- ---- ----- --- ----
Total interest-earning assets........ 1,136,721 6.92% 1,084,476 $51,437 7.13% 1,016,650 $51,680 7.63%
======= =======
Noninterest-earning assets................. 44,948 57,319 52,827
------ ------ ------
Total assets......................... $1,181,669 $1,141,795 $1,069,477
========== ========== ==========
Interest-bearing liabilities:
Deposits:
NOW accounts............................ $ 106,482 1.38% $ 109,116 $1,000 1.37% $ 91,867 $ 844 1.38%
Savings and money market
accounts............................. 285,389 2.43 272,215 4,394 2.42 242,648 3,876 2.40
Certificates of deposits................ 449,557 5.04 443,274 14,852 5.03 469,347 17,134 5.48
Escrow deposits......................... 3,159 2.50 5,084 100 2.95 4,828 118 3.67
----- ---- ----- --- ---- ----- --- ----
Total interest-bearing deposits...... 844,587 3.69 829,689 20,346 3.68 808,690 21,972 4.08
Short-term borrowed funds.................. 97,847 2.91 86,161 1,666 2.90 73,443 1,442 2.95
Advances from Federal Home
Loan Bank.............................. 66,899 6.23 48,422 1,964 6.08 32,772 1,372 6.28
------ ---- ------ ----- ---- ------ ----- ----
Total interest-bearing liabilities... 1,009,333 3.78% 964,272 $23,976 3.73% 914,905 $24,786 4.06%
======= =======
Noninterest-bearing liabilities............ 54,294 62,186 49,470
------ ------ ------
Total liabilities.................... 1,063,627 1,026,458 964,375
Capital.................................... 118,042 115,337 105,102
------- ------- -------
Total liabilities and capital........ $1,181,669 $1,141,795 $1,069,477
========== ========== ==========
Net interest-earning assets................ $ 127,388 $ 120,204 $ 101,745
========= ========= =========
Net interest income........................ $27,461 $26,894
======= =======
Interest rate spread (4)................... 3.40% 3.57%
Net interest margin (5).................... 3.81% 3.97%
Ratio of interest-earning assets to
interest-bearing liabilities............ 112.46% 111.12%
</TABLE>
- -------------------------------
(1) Balances are net of undisbursed proceeds of construction loans in process
and include nonperforming loans.
(2) Includes mortgage-backed securities available for sale and held to maturity.
(3) Includes investment securities available for sale at market value and held
to maturity at amortized cost.
(4) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of interest-
bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
39
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------
1998 1997
--------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ------- -------- -------
(Dollars in thousands)
Interest-earning assets:
Loans (1):
<S> <C> <C> <C> <C> <C> <C>
Real estate......................... $ 621,751 $48,338 7.77% $ 597,902 $47,713 7.98%
Consumer............................ 71,132 5,780 8.13 68,768 5,842 8.50
Commercial.......................... 110,158 10,393 9.43 104,705 9,759 9.32
--------- ------- ----- --------- ------- ----
Total loans...................... 803,041 64,511 8.03 771,375 63,314 8.21
--------- ------- ----- --------- ------- ----
Mortgage-backed securities (2)......... 35,762 2,392 6.69 31,087 2,186 7.03
Investment securities (3):
U.S. Government and agency
obligations..................... 65,516 3,816 5.82 53,115 2,894 5.45
Corporate securities................ 32,215 2,091 6.49 28,403 1,645 5.79
Marketable equity securities........ 41,704 1,373 3.29 39,216 1,375 3.51
Other equity securities............. 3,439 176 5.12 1,842 76 4.13
Asset-backed securities............. 24,439 1,650 6.75 25,267 1,683 6.66
Other interest-bearing assets:
Federal Home Loan Bank stock........ 5,740 368 6.41 5,443 351 6.45
Federal funds sold.................. 6,846 481 5.03 5,115 407 5.13
--------- ------- ----- --------- ------- ----
Total interest-earning assets.... 1,018,702 $76,858 7.54% 960,863 $73,931 7.69%
======= =======
Noninterest-earning assets............. 60,361 43,408
------ ------
Total assets..................... $1,079,063 $1,004,271
========== ==========
Interest-bearing liabilities:
Deposits:
NOW accounts........................ $ 94,394 $ 1,299 1.38% $ 80,445 $ 1,101 1.37%
Savings and money market accounts... 248,915 5,982 2.40 238,132 5,644 2.37
Certificates of deposit............. 463,226 25,138 5.43 471,865 26,219 5.56
Escrow deposits..................... 5,092 176 3.46 5,290 171 3.23
--------- ------- ----- --------- ------- ----
Total interest-bearing deposits.. 811,627 32,595 4.02 795,732 33,135 4.16
Short-term borrowed funds.............. 76,523 2,298 3.00 61,677 1,745 2.83
Advances from Federal Home
Loan Bank........................... 36,534 2,307 6.31 14,144 976 6.90
--------- ------- ----- --------- ------- ----
Total interest-bearing
liabilities..................... 924,684 $37,200 4.02% 871,553 $35,856 4.11%
======= =======
Noninterest-bearing liabilities........ 47,865 37,398
---------- ----------
Total liabilities................ 972,549 908,951
Capital................................ 106,514 95,320
---------- ----------
Total liabilities and capital.... $1,079,063 $1,004,271
========== ==========
Net interest-earning assets............ $ 94,018 $ 89,310
========== ==========
Net interest income.................... $39,658 $38,075
======= =======
Interest rate spread (4)............... 3.52% 3.58%
Net interest margin (5)................ 3.89% 3.96%
Ratio of interest-earning assets to
interest-bearing liabilities......... 110.17% 110.25%
</TABLE>
<TABLE>
<CAPTION>
---------------------------------
1996
---------------------------------
Average
Average Yield/
Balance Interest Rate
------------ -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans (1):
Real estate......................... $569,230 $45,317 7.96%
Consumer............................ 65,257 5,431 8.32
Commercial.......................... 92,889 8,732 9.40
------- ------ ----
Total loans...................... 727,376 59,480 8.18
------- ------ ----
Mortgage-backed securities (2)......... 32,496 2,338 7.19
Investment securities (3):
U.S. Government and agency
obligations...................... 50,196 2,288 4.56
Corporate securities................ 39,427 2,384 6.05
Marketable equity securities........ 33,418 1,117 3.34
Other equity securities............. 352 -- --
Asset-backed securities............. 18,084 1,407 7.78
Other interest-bearing assets:
Federal Home Loan Bank stock........ 5,262 340 6.46
Federal funds sold.................. 9,984 619 4.94
------- ------ ----
Total interest-earning assets.... 916,595 $69,973 7.63%
=======
Noninterest-earning assets............. 28,836
--------
Total assets..................... $945,431
========
Interest-bearing liabilities:
Deposits:
NOW accounts........................ $71,657 $1,030 1.44%
Savings and money market
accounts......................... 236,433 5,495 2.32
Certificates of deposit............. 448,918 25,071 5.58
Escrow deposits..................... 5,101 173 3.39
------- ------ ----
Total interest-bearing deposits.. 762,109 31,769 4.17
Short-term borrowed funds.............. 59,833 1,723 2.88
Advances from Federal Home
Loan Bank........................... 15,319 1,222 7.98
------- ------ ----
Total interest-bearing
liabilities..................... 837,261 $34,714 4.15%
=======
Noninterest-bearing liabilities........ 26,001
--------
Total liabilities................ 863,262
Capital................................ 82,169
--------
Total liabilities and capital.... $945,431
========
Net interest-earning assets............ $ 79,334
========
Net interest income.................... $35,259
=======
Interest rate spread (4)............... 3.48%
Net interest margin (5)................ 3.85%
Ratio of interest-earning assets....... 109.48%
to interest-bearing liabilities.....
</TABLE>
- ------------------------------
(1) Balances are net of undisbursed proceeds of construction loans in process,
and include nonperforming loans.
(2) Includes mortgage-backed securities available for sale at market value and
held to maturity at amortized cost.
(3) Includes investment securities available for sale and held to maturity.
(4) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of interest-
bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
40
<PAGE>
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on
the interest income and interest expense of Savings Bank of Manchester. The
rate column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume). The volume column shows the effects attributable to
changes in volume (changes in volume multiplied by prior rate). The net column
represents the sum of the prior columns. For purposes of this table, changes
attributable to changes in both rate and volume, which cannot be segregated,
have been allocated proportionately based on the absolute value of the change
due to rate and the change due to volume.
<TABLE>
<CAPTION>
Eight Months Ended Year Ended Year Ended
August 31, 1999 December 31, 1998 December 31, 1997
Compared to Compared to Compared to
Eight Months Ended Year Ended Year Ended
August 31, 1998 December 31, 1997 December 31, 1996
-------------------------------- ----------------------------- -------------------------
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
--------------------- --------------------- -------------------------
Rate Volume Net Rate Volume Net Rate Volume Net
---------- --------- --------- --------- ---------- ----- --------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans:
Real estate................. $(3,448) $3,124 $ (324) $(1,254) $1,879 $ 625 $ 111 $2,285 $2,396
Consumer.................... (295) 63 (232) (258) 196 (62) 116 295 411
Commercial.................. (843) 962 119 123 511 634 (79) 1,106 1,027
------- ------ ------ ------- ------ ----- ----- ------ ------
Total loans.............. (4,586) 4,149 (437) (1,389) 2,586 1,197 148 3,686 3,834
Mortgage-backed
securities.................. (82) (3) (85) (115) 322 207 (53) (100) (153)
Investment securities.......... (406) 685 279 (143) 1,666 1,523 (97) 374 277
------- ------ ------ ------- ------ ----- ----- ------ ------
Total interest-earning
assets................... (5,074) 4,831 (243) (1,647) 4,574 2,927 (2) 3,960 3,958
------- ------ ------ ------- ------ ----- ----- ------ ------
Interest-bearing liabilities:
Deposits:
Demand accounts............. (43) 199 156 7 191 198 (52) 123 71
Savings accounts............ (46) 546 500 219 124 343 99 48 147
Certificates of deposit..... (1,484) (798) (2,282) (607) (474) (1,081) (130) 1,278 1,148
Other....................... (92) 316 224 120 433 553 (31) 53 22
------- ------ ------ ------- ------ ----- ----- ------ ------
Total deposits.......... (1,665) 263 (1,402) (261) 274 13 (114) 1,502 1,388
Advances from Federal Home
Loan Bank................... (228) 820 592 (148) 1,479 1,331 (159) (87) (246)
------- ------ ------ ------- ------ ----- ----- ------ ------
Total interest-bearing
liabilities........... (1,893) 1,083 (810) (409) 1,753 1,344 (273) 1,415 1,142
------- ------ ------ ------- ------ ----- ----- ------ ------
Increase (decrease) in net
interest income....... $(3,181) $3,748 $ 567 $(1,238) $2,821 $1,583 $ 271 $2,545 $2,816
======= ====== ====== ======= ====== ====== ===== ====== ======
</TABLE>
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Savings Bank of Manchester's most
significant form of market risk is interest rate risk. The principal objectives
of Savings Bank of Manchester's interest rate risk management are to evaluate
the interest rate risk inherent in certain balance sheet accounts, determine the
level of risk appropriate given its business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
risk consistent with its established policies. Savings Bank of Manchester has
an Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets quarterly and reports
trends and interest rate risk position to the Executive Committee of the Board
of Directors and the Board of Directors 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 Savings Bank of Manchester.
41
<PAGE>
In recent years, Savings Bank of Manchester has managed interest rate risk
by:
(1) emphasizing the origination of adjustable-rate loans and generally
selling longer term fixed-rate loans as market interest rate
conditions dictate;
(2) originating variable rate commercial real estate loans and prime rate
commercial business loans;
(3) emphasizing shorter-term consumer loans including home equity lines of
credit indexed to the prime rate, as reported in The Wall Street
Journal;
(4) maintaining a high quality securities portfolio that provides adequate
liquidity and flexibility to take advantage of opportunities that may
arise from fluctuations in market interest rates, the overall maturity
and duration of which is monitored in relation to the repricing of its
loan portfolio;
(5) promoting lower cost liability accounts such as demand deposits and
business repurchase accounts;
(6) using Federal Home Loan Bank advances to better structure maturities
of its interest rate sensitive liabilities; and
(7) selectively utilizing off-balance sheet hedging transactions, such as
interest rate swaps and caps.
Savings Bank of Manchester's market risk also includes equity price risk.
Savings Bank of Manchester's marketable equity securities portfolio had gross
unrealized gains of $14.2 million and gross unrealized losses of $1.5 million at
August 31, 1999 which are included, net of taxes, in accumulated other
comprehensive income, a separate component of Savings Bank of Manchester's
capital. If equity security prices decline due to unfavorable market conditions
or other factors, Savings Bank of Manchester's capital would decrease.
Savings Bank of Manchester's investment policy authorizes it to be a party
to financial instruments with off-balance sheet risk in the normal course of
business to reduce its exposure to fluctuations in interest rates. These
financial instruments include interest rate cap agreements. Interest rate cap
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. Caps generally are
not readily available for time periods longer than five years. Savings Bank of
Manchester's objective in using interest rate caps is to reduce risk associated
with adverse rate volatility while enabling Savings Bank of Manchester to
benefit from favorable interest rate movements. All counter-parties to cap
arrangements must be pre-approved by Savings Bank of Manchester's Executive
Committee and reported to its Investment Committee. At August 31, 1999, the
notional principal amount of Savings Bank of Manchester's outstanding interest
rate cap agreement was $25 million. Under the terms of the cap agreement,
Savings Bank of Manchester paid a premium totalling $122,500 which is included
in other assets and being amortized over three years which is the term of the
agreement. Amortization for the eight months ended August 31, 1999 totalled
$23,800 and is recorded as an interest expense on advances. The agreement
provides that, if the London Interbank Offered Rate exceeds 7%, Savings Bank of
Manchester receives cash payments on a quarterly basis. There were no cash
payments due at August 31, 1999. Savings Bank of Manchester was not a party to
any interest rate cap arrangements during the years ended December 31, 1998,
1997 and 1996.
Quantitative Aspects of Market Risk. 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
42
<PAGE>
repricing within that same time period. At August 31, 1999, Savings Bank of
Manchester'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 0.89%. A gap is
considered positive when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. Accordingly, during a
period of rising interest rates, Savings Bank of Manchester, having a positive
gap position, would be in a better position to invest in higher yielding assets
which, consequently, may result in the yield on its assets increasing at a pace
that more closely matches the increase in the cost of interest-bearing
liabilities than if it had a negative gap. During a period of falling interest
rates, an institution with a positive gap would tend to have its assets
repricing at a faster rate than one with a negative gap, which consequently, may
tend to restrain the growth of its net income or result in a decrease in
interest income.
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at August 31, 1999, which are
anticipated by Savings Bank of Manchester, based upon certain assumptions, to
reprice or mature in each of the future time periods shown. Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the 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, 1999, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a series of time intervals.
For loans on residential mortgages, adjustable-rate loans, and fixed-rate loans,
prepayment rates were assumed to range from 1% to 50% annually. Mortgage-
related securities were assumed to prepay at rates between 4% and 14% annually.
Investment securities, which include callable federal agency obligations, are
presented based on stated maturities. NOW accounts were assumed to decay at 15%,
15%, 15%, 15%, 15% and 25%, respectively, for each of the following periods:
one year, one to two years, two to three years, three to four years, four to
five years and over five years. Noninterest-bearing demand deposit accounts and
savings accounts were assumed to decay at 10%, 10%, 10%, 10%, 10% and 50%,
respectively, for each of the following periods: one year, one to two years,
two to three years, three to four years, four to five years, and over five
years. Money market accounts were assumed to decay at 40%, 30%, 20%, 10%, 0%
and 0%, respectively, for each of the following periods: one year, one to two
years, two to three years, three to four years, four to five years, and over
five years. Prepayment of deposit rates can have a significant impact on
Savings Bank of Manchester's estimated gap. While Savings Bank of Manchester
believes such assumptions to be reasonable, there can be no assurance that
assumed prepayment rates and decay rates will approximate actual future loan
repayment and deposit withdrawal activity. See "Business of Savings Bank of
Manchester--Lending Activities," "--Investment Activities" and "--Deposit
Activities and Other Sources of Funds."
43
<PAGE>
<TABLE>
<CAPTION>
At August 31, 1999
----------------------------------------------------------------------------------------------
More than More than More than More than
One Year Two Years Three Years Four Years
One Year to to to to More Than Total Fair
or Less Two Years Three Years Four Years Five Years Five Years Amount Value
-------- ----------- -------------- ---------- ----------- ----------- ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities (1):
Investment securities (2)..... $ 52,439 $40,585 $17,223 $12,996 $9,579 $ 9,487 $ 142,309 $142,297
Mortgage-related securities... 7,954 4,869 3,621 3,091 2,643 12,442 34,620 33,887
Equity securities (3)......... 1,264 1,944 1,831 1,400 421 42,449 49,309 49,309
----- ----- ----- ----- --- ------ ------ ------
Total securities........... 61,657 47,398 22,675 17,487 12,643 64,378 226,238 225,493
------ ------ ------ ------ ------ ------ ------- -------
Loans............................ 435,672 97,782 78,107 67,359 69,951 161,612 910,483 912,103
------- ------ ------ ------ ------ ------- ------- -------
Total interest-earning assets. $497,329 $145,180 $100,782 $84,846 $82,594 $225,990 $1,136,721 $1,137,596
======== ======== ======== ======= ======= ======== ========== ==========
Interest-bearing liabilities:
Money market accounts............ $ 23,382 $17,537 $11,690 $ 5,846 $ -- $ -- $ 58,455 $ 58,455
Savings accounts................. 22,693 22,693 22,693 22,693 22,693 113,469 226,934 226,934
Escrow accounts.................. 3,159 -- -- -- -- -- 3,159 3,153
NOW accounts..................... 15,972 15,973 15,972 15,972 15,972 26,621 106,482 106,482
Certificates of deposit.......... 345,528 39,926 21,850 23,050 19,203 -- 449,557 449,375
Advances from Federal
Home Loan Bank................ 36,899 -- -- -- -- 30,000 66,899 65,786
Short-term borrowed funds........ 39,140 29,354 19,569 9,784 -- -- 97,847 97,847
------ ------ ------ ----- ------ ------ ------ ------
Total interest-bearing
liabilities................ $486,773 $125,482 $91,775 $77,345 $57,868 $170,090 $1,009,333 $1,008,032
======== ======== ======= ======= ======= ======== ========== ==========
Interest-earning assets less
interest-bearing liabilities.. $ 10,556 $ 19,698 $ 9,007 $ 7,501 $24,726 $ 55,900 $ 127,388
Cumulative interest-rate
sensitivity gap............... $ 10,556 $ 30,254 $39,261 $46,762 $71,488 $127,388
Cumulative interest-rate gap as
a percentage of total assets.. 0.89% 2.56% 3.32% 3.96% 6.05% 10.78%
Cumulative interest-rate gap as
a percentage of total
interest-earning assets....... 0.89% 2.66% 3.45% 4.11% 6.29% 11.21%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities................... 102.17% 104.94% 105.58% 105.98% 108.52% 112.62%
Cumulative interest-earning
assets........................ $497,329 $642,509 $743,291 $827,137 $910,731 $1,136,721
Cumulative interest-bearing
liabilities................... $486,773 $612,255 $704,030 $781,375 $839,243 $1,009,333
</TABLE>
_________________________________
(1) Includes available for sale at market value and held to maturity at
amortized cost.
(2) Includes Federal funds sold.
(3) Includes Federal Home Loan Bank stock.
44
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Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Savings Bank of Manchester further defines liquidity as
the ability to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities.
Primary sources of funds consist of deposit inflows, loan repayments,
maturities, paydowns, and sales of investment and mortgage-backed securities and
borrowings from the Federal Home Loan Bank of 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.
Savings Bank of Manchester's primary investing activities are (1)
originating residential one-to four-family mortgage loans and, to a lesser
extent, commercial business and real estate loans, multi-family loans, single-
family construction loans, home equity loans and lines of credit and consumer
loans and (2) investing in mortgage-backed securities, U.S. Government and
agency obligations and corporate equity securities and debt obligations. These
activities are funded primarily by principal and interest payments on loans,
maturities of securities, deposit growth and Federal Home Loan Bank of Boston
advances. During the eight months ended August 31, 1999 and the years ended
December 31, 1998 and 1997, Savings Bank of Manchester's loan originations
totalled $268.6 million, $377.6 million, and $291.9 million, respectively. At
August 31, 1999 and December 31, 1998 and 1997, Savings Bank of Manchester's
investments in mortgage-backed securities, U.S. Government and agency
obligations and corporate equity securities and debt obligations totalled $138.5
million, $151.2 million and $112.2 million, respectively. Savings Bank of
Manchester experienced a net increase in total deposits of $32.2 million, $27.4
million and $34.9 million for the eight months ended August 31, 1999 and the
years ended December 31, 1998 and 1997, respectively, primarily as a result of
retail and commercial programs designed to attract deposits. Deposit flows are
affected by the overall level of interest rates, the interest rates and products
offered by Savings Bank of Manchester and its local competitors and other
factors. Savings Bank of Manchester closely monitors its liquidity position on a
daily basis. If Savings Bank of Manchester should require funds beyond its
ability to generate them internally, additional sources of funds are available
through Federal Home Loan Bank advances and through repurchase agreement
borrowing facilities.
Outstanding commitments for all loans and unadvanced construction loans and
lines of credit totalled $184.8 million at August 31, 1999. Management of
Savings Bank of Manchester anticipates that it will have sufficient funds
available to meet its current loan commitments. Certificates of deposit that
are scheduled to mature in one year or less from August 31, 1999 totalled $343.7
million. Savings Bank of Manchester relies primarily on competitive rates,
customer service, and long-standing relationships with customers to retain
deposits. Occasionally, Savings Bank of Manchester will also offer special
competitive promotions to its customers to increase retention and promote
deposit growth. Based upon Savings Bank of Manchester's historical experience
with deposit retention, 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 Savings Bank of Manchester.
Savings Bank of Manchester must satisfy to various regulatory capital
requirements administered by the federal banking agencies including a risk-based
capital measure. The risk-based capital guidelines include both a definition of
capital and a framework for calculating risk-weighted assets by assigning
balance sheet assets and off-balance sheet items to broad risk categories. At
August 31, 1999, Savings Bank of Manchester exceeded all of its regulatory
capital requirements with a leverage capital level of $107.1 million, or 9.1% of
average assets, which is above the required level of $47.3 million, or 4%, and
risk-based capital of $117.2 million, or 14.42% of risk weighted assets, which
is above the required level of $65.0 million, or 8%. Savings Bank of Manchester
is considered "well capitalized" under regulatory guidelines.
The capital from the conversion will significantly increase liquidity and
capital resources. Over time, the initial level of liquidity will be reduced as
net proceeds are used for general corporate purposes, including the funding of
lending activities. Savings Bank of Manchester's financial condition and
results of operations will be enhanced by the capital from the conversion,
resulting in increased net interest-earning assets and net income. However, due
to the large increase in equity resulting from the capital injection, return on
equity will be adversely impacted following the
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conversion. See "Risk Factors--Savings Bank of Manchester's lower than average
return on equity may decrease the market price of the common stock."
Year 2000 Readiness
The Year 2000 issue refers to the potential failure of computer systems and
applications as a result of programs using only two digits to identify a year in
the date field. If not corrected, many computer systems and applications could
fail or create erroneous results by, at or after the Year 2000. Savings Bank of
Manchester established a Year 2000 team to evaluate and assess Savings Bank of
Manchester's exposure to Year 2000 issues and developed a plan consisting of
five phases. These phases include awareness, risk assessment, renovation,
validation or testing, and implementation.
The awareness phase consisted of defining the Year 2000 problem, developing
the necessary resources to perform compliance testing, establishing a Year 2000
program team, and developing an overall strategy that encompasses in-house
systems, service bureaus, vendors, customers and suppliers. Savings Bank of
Manchester substantially completed the awareness phase of the Year 2000 project
in March 1998.
The assessment phase required Savings Bank of Manchester to evaluate the
size and complexity of the problem and detail the magnitude of the effort
necessary to address Year 2000 issues. The objective of this phase was to
identify all hardware, software, networks, automated teller machines, other
various processing platforms and customer and vendor dependencies affected by
the Year 2000 date change. The assessment phase went beyond information systems
and included environmental systems that are dependent on embedded microchips,
such as security systems, elevators, sprinkler systems, alarms and vaults. The
assessment phase was substantially completed in September 1998, but is
continually monitored by Savings Bank of Manchester.
Savings Bank of Manchester maintains an internal computer system for its
operating functions and a substantial majority of Savings Bank of Manchester's
data processing is provided by a core banking software system that is supported
by a third party vendor. Savings Bank of Manchester recognizes that its ability
to be Year 2000 compliant is dependent upon the cooperation of its vendors and
other third parties. Savings Bank of Manchester is requiring its computer
systems and software vendors to represent that the products provided are or will
be Year 2000 compliant and have planned a program for testing for compliance.
Savings Bank of Manchester utilizes these representations from its computer
system and software vendors for the purpose of determining the vendors' Year
2000 readiness. Upon receiving such representations, Savings Bank of Manchester
then determines the need for replacement of or remediations to each particular
vendor's system. Rather than solely relying on representations from its
vendors, Savings Bank of Manchester independently tests both critical and non-
critical vendor applications. Savings Bank of Manchester has received
representations from its primary third party data processing vendor confirming
the Year 2000 compliance of that vendor's internally developed programs.
Remaining internal and external programs have been converted to Year 2000
compliant versions. Savings Bank of Manchester began testing the core banking
system renovated programs in November 1998. Savings Bank of Manchester has
completed testing of its critical vendors' computer applications and believes
that all identified Year 2000 issues have been addressed. Management believes
that all remaining Year 2000 testing, including testing of non-critical systems,
has been completed and any problems identified have been addressed.
The renovation phase includes the remediation of any systems identified in
the awareness phase as not Year 2000 compliant. For institutions relying on
outside servicers or third-party software providers, ongoing discussions and
monitoring of vendor progress is necessary. Savings Bank of Manchester
completed activities related to the renovation phase in July 1999. Most of
Savings Bank of Manchester's systems are vendor supplied or supported and are
being remediated by the vendors. Savings Bank of Manchester's primary software
vendor has provided Savings Bank of Manchester with a Year 2000 ready release
that has been installed. This release has been tested and validated by Savings
Bank of Manchester.
Savings Bank of Manchester has substantially completed its validation or
testing phase with the primary focus being on the core software that runs basic
banking applications. Testing of mission critical systems was substantially
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completed as of January 1999. Further testing with mission critical vendors and
other significant third party vendors was completed by July 1999. To date,
Savings Bank of Manchester has not identified any Year 2000 problems with any of
its systems that would have a material adverse impact upon its operations.
Testing will continue as needed on newly acquired applications and vendor
upgrades. In addition, Savings Bank of Manchester has designated an internal
independent group to validate the test plan and test results. The validation
was completed by July 1999 without any material exceptions.
The implementation phase is the final Year 2000 activity. Only after
passing the validation phase where the hardware and software have been tested
and where the tests have been validated will the hardware and software be
certified as implemented and placed in service for the year 2000. If any system
fails the certification test, Savings Bank of Manchester will assess the impact
and implement the contingency plan developed for that application. Savings Bank
of Manchester's primary internal technological systems, including the core
processing system, teller equipment, and local area network have already been
placed in service. All critical systems have been implemented.
Savings Bank of Manchester 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.
Savings Bank of Manchester has determined that Year 2000 readiness issues have
little or no impact on Savings Bank of Manchester's one- to four-family lending
relationships. However, Savings Bank of Manchester views Year 2000 compliance
as an integral part of the commercial loan credit analysis and underwriting
process. Therefore, and as warranted by the type and nature of a particular
loan request, Savings Bank of Manchester reviews and assesses the impact of Year
2000 on an applicant's business and any factors that may limit the applicant's
ability to repay the debt. Additionally, an assessment is made on the potential
effect that vendors, suppliers and customers, who fail to remediate Year 2000
risks, might have on the applicant's business. Based upon the results of the
review and analysis, a determination is then made as to whether or not it is
necessary to require the applicant to develop a formal program to address Year
2000 issues and to report the progress of such a program to Savings Bank of
Manchester. In situations that warrant formal programs and monitoring, this
requirement becomes a condition of the terms for granting the loan.
Additionally, Savings Bank of Manchester has completed its efforts to contact
and survey all of its existing commercial borrowers with lending relationships
having aggregate exposure exceeding $250,000. The majority of credits
represented by these relationships are comprised of multi-family and commercial
real estate loans. All 127 borrowers in this category responded to a
comprehensive questionnaire either in writing or by telephone. Based upon the
responses and analysis of the type of business operations that each borrower
conducts, Savings Bank of Manchester concluded that the effect of Year 2000
issues on these credits do not pose a material risk to Savings Bank of
Manchester.
Savings Bank of Manchester has budgeted approximately $3.8 million in
connection with the costs associated with achieving Year 2000 compliance. As of
August 31, 1999, Savings Bank of Manchester expended approximately $3.7 million
on Year 2000 issues.
The impact of Year 2000 on Savings Bank of Manchester will depend not only
on corrective actions taken by Savings Bank of Manchester, but also on the way
in which Year 2000 issues are addressed by parties that provide services or data
to, or receive services or data from, Savings Bank of Manchester, or whose
financial condition or operational capability is important to Savings Bank of
Manchester. To reduce this exposure, Savings Bank of Manchester has an ongoing
process of identifying and contacting mission critical third-party vendors and
other significant third-party vendors to determine their Year 2000 plans and
target dates. Notwithstanding Savings Bank of Manchester's efforts, there can
be no assurance that mission critical third-party vendors or other significant
third-party vendors will adequately address their Year 2000 issues.
Savings Bank of Manchester has developed contingency plans for
implementation in the event that mission critical third party vendors fail to
adequately address Year 2000 issues. The contingency plans involve identifying
alternate vendors or internal remediation. There can be no assurance that these
plans will eliminate any failures or problems. Furthermore, there may be
certain mission critical third parties, such as utilities and telecommunications
companies, where alternate arrangements or sources are limited or unavailable.
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Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this
prospectus have been prepared in conformity with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and liabilities of Savings
Bank of Manchester are monetary in nature. As a result, interest rates have a
more significant impact on Savings Bank of Manchester's performance than the
general level of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude as inflation.
Impact of New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities. Effective
January 1, 1999, Connecticut Bankshares, M.H.C. adopted Statement of Financial
Accounting Standards ("SFAS") No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise, an amendment of SFAS No. 65." This statement
requires that after the securitization of mortgage loans held for sale, an
entity engaged in mortgage banking activities shall classify the resulting
mortgage-backed securities or other retained interests based on its ability and
intent to sell or hold those investments. The adoption had no effect on
Connecticut Bankshares, M.H.C.'s financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB")issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations and requires that an entity formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. This statement was amended by SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." As a result, SFAS No. 133 will be effective in 2001 for
Connecticut Bancshares. Management does not expect that the adoption of this
statement will have a material impact on Connecticut Bancshares' financial
position or results of operations.
BUSINESS OF CONNECTICUT BANKSHARES, M.H.C.
Connecticut Bankshares, M.H.C. is a mutual holding company that was created
when Savings Bank of Manchester reorganized into the mutual holding company form
of organization in 1996. Connecticut Bankshares, M.H.C. is registered with the
Federal Reserve Board as a bank holding company under the Bank Holding Company
Act of 1956, as amended. Since the formation of Connecticut Bankshares, M.H.C.,
it has owned 100% of Savings Bank of Manchester's outstanding capital stock.
After consummation of the conversion, Connecticut Bankshares, M.H.C. will cease
to exist.
In addition to the capital stock of Savings Bank of Manchester, Connecticut
Bankshares, M.H.C.'s assets consist of $50,000 in cash as of August 31, 1999.
Connecticut Bankshares, M.H.C. is subject to regulation and supervision by the
Federal Reserve Bank and the State of Connecticut Department of Banking. At the
present time, Connecticut Bankshares, M.H.C. does not employ any persons other
than certain officers who are also officers of Savings Bank of Manchester but
uses the support staff of Savings Bank of Manchester from time to time.
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BUSINESS OF CONNECTICUT BANCSHARES
General
Connecticut Bancshares was organized as a Delaware business corporation at
the direction of Savings Bank of Manchester in October 1999 to become the
holding company for Savings Bank of Manchester upon completion of the
conversion. As a result of the conversion, Savings Bank of Manchester will be a
wholly owned subsidiary of Connecticut Bancshares, which will own all of the
issued and outstanding capital stock of Savings Bank of Manchester.
Business
Before the completion of the conversion, Connecticut Bancshares will not
engage in any significant activities other than of an organizational nature.
Upon completion of the conversion, Connecticut Bancshares' business activity
will be the ownership of the outstanding capital stock of Savings Bank of
Manchester and management of the investment of offering proceeds retained from
the conversion. In the future, Connecticut Bancshares may acquire or organize
other operating subsidiaries; however, there are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, Connecticut Bancshares will neither own nor lease any property
but will instead use the premises, equipment and other property of Savings Bank
of Manchester with the payment of appropriate rental fees, as required by
applicable law and regulations.
Since Connecticut Bancshares will hold the outstanding capital stock of
Savings Bank of Manchester after the conversion, the competitive conditions
applicable to Connecticut Bancshares will be the same as those confronting
Savings Bank of Manchester. See "Business of Savings Bank of Manchester--
Competition."
BUSINESS OF SAVINGS BANK OF MANCHESTER
General
Savings Bank of Manchester was founded in 1905 as a Connecticut-chartered
mutual savings bank. In 1996, Savings Bank of Manchester converted to stock
form as part of the Connecticut Bankshares, M.H.C. mutual holding company
formation. Savings Bank of Manchester is regulated by the State of Connecticut
Department of Banking and the Federal Deposit Insurance Corporation. Savings
Bank of Manchester's deposits are insured to the maximum allowable amount by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation. Savings Bank
of Manchester has been a member of the Federal Home Loan Bank System since 1977.
Savings Bank of Manchester is a traditional savings association that
accepts retail deposits from the general public in the areas surrounding its 23
full-service banking offices and uses those funds, together with funds generated
from operations and borrowings, to originate residential mortgage loans,
commercial loans and consumer loans, primarily home equity loans and lines of
credit. Savings Bank of Manchester primarily holds the loans that it originates
for investment. However, Savings Bank of Manchester also sells loans, primarily
fixed-rate mortgage loans, in the secondary market, while generally retaining
the servicing rights. See "--Lending Activities." Savings Bank of Manchester
also invests in mortgage-backed securities, debt and equity securities and other
permissible investments. Savings Bank of Manchester'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 and mortgage-backed
securities. Savings Bank of Manchester's primary sources of funds are deposits,
principal and interest payments on loans and investments and mortgage-backed
securities and advances from the Federal Home Loan Bank of Boston.
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Market Area
Savings Bank of Manchester is headquartered in Manchester, Connecticut in
Hartford County. Savings Bank of Manchester's primary deposit gathering and
lending areas are concentrated in the communities surrounding its 23 banking
offices located in Hartford, Tolland and Windham counties.
Hartford County is located in central Connecticut approximately two hours
from both Boston and New York City and contains the City of Hartford. The
region serves as the governmental and as a financial center of Connecticut.
Hartford County has a diversified mix of industry groups, including insurance
and financial services, manufacturing, service, government and retail. The
major employers in the area include several prominent international and national
insurance and manufacturing companies, such as Aetna, Inc., The Hartford
Financial Services Group, Inc., Travelers Property Casualty Corp., United
Technologies Corp., Stanley Works, as well as many regional banks and the State
of Connecticut. According to published statistics, Hartford County's 1998
population was approximately 825,000 and consisted of approximately 315,000
households. The population decreased approximately 3.1% from 1990. Per capita
income in 1998 for Hartford County was approximately $24,000, which was less
than the Connecticut average of approximately $27,000 but significantly higher
than the national average of $18,000. Likewise, 1998 median household income
for Hartford County was $48,000 compared to approximately $52,400 for
Connecticut and $38,100 for the U.S.
Connecticut is in the midst of a broad-based recovery from the severe
recession experienced in the New England region in the late 1980s and early
1990s. This is evidenced by the state's 3.4% unemployment rate and personal
income growth of 3.90%. Connecticut and in particular, Hartford County continue
to reflect personal wealth characteristics above national averages.
Furthermore, the gross domestic product growth figures for the state compare
favorably with the national statistics and single-family home sales increased
14.2% from 1997 to 1998. However, Connecticut has a high number of finance,
insurance, real estate and export related manufacturing jobs. As a result, the
state's employment may be more affected by the national financial market and, to
a lesser extent, international economies.
Competition
Savings Bank of Manchester faces intense competition for the attraction of
deposits and origination of loans in its primary market area. Savings Bank of
Manchester's most direct competition for deposits has historically come from the
several commercial and savings banks operating in its primary market area and,
to a lesser extent, from other financial institutions, such as brokerage firms,
credit unions and insurance companies. While these entities continue to provide
a source of competition for deposits, Savings Bank of Manchester increasingly
faces significant competition for deposits from the mutual fund industry as
customers seek alternative sources of investment for their funds. Savings Bank
of Manchester also faces significant competition for investors' funds from their
direct purchase of short-term money market securities and other corporate and
government securities. While Savings Bank of Manchester faces competition for
loans from the significant number of traditional financial institutions,
primarily savings banks and commercial banks in its market area, its most
significant competition comes from other financial service providers, such as
the mortgage companies and mortgage brokers operating in its primary market
area. Additionally, competition is likely to increase as a result of recent
regulatory actions and legislative changes. These changes have eased and likely
will continue to ease restrictions on interstate banking and the entrance into
the financial services market by non-depository and non-traditional financial
services providers, including insurance companies, securities brokerage and
underwriting firms and specialty financial services companies (such as internet-
based providers). Competition for deposits, for the origination of loans and
the provision of other financial services may limit Savings Bank of Manchester's
growth in the future. See "Risk Factors--Competition has hurt Savings Bank of
Manchester's net interest income."
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Lending Activities
General. The types of loans that Savings Bank of Manchester may originate
are limited by federal and state laws and regulations. Interest rates charged
by Savings Bank of Manchester on loans are affected principally by Savings Bank
of Manchester's current asset/liability strategy, the demand for such loans, the
supply of money available for lending purposes and the rates offered by
competitors. These factors, in turn, are affected by general and economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters.
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Loan Portfolio Analysis. The following table sets forth the composition of
Savings Bank of Manchester's loan portfolio in dollar amounts and as a
percentage of the portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At August 31, ---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------------- ---------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent Percent
of of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total Amount Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Real estate loans:
One- to four-family... $519,960 57.11% $464,623 56.85% $489,105 60.53% $457,168 61.66% $431,208 61.23% $408,124 59.11%
Construction (1)...... 43,989 4.83 35,860 4.39 23,524 2.90 16,900 2.27 15,804 2.25 15,184 2.20
Commercial and multi-
family............. 142,118 15.60 131,717 16.11 117,622 14.55 104,364 14.07 105,050 14.92 121,374 17.57
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total real estate
loans............ 706,067 77.54 632,200 77.35 630,251 77.98 578,432 78.00 552,062 78.39 544,682 78.87
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Commercial loans......... 131,362 14.43 114,650 14.03 106,874 13.22 97,117 13.10 86,975 12.35 76,809 11.12
------- ----- ------- ----- ------- ----- ------ ----- ------ ----- ------ -----
Consumer loans:
Home equity loans and
lines of credit.. 22,144 2.43 21,605 2.64 20,559 2.54 18,959 2.56 16,796 2.38 16,755 2.43
Other................. 50,910 5.60 48,917 5.98 50,553 6.26 47,071 6.34 48,448 6.88 52,389 7.58
------ ---- ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total consumer
loans............ 73,054 8.03 70,522 8.62 71,112 8.80 66,030 8.90 65,244 9.26 69,144 10.01
------ ---- ------ ---- ------ ---- ------ ---- ------ ---- ------ -----
Total loans........ 910,483 100.00% 817,372 100.00% 808,237 100.00% 741,579 100.00% 704,281 100.00% 690,635 100.00%
====== ====== ====== ====== ====== ======
Allowance for loan
losses............. (10,791) (10,585) (9,945) (9,131) (8,484) (7,691)
------- ------- ------ ------ ------ ------
Total loans, net... $899,692 $806,787 $798,292 $732,448 $695,797 $682,944
======== ======== ======== ======== ======== ========
- -------------------------------------
</TABLE>
(1) Includes residential and commercial real estate loans.
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One- to Four-Family Real Estate Loans. Savings Bank of Manchester's
primary lending activity is to originate loans secured by one- to four-family
residences located in its primary market area. At August 31, 1999, $520.0
million, or 57.1%, of Savings Bank of Manchester's total loans consisted of one-
to four-family mortgage loans. Of the one- to four-family loans outstanding at
that date, 53.0% were fixed-rate mortgage loans and 47.0% were adjustable-rate
loans.
Savings Bank of Manchester originates fixed-rate fully amortizing loans
with maturities ranging between ten and 30 years. Management establishes the
loan interest rates based on market conditions. Savings Bank of Manchester
offers mortgage loans that conform to Fannie Mae and Freddie Mac guidelines, as
well as jumbo loans, which presently are loans in amounts over $240,000. Fixed-
rate conforming loans are generally originated for portfolio. However, such
loans may be sold by Savings Bank of Manchester from time to time. The
determination of whether to sell loans is determined periodically by management
in response to changes in prevailing market interest rates. Loans that are sold
are generally sold to Freddie Mac, with the servicing rights retained.
Savings Bank of Manchester also currently offers adjustable-rate mortgage
loans, with an interest rate based on the one year Constant Maturity Treasury
Bill index, which adjust annually from the outset of the loan or which adjust
annually after a three or five year initial fixed period and with terms of up to
30 years. Interest rate adjustments on such loans are limited to no more than
2% during any adjustment period and 6% over the life of the loan. Adjustable-
rate loans may possess a conversion option, whereby the borrower, at his or her
option, can convert the loan to a fixed interest rate after a predetermined
period of time, generally within the first 60 months of the loan term. Included
in Savings Bank of Manchester's adjustable-rate mortgage loan portfolio is a
type of adjustable-rate loan which is originated at an interest rate below the
fully-indexed rate. During 1998, Savings Bank of Manchester originated $20.4
million of these discounted adjustable-rate mortgage loans, or 2.2% of the total
loan portfolio and had an average yield of 5.41%. The time period in which such
loans will reprice to their fully indexed rate may be longer than Savings Bank
of Manchester's other fully-indexed adjustable-rate loans. However, Savings
Bank of Manchester's experience is that these discounted adjustable-rate loans
tend to be more stable and less susceptible to prepayment activity in a falling
interest rate environment and less subject to default in a rising interest
environment.
Adjustable-rate mortgage loans help reduce Savings Bank of Manchester's
exposure to changes in interest rates. There are, however, unquantifiable credit
risks resulting from the potential of increased costs due to changed rates to be
paid by borrowers. It is possible that during periods of rising interest rates
the risk of default on adjustable-rate mortgage loans may increase as a result
of repricing and the increased payments required to be paid by borrowers. In
addition, although adjustable-rate mortgage loans allow Savings Bank of
Manchester to increase the sensitivity of its asset base to changes in interest
rates, the extent of this interest sensitivity is limited by the annual and
lifetime interest rate adjustment limits. Because of these considerations
Savings Bank of Manchester has no assurance that yields on adjustable-rate
mortgage loans will be sufficient to offset increases in Savings Bank of
Manchester's cost of funds during periods of rising interest rates. Savings Bank
of Manchester believes these risks, which have not had a material adverse effect
on Savings Bank of Manchester to date, generally are less than the risks
associated with holding fixed-rate loans in its portfolio in a rising interest
rate environment.
Savings Bank of Manchester underwrites fixed- and variable-rate one- to
four-family residential mortgage loans with loan-to-value ratios of up to 97%
and 95%, respectively, provided that a borrower obtains private mortgage
insurance on loans that exceed 80% of the appraised value or sales price,
whichever is less, of the secured property. Savings Bank of Manchester also
requires fire, casualty, title, hazard insurance and, if appropriate, flood
insurance be maintained on all properties securing real estate loans made by
Savings Bank of Manchester. An independent licensed appraiser generally
appraises all properties.
In an effort to provide financing for moderate income and first-time home
buyers, Savings Bank of Manchester offers FHA and CHFA (Connecticut Housing
Finance Authority) loans and has its own First-Time Home Buyer loan program.
These programs offer residential mortgage loans to qualified individuals. These
loans are offered with adjustable- and fixed-rates of interest and terms of up
to 30 years. Such loans may be secured by one- to four-family residential
property, in the case of FHA and CHFA loans, and must be secured by a single
family owner-occupied unit in the case of First-Time Home Buyer loans. All of
these loans are originated using modified
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underwriting guidelines. FHA loans are closed in the name of Savings Bank of
Manchester and immediately sold on the secondary market to Countrywide Mortgage
Company with the loan servicing released. CHFA loans are immediately assigned
after closing to the Connecticut Housing Finance Authority with servicing rights
retained by Savings Bank of Manchester. Countrywide Mortgage and CHFA establish
their respective rates and terms upon which such loans are offered. First-Time
Home Buyer loans are offered with a discounted interest rate (approximately 50
basis points) and usually with no application or loan origination fees. All such
loans are originated in amounts of up to 97% of the lower of the property's
appraised value or the sale price. Private mortgage insurance is required on all
such loans.
Savings Bank of Manchester also offers its full-time employees who satisfy
certain criteria and the general underwriting standards of Savings Bank of
Manchester fixed and adjustable-rate mortgage loans with reduced interest rates
which are currently 100 basis points below the rates offered to Savings Bank of
Manchester's other customers. The Employee Mortgage Rate is limited to the
purchase, construction or refinancing of an employee's owner-occupied primary
residence. The Employee Mortgage Rate normally ceases upon termination of
employment or if the property no longer is the employee's primary residence.
Upon termination of the Employee Mortgage Rate, the interest rate reverts to the
contract rate in effect at the time that the loan was extended. All other terms
and conditions contained in the original mortgage and note continue to remain in
effect. As of August 31, 1999, Savings Bank of Manchester had $8.3 million of
Employee Mortgage Rate loans, or 0.9% of total loans.
Construction Loans. Savings Bank of Manchester originates construction
loans to individuals for the construction and acquisition of personal
residences. At August 31, 1999, residential construction loans amounted to
$11.4 million, or 1.3% of Savings Bank of Manchester's total loans. At August
31, 1999, the unadvanced portion of construction loans totalled $6.4 million.
Savings Bank of Manchester's residential construction loans generally
provide for the payment of interest only during the construction phase, which is
usually twelve months. At the end of the construction phase, the loan converts
to a permanent mortgage loan. Loans can be made with a maximum loan to value
ratio of 90%, provided that the borrower obtains private mortgage insurance on
the loan if the loan balance exceeds 80% of the appraised value or sales price,
whichever is less, of the secured property. At August 31, 1999, the largest
outstanding residential construction loan commitment was for $408,000, $366,000
of which was outstanding. This loan was performing according to its terms at
August 31, 1999. Construction loans to individuals are generally made on the
same terms as Savings Bank of Manchester's one- to four-family mortgage loans.
Before making a commitment to fund a residential construction loan, Savings
Bank of Manchester requires an appraisal of the property by an independent
licensed appraiser. Savings Bank of Manchester also reviews and inspects each
property before disbursement of funds during the term of the construction loan.
Loan proceeds are disbursed after inspection based on the percentage of
completion method.
Savings Bank of Manchester also originates residential development loans
primarily to finance the construction of single-family homes and subdivisions.
These loans are generally offered to experienced builders with whom Savings Bank
of Manchester has an established relationship. Residential development loans
are typically offered with terms of up to 24 months. The maximum loan-to-value
limit applicable to these loans is 80% for contract sales and 70% for
speculative properties. Construction loan proceeds are disbursed periodically
in increments as construction progresses and as inspection by Savings Bank of
Manchester's approved appraisers warrants. At August 31, 1999, Savings Bank of
Manchester's largest residential development loan was a performing loan for $4.1
million secured by a retirement facility located in Southwick, Massachusetts.
That facility is part of a larger development, which also has a loan in the
amount of $563,000 secured by eight residential units which matured on June 30,
1999. Interest payments have been kept current on the latter loan, and such loan
will be repaid from either the sale or refinancing of those units. At August
31, 1999, residential development loans totalled $24.8 million, or 2.7% of
Savings Bank of Manchester's total loans.
Savings Bank of Manchester also makes construction loans for commercial
development projects. The projects include multi-family, apartment, industrial,
retail and office buildings. These loans generally have an interest-
54
<PAGE>
only phase during construction then convert to permanent financing. Disbursement
of funds are at the sole discretion of Savings Bank of Manchester and are based
on the progress of construction. The maximum loan-to-value limit applicable to
these loans is 75%. At August 31, 1999, commercial construction loans totalled
$7.8 million, or 0.9%, of total loans.
Savings Bank of Manchester also 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 70% of the lower of the acquisition price
or the appraised value of the land and have a term of up to two years with a
floating interest rate based on Savings Bank of Manchester's internal base rate.
Savings Bank of Manchester's land loans are generally secured by property in its
primary market area. Savings Bank of Manchester 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. If the estimate of construction cost proves
to be inaccurate, Savings Bank of Manchester may be required to advance funds
beyond the amount originally committed in order to protect the value of the
property. Additionally, if the estimate of value proves to be inaccurate,
Savings Bank of Manchester may be confronted with a project, when completed,
having a value which is insufficient to assure full repayment.
Commercial and Multi-Family Real Estate Loans. Savings Bank of Manchester
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 Savings Bank of Manchester's primary
market area. At August 31, 1999, Savings Bank of Manchester had $142.1 million
in commercial and multi-family real estate loans which amounted to 15.6% of
total loans. Savings Bank of Manchester's multi-family and commercial real
estate underwriting policies provide that such real estate loans may be made in
amounts of up to 75% of the appraised value of the property provided such loan
complies with Savings Bank of Manchester's current loans-to-one-borrower limit,
which at August 31, 1999 was $19.3 million. Savings Bank of Manchester'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 one year Constant Maturity Treasury Bill index. In reaching its
decision on whether to make a multi-family or commercial real estate loan,
Savings Bank of Manchester 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, Savings Bank of Manchester will also consider the term of the lease
and the quality of the tenants. Savings Bank of Manchester 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 1.20x. Environmental surveys are generally required for commercial
real estate loans. Generally, multi-family and commercial real estate loans
made to corporations, partnerships and other business entities require personal
guarantees by the principals. The largest multi-family or commercial real
estate loan in Savings Bank of Manchester's portfolio at August 31, 1999 was a
performing $4.6 million real estate loan secured by two separate multi-tenant
retail buildings located in Middletown and Newington, Connecticut.
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 affected by adverse conditions in the real estate market or
the economy. Savings Bank of Manchester seeks to minimize these risks through
its underwriting standards. See "Risk Factors--Savings Bank of Manchester's
increased emphasis on commercial lending may hurt both asset quality and
profits."
55
<PAGE>
Commercial Loans. At August 31, 1999, Savings Bank of Manchester had
$131.4 million in commercial loans which amounted to 14.4% of total loans. In
addition, at such date, Savings Bank of Manchester had $53.4 million of
unadvanced commercial lines of credit. Savings Bank of Manchester makes
commercial business loans primarily in its market area to a variety of
professionals, sole proprietorships and small businesses. Savings Bank of
Manchester 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 Savings Bank of Manchester's loans-
to-one-borrower limit which at August 31, 1999, was $19.3 million. Term loans
are generally offered with initial fixed rates of interest for the first five
years and with terms of up to ten 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 daily
basis and are indexed to Savings Bank of Manchester's internal base rate.
When making commercial business loans, Savings Bank of Manchester considers
the financial statements of the borrower, Savings Bank of Manchester'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 accounts receivable, inventory and equipment, and are supported by
personal guarantees. Depending on the collateral used to secure the loans,
commercial loans are made in amounts of up to 90% of the value of the collateral
securing the loan. Savings Bank of Manchester generally does not make unsecured
commercial loans.
Unlike residential 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 depend substantially 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--Savings Bank of Manchester's increased emphasis on commercial lending
may hurt both asset quality and profits." At August 31, 1999, Savings Bank of
Manchester's largest commercial loan was a $3.3 million loan secured by
commercial real estate located in Windham, Connecticut and operating as a
mobile home park. This loan was performing according to its original terms at
August 31, 1999.
Consumer Loans. Savings Bank of Manchester offers a variety of consumer
loans, including second mortgage loans and home equity lines of credit, both of
which are secured by owner-occupied one- to four-family residences. At August
31, 1999, second mortgage loans and equity lines of credit totalled $22.1
million, or 2.4% of Savings Bank of Manchester's total loans and 30.3% of
consumer loans. Additionally, at August 31, 1999, the unadvanced amounts of
home equity lines of credit totalled $23.3 million. The underwriting standards
employed by Savings Bank of Manchester for second mortgage loans and equity
lines of credit include a determination of the applicant's credit history, 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. Home
equity lines of credit have adjustable rates of interest which are indexed to
the prime rate as reported in The Wall Street Journal. Interest rate
adjustments on home equity lines of credit are limited to no more than a maximum
of 18%. Generally, the maximum loan-to-value ratio on home equity lines of
credit is 90%. A home equity line of credit may be drawn down by the borrower
for a period of 10 years from the date of the loan agreement. During this
period, the borrower has the option of paying, on a monthly basis, either
principal and interest or only the interest. The borrower has to pay back the
amount outstanding under the line of credit at the end of a 20 year period.
Savings Bank of Manchester offers fixed- and adjustable-rate second mortgage
loans with terms up to 20 years. The loan-to-value ratios of both fixed-rate
and adjustable-rate home equity loans are generally limited to 90%.
Savings Bank of Manchester offers fixed-rate automobile loans for new or
used vehicles with terms of up to 72 months and loan-to-value ratios of the
lesser of the purchase price or the retail value shown in the NADA Used Car
Guide. At August 31, 1999, automobile loans totalled $10.6 million, or 1.2% of
Savings Bank of Manchester's total loans and 14.5% of consumer loans. For the
eight months ended August 31, 1999 and for fiscal 1998, Savings Bank of
Manchester originated $4.0 million and $5.2 million of automobile loans,
respectively.
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<PAGE>
Other consumer loans at August 31, 1999 amounted to $40.3 million, or 4.4%
of Savings Bank of Manchester's total loans and 55.2% of consumer loans. These
loans include unsecured personal loans, collateral loans, credit card loans and
education loans. Unsecured personal loans generally have a fixed-rate, a
maximum borrowing limitation of $25,000 and a maximum term of five years.
Collateral loans are generally secured by a passbook account, a certificate of
deposit or marketable securities.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Loans to One Borrower. The maximum amount that Savings Bank of Manchester
may lend to one borrower is limited by statute. At August 31, 1999, Savings Bank
of Manchester's statutory limit on loans to one borrower was $19.3 million. At
that date, Savings Bank of Manchester's largest amount of loans to one borrower,
including the borrower's related interests, was approximately $7.7 million and
consisted of ten loans secured by various residential and commercial properties.
These loans were performing according to their original terms at August 31,
1999.
Maturity of Loan Portfolio. The following table shows the remaining
contractual maturity of Savings Bank of Manchester's total loans at August 31,
1999, excluding the effect of future principal prepayments.
<TABLE>
<CAPTION>
At August 31, 1999
---------------------------------------------------------------------------------
Commercial
and
One- to Multi-Family
four-family (1) Construction (2) Real Estate Commercial Consumer Total
--------------- ---------------- ------------ ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less....................... $ 1,334 $18,419 $ 8,050 $ 47,588 $ 3,980 $ 79,371
After one year:
More than one year to
three years........................ 2,996 7,472 3,304 16,403 6,013 36,188
More than three years
to five years...................... 14,193 -- 6,639 21,616 7,234 49,682
More than five years
to 10 years........................ 36,716 425 23,309 21,693 6,322 88,465
More than 10 year to
15 years........................... 83,792 1,650 40,434 8,459 42 134,377
More than 15 years.................. 430,357 16,023 60,382 15,603 35 522,400
-------- ------- -------- -------- ------- --------
Total amount due................. $569,388 $43,989 $142,118 $131,362 $23,626 $910,483
======== ======= ======== ======== ======= ========
</TABLE>
- --------------
(1) Includes home equity loans and lines of credit and second mortgages on
one- to four-family residences.
(2) Includes residential and commercial real estate loans.
57
<PAGE>
The following table sets forth, at August 31, 1999, the dollar amount of
loans contractually due after August 31, 2000, and whether such loans have fixed
interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After August 31, 2000
-------------------------------
Fixed Adjustable Total
--------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family (1)........ $345,295 $222,759 $568,054
Construction (2)............... 10,870 14,700 25,570
Commercial and multi-family.... 12,643 121,425 134,068
-------- -------- --------
Total real estate loans..... 368,808 358,884 727,692
Commercial loans.................. 31,040 52,734 83,774
Consumer loans.................... 17,936 1,710 19,646
-------- -------- --------
Total loans............... $417,784 $413,328 $831,112
======== ======== ========
</TABLE>
- ----------
(1) Includes home equity loans and lines of credit and second mortgages on
one- to four-family residences.
(2) Includes residential and commercial real estate loans.
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Savings Bank of Manchester the right to declare loans
immediately due and payable if, among other things, the borrower sells the real
property with the mortgage and the loan is not repaid. The average life of a
mortgage loan tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, tends to decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
Loan Approval Procedures and Authority. Savings Bank of Manchester's
lending activities follow written, non-discriminatory, underwriting standards
and loan origination procedures established by Savings Bank of Manchester's
Board of Directors and management. Savings Bank of Manchester's policies and
loan approval limits are established by management and are approved by the Board
of Directors. The Board of Directors has designated certain individuals of
Savings Bank of Manchester and certain branch managers to consider and approve
loans within their designated authority.
The Board of Directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: All one- to four-family
mortgage loans secured by the borrower's primary residence in amounts of up to
$400,000 and all residential construction and second mortgage loans and home
equity lines of credit in amounts of up to $250,000 may be approved by any two
designated individuals. All residential construction and second mortgage loans
and home equity lines of credit in excess of $250,000 and up to $400,000 require
the approval of Savings Bank of Manchester's loan committee. All residential
loans in excess of $400,000 and up to $1.0 million require the approval of
Savings Bank of Manchester's loan committee; and all residential loans in excess
of $1.0 million require the approval of the Executive Committee of the Board of
Directors.
All commercial loans, including commercial real estate loans, multifamily
loans, commercial construction and development loans and commercial business
loans in amounts of up to $350,000 may be approved by any two of the designated
individuals. All commercial loans in excess of $350,000 and up to $1.0 million
require the approval of Savings Bank of Manchester's loan committee; and all
commercial loans in excess of $1.0 million require the approval of the Executive
Committee of the Board of Directors.
With regard to consumer loans, automobile loans in amounts of up to $50,000
and unsecured personal loans in amounts of up to $25,000 may be approved by
either one or two of the designated individuals depending on the credit score;
automobile loans in excess of $50,000 and unsecured personal loans in excess of
$25,000 must be approved by
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<PAGE>
Savings Bank of Manchester's loan committee. Collateral loans of up to $25,000
may be approved by any branch manager.
Loan Originations, Purchases and Sales. Savings Bank of Manchester lending
activities are conducted by its salaried and commissioned loan personnel and
through non-bank third-party correspondents. Currently, Savings Bank of
Manchester uses 16 loan originators who solicit and originate mortgage loans on
behalf of Savings Bank of Manchester. These loan originators accounted for
approximately three-quarters of the adjustable-rate and fixed-rate mortgage
loans originated by Savings Bank of Manchester in the first eight months of
1999. Loan originators are compensated by a commission that is based upon the
origination fee charged to the borrower less payment of a portion of such
origination fee to Savings Bank of Manchester, which currently is 60 basis
points of the loan amount. All loans originated by the loan originators are
underwritten in conformity with Savings Bank of Manchester's loan underwriting
policies and procedures. At August 31, 1999, Savings Bank of Manchester
serviced $213.2 million of loans for others.
From time to time, Savings Bank of Manchester will purchase loans or
participations in loans, primarily secured by one- to four-family residential
properties located outside of Savings Bank of Manchester's primary market area,
usually Fairfield County, Connecticut or Massachusetts. Purchased loans are
underwritten according to Savings Bank of Manchester's own underwriting criteria
and procedures and are generally purchased without the accompanying servicing
rights. Amounts outstanding related to loan purchases and participation
interests totalled $56.9 million and $51.0 million at August 31, 1999 and
December 31, 1998, respectively.
Substantially all of Savings Bank of Manchester's adjustable-rate mortgage
loans are originated for investment. Historically, Savings Bank of Manchester
originated fixed-rate mortgage loans for sale in the secondary market. However,
since 1998 and due to the low demand for adjustable-rate mortgage loans, Savings
Bank of Manchester has begun to retain for its portfolio a significant portion
of fixed-rate mortgage loans in order to maintain its targeted loan to asset
ratio of 80%. Sales are generally to Freddie Mac, with servicing rights
retained. Loan sale decisions are made by Savings Bank of Manchester's
management and are generally based on prevailing market interest rates and
Savings Bank of Manchester's loan to asset ratio.
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<PAGE>
The following table presents total loans originated, sold, purchased and
repaid during the periods indicated.
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31, For the Year Ended December 31,
----------------------- ------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans at beginning of period..................... $817,372 $808,237 $808,237 $741,579 $704,281
-------- -------- -------- -------- --------
Originations:
Real estate:
One-to four-family...................... 97,017 99,896 160,974 97,764 97,810
Construction (1)........................ 38,820 34,925 55,492 45,768 35,292
Commercial and multi-family............. 26,531 10,188 24,948 23,921 9,478
-------- -------- -------- -------- --------
Total real estate loans........... 162,368 145,009 241,414 167,453 142,580
Commercial................................. 66,286 59,006 88,170 85,483 90,553
Consumer................................... 22,964 23,231 30,684 30,634 22,796
-------- -------- -------- -------- --------
Total loans originated.................. 251,618 227,246 360,268 283,570 225,929
Loans purchased............................... 16,942 8,834 17,281 8,284 8,983
-------- -------- -------- -------- --------
Total loans originated and purchased.... 268,560 236,080 377,549 291,854 264,912
-------- -------- -------- -------- --------
Deduct:
Principal loan repayments and prepayments.. 159,892 177,521 274,246 208,643 197,060
Loan sales................................. 15,012 65,007 91,917 11,729 26,962
Charge-offs................................ 332 411 1,087 946 1,762
Transfers to other real estate owned....... 213 841 1,164 3,878 1,830
-------- -------- -------- -------- --------
Total deductions..................... 175,449 243,780 368,414 225,196 227,614
-------- -------- -------- -------- --------
Net increase (decrease) in loans................. 93,111 (7,700) 9,135 66,658 37,298
-------- -------- -------- -------- --------
Loans at end of period........................... $910,483 $800,537 $817,372 $808,237 $741,579
======== ======== ======== ======== ========
</TABLE>
- ---------------------------------
(1) Includes residential and commercial real estate loans.
Loan Commitments. Savings Bank of Manchester issues loan commitments to
its prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
generally honored for up to 60 days from approval. At August 31, 1999, Savings
Bank of Manchester had loan commitments and unadvanced loans and lines of credit
totaling $179.9 million. See Note 11 of the Notes to Consolidated Financial
Statements included in this prospectus.
Loan Fees. In addition to interest earned on loans, Savings Bank of
Manchester receives income from fees derived from loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions. On loans
originated by third-party originators, Savings Bank of Manchester may pay a
premium to compensate an originator for loans where the borrower is paying a
higher rate on the loan.
Savings Bank of Manchester charges loan origination fees which are
calculated as a percentage of the amount borrowed. As required by applicable
accounting principles, loan origination fees, discount points and certain loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. At August 31, 1999, Savings
Bank of Manchester had approximately $1.5 million of net deferred loan fees.
Savings Bank of Manchester amortized $251,000 and $1.1 million of net deferred
loan fees during the eight months ended August 31, 1999 and the year ended
December 31, 1998, respectively.
Nonperforming Assets, Delinquencies and Impaired Loans. All loan payments
are due on the first day of each month. When a borrower fails to make a required
loan payment, Savings Bank of Manchester attempts to cure the
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<PAGE>
deficiency by contacting the borrower and seeking the payment. A late notice is
mailed on the 16th day of the month. In most cases, deficiencies are cured
promptly. If a delinquency continues beyond the 30th day of the month, the
account is referred to an in-house collector. While Savings Bank of Manchester
generally prefers to work with borrowers to resolve problems, Savings Bank of
Manchester will institute foreclosure or other proceedings after the 90th day
of a delinquency, as necessary, to minimize any potential loss.
Management informs the Board of Directors monthly of the amount of loans
delinquent more than 30 days, all loans in foreclosure, and all foreclosed and
repossessed property that Savings Bank of Manchester owns. Savings Bank of
Manchester ceases accruing interest on mortgage loans when principal or interest
payments are delinquent 90 days or more unless management determines the loan
principal and interest to be fully-secured and in the process of collection.
Once the accrual of interest on a loan is discontinued, all interest previously
accrued is reversed against current period interest income once management
determines that interest is uncollectible.
On January 1, 1995, Savings Bank of Manchester adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan--an amendment to SFAS No.
114." At August 31, 1999 and December 31, 1998 and 1997, Savings Bank of
Manchester had a $6.0 million, $1.5 million and $2.8 million, respectively,
recorded investment in impaired loans all of which had no specific allowances.
At August 31, 1999, the second largest loan in Savings Bank of Manchester's
loan portfolio was nonperforming. In 1993, Savings Bank of Manchester made a
$4.7 million first mortgage loan for the construction of a 45,000 square foot
office building in Manchester, Connecticut. In addition to the office building
construction project, the loan is secured by various other multi-family and
commercial real estate properties. The loan matured in November, 1998. At that
time, the loan was current as to principal and interest payments. However, the
borrower requested a discounted payoff which Savings Bank of Manchester refused.
Savings Bank of Manchester has since instituted foreclosure proceedings. In
April 1999, the loan was placed on non-accrual status. At August 31, 1999, the
loan had an outstanding carrying balance of $4.3 million. Based on a February,
1993 appraisal, the property securing the loan had an appraised value of $4.9
million. Based on the value of the collateral, Savings Bank of Manchester does
not expect to incur any material losses on this loan.
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<PAGE>
The following table sets forth information regarding nonperforming loans,
troubled debt restructurings and other real estate owned.
<TABLE>
<CAPTION>
At August 31, At December 31,
---------------- ---------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>- <C> <C>
Nonperforming loans:
One- to four-family real estate........... $ 478 $ 893 $ 456 $1,732 $ 5,181 $ 5,478 $ 3,362
Commercial and multi-family real estate... 4,563 372 388 408 1,076 1,093 1,642
Commercial................................ 919 1,278 665 680 992 605 1,499
Consumer.................................. 2 20 15 15 29 81 14
------ ------ ------ ------ ------- ------- -------
Total nonperforming loans.................... 5,962 2,563 1,524 2,835 7,278 7,257 6,517
Other real estate owned...................... 901 2,033 1,759 4,708 5,482 4,749 5,745
------ ------ ------ ------ ------- ------- -------
Total nonperforming assets............. 6,863 4,596 3,283 7,543 12,760 12,006 12,262
Troubled debt restructurings................. -- -- -- -- -- 1,192 1,453
------ ------ ------ ------ ------- ------- -------
Total nonperforming assets and troubled
debt restructurings......................... $6,863 $4,596 $3,283 $7,543 $12,760 $13,198 $13,715
====== ====== ====== ====== ======= ======= =======
Total nonperforming loans and troubled
debt restructurings as a percentage
of total loans.............................. 0.65% 0.32% 0.19% 0.35% 0.98% 1.20% 1.15%
Total nonperforming assets and troubled
debt restructurings as a percentage
of total assets............................. 0.58% 0.43% 0.30% 0.73% 1.32% 1.41% 1.62%
</TABLE>
Interest income that would have been recorded for the eight months ended
August 31, 1999 and the year ended December 31, 1998 had nonaccruing loans been
current according to their original terms amounted to approximately $181,000 and
$136,000, respectively. No interest was included in interest income in either
period related to these loans.
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<PAGE>
The following tables set forth the delinquencies in Savings Bank of
Manchester's loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At August 31, 1999 At December 31, 1998
-------------------------------------------- ---------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
--------------------- --------------------- --------------------- ---------------------
Number of Principal Number of Principal Number of Principal Number of Principal
Loans Balance of Loans Balance of Loans Balance of Loans Balance of
Loans Loans Loans Loans
--------- ---------- --------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family............ 3 $ 706 2 $ 96 1 $ 1 4 $ 151
Commercial and multi-family.... 1 2,458 1 277 -- -- 1 279
------ ------ ------ ------ ------ ------ ------ ------
Total real estate loans...... 4 3,164 3 373 1 1 5 430
------ ------ ------ ------ ------ ------ ------ ------
Commercial loans................ 8 236 10 537 7 137 6 294
------ ------ ------ ------ ------ ------ ------ ------
Consumer loans:
Home equity loans and
lines of credit.............. -- -- -- -- 1 15 -- --
Other......................... 9 41 2 2 5 7 3 16
------ ------ ------ ------ ------ ------ ------ ------
Total consumer loans........ 9 41 2 2 6 22 3 16
------ ------ ------ ------ ------ ------ ------ ------
Total....................... 21 $3,441 15 $ 912 14 $ 160 14 $ 740
====== ====== ====== ====== ====== ====== ====== ======
Delinquent loans to
total loans 0.38% 0.10% 0.02% 0.09%
====== ====== ====== ======
<CAPTION>
At December 31, 1997 At December 31, 1996
-------------------------------------------- ---------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
--------------------- --------------------- --------------------- ---------------------
Number of Principal Number of Principal Number of Principal Number of Principal
Loans Balance of Loans Balance of Loans Balance of Loans Balance of
Loans Loans Loans Loans
--------- ---------- --------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family........... 1 $ 87 6 $ 473 3 $ 337 17 $1,832
Commercial and multi-family... -- -- -- -- -- -- 2 262
------ ------ ------ ------ ------ ------ ------ ------
Total real estate loans..... 1 87 6 473 3 337 19 2,094
------ ------ ------ ------ ------ ------ ------ ------
Commercial loans................ 3 116 2 140 8 1,437 4 365
------ ------ ------ ------ ------ ------ ------ ------
Consumer loans:
Home equity loans and lines
of credit.................... 3 95 3 130 -- -- 2 51
Other......................... 5 29 4 15 11 42 7 29
------ ------ ------ ------ ------ ------ ------ ------
Total consumer loans........ 8 124 7 145 11 42 9 80
Total....................... 12 $ 327 15 $758 22 $1,816 32 $2,539
====== ====== ====== ====== ====== ====== ====== ======
Delinquent loans to
total loans.................... 0.04% 0.09% 0.24% 0.34%
====== ====== ====== ======
</TABLE>
Real Estate Owned. Real estate acquired by Savings Bank of Manchester as a
result of foreclosure or by deed in lieu of foreclosure is classified as real
estate owned until sold. When property is acquired it is recorded at fair market
value at the date of foreclosure, establishing a new cost basis. Holding costs
and declines in fair value result in changes to expense after acquisition are
expensed. At August 31, 1999, Savings Bank of Manchester had $901,000 of real
estate owned, net, consisting primarily of two one- to four-family residences
and one commercial property.
Asset Classification. Regulators have adopted various regulations and
practices regarding problem assets of savings institutions. Under such
regulations, federal and state examiners have authority to identify problem
assets during examinations and, if appropriate, require them to be classified.
63
<PAGE>
There are three classifications for problem assets: substandard, doubtful
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Savings Bank of Manchester performs an
internal analysis of its loan portfolio and assets to classify such loans and
assets similar to the manner in which such loans and assets are classified by
the federal banking regulators. In addition, Savings Bank of Manchester
regularly analyzes the losses inherent in its loan portfolio and its
nonperforming loans in determining the appropriate level of the allowance for
loan losses.
Allowance for Loan Losses. In originating loans, Savings Bank of
Manchester recognizes that losses will be experienced on loans and that the risk
of loss will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. Savings Bank of Manchester maintains an allowance for loan losses to
absorb losses inherent in the loan portfolio. The allowance for loan losses
represents management's estimate of probable losses based on information
available as of the date of the financial statements. The allowance for loan
losses is based on management's evaluation of the collectibility of the loan
portfolio, including past loan loss experience, known and inherent risks in the
nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, and economic conditions.
The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review Savings Bank of Manchester's allowance
for loan losses. Such agencies may require Savings Bank of Manchester to make
additional provisions for estimated losses based upon judgments different from
those of management.
In assessing the allowance for loan losses, loss factors are applied to
various pools of outstanding loans and certain unused commitments. Savings Bank
of Manchester segregates the loan portfolio according to risk characteristics
(i.e., mortgage loans, home equity, consumer). Loss factors are derived using
Savings Bank of Manchester's historical loss experience and may be adjusted for
significant factors that, in management's judgment, affect the collectibility of
the portfolio as of the evaluation date.
In addition, management assesses the allowance using factors that cannot be
associated with specific credit or loan categories. These factors include
management's subjective evaluation of local and national economic and business
conditions, portfolio concentration and changes in the character and size of the
loan portfolio. The allowance methodology reflects management's objective that
the overall allowance appropriately reflects a margin for the imprecision
necessarily inherent in estimates of expected credit losses.
At August 31, 1999, Savings Bank of Manchester had an allowance for loan
losses of $10.8 million which represented 1.19% of total loans and 181.00% of
nonperforming loans at that date. Although management believes that it uses the
best information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations. Furthermore, while
Savings Bank of Manchester believes it has established its existing allowance
for loan losses in conformity with generally accepted accounting principles,
there can be no assurance that regulators, in reviewing Savings Bank of
Manchester's loan portfolio, will not request Savings
64
<PAGE>
Bank of Manchester to increase its allowance for loan losses. In addition,
because future events affecting borrowers and collateral cannot be predicted
with certainty, there can be no assurance that the existing allowance for loan
losses is adequate or that increases will not be necessary should the quality of
any loans deteriorate as a result of the factors discussed above. Any material
increase in the allowance for loan losses may adversely affect Savings Bank of
Manchester's financial condition and results of operations.
The following table presents an analysis of Savings Bank of Manchester's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
At or For the Eight
Months Ended
August 31, At or For the Year Ended December 31,
---------------------- ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses,
beginning of period.......................... $10,585 $ 9,945 $ 9,945 $ 9,131 $8,484 $7,691 $7,336
------- ------- ------- ------- ------ ------ ------
Charged-off loans:
One- to four-family real estate............ 75 245 340 299 695 474 177
Commercial and multi-family
real estate............................... 90 -- 112 133 326 395 1,983
Commercial................................. 102 83 483 311 366 287 625
Consumer................................... 65 83 152 203 375 325 324
------- ------- ------- ------- ------ ------ ------
Total charged-offs loans................ 332 411 1,087 946 1,762 1,481 3,109
------- ------- ------- ------- ------ ------ ------
Recoveries on loans
previously charged off:
One- to four-family real estate........... 41 86 146 215 38 3 --
Commercial and multi-family
real estate.............................. 4 8 12 10 18 -- --
Commercial................................ 60 210 283 229 939 533 600
Consumer.................................. 33 46 86 106 214 188 309
------- ------- ------- ------- ------ ------ ------
Total recoveries....................... 138 350 527 560 1,209 724 909
------- ------- ------- ------- ------ ------ ------
Net loans charged-off........................ 194 61 560 386 553 757 2,200
------- ------- ------- ------- ------ ------ ------
Provision for loan losses.................... 400 800 1,200 1,200 1,200 1,550 2,555
------- ------- ------- ------- ------ ------ ------
Allowance for loan losses,
end of period............................... $10,791 $10,684 $10,585 $9,945 $9,131 $8,484 $7,691
======= ======= ======= ======= ====== ====== ======
Net loans charged-off to
average interest-earning loans.............. 0.02% 0.05% 0.07% 0.05% 0.08% 0.11% 0.34%
Allowance for loan losses
to total loans.............................. 1.19 1.33 1.30 1.23 1.23 1.20 1.11
Allowance for loan losses
to nonperforming loans and
troubled debt restructurings................ 181.00 416.86 694.55 350.79 125.46 100.41 96.50
Net loans charged-off to
allowance for loan losses................... 2.70 0.86 5.29 3.88 6.06 8.92 28.60
Recoveries to charge-offs.................... 41.57 85.16 48.48 59.20 68.62 48.89 29.24
</TABLE>
For additional discussion regarding the provision for loan losses in recent
periods, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Operating Results for the Eight Months
Ended August 31, 1999 and 1998--Provision for Loan Losses."
65
<PAGE>
The following table presents the approximate allocation of the allowance
for loan losses by loan categories at the dates indicated and the percentage of
such amounts to the total allowance and to total loans. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not indicative of future losses
and does not restrict the use of any of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
At August 31, 1999
---------------------------------------------
Percent of
Allowance Percent
in Each of Loans
Category in Each
to Total Category to
Amount Allowance Total Loans
----------- ------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate.......... $ 5,166 48% 78%
Commercial........... 4,671 43 14
Consumer............. 954 9 8
------- --- ---
Total allowance for
loan losses....... $10,791 100% 100%
======= === ===
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------ ----------
1998 1997 1996
------------------------------- --------------------------------- --------------------------------
(Dollars in thousands)
Allowance Percent Allowance Percent Allowance Percent
in Each of Loans in Each of Loans in Each of Loans
Category in Each Category in Each Category in Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
------- --------- ----------- ------- --------- ------------- ------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate.......... $ 4,995 47% 77% $4,310 43% 78% $3,531 39% 78%
Commercial........... 4,714 45 14 4,913 50 13 4,958 54 13
Consumer............. 876 8 9 722 7 9 642 7 9
------- --- --- ------ --- --- ------ --- ---
Total allowance
for loan losses... $10,585 100% 100% $9,945 100% 100% $9,131 100% 100%
======= === === ====== === === ====== === ===
<CAPTION>
At December 31, At December 31,
----------------------------------- -----------------------------------
1995 1994
----------------------------------- -----------------------------------
Allowance Percent Allowance Percent
in Each of Loans in Each of Loans
Category in Each Category in Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
------- --------- ----------- ------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
$3,485 41% 79% $3,157 41% 79%
4,349 51 12 3,868 50 11
650 8 9 666 9 10
------ --- --- ------ --- ---
Total allowance
for loan losses... $8,484 100% 100% $7,691 100% 100%
======= === === ====== === ===
</TABLE>
66
<PAGE>
Investment Activities
General. Under Connecticut law, Savings Bank of Manchester has authority
to purchase a wide range of investment securities. As a result of recent
changes in federal banking laws, however, financial institutions such as Savings
Bank of Manchester may not engage as principals in any activities that are not
permissible for a national bank, unless the Federal Deposit Insurance
Corporation has determined that the investments would pose no significant risk
to the Bank Insurance Fund and Savings Bank of Manchester is in compliance with
applicable capital standards. In 1993, the Regional Director of the Federal
Deposit Insurance Corporation approved a request by Savings Bank of Manchester
to invest in certain listed stocks and/or registered stocks subject to certain
conditions. See "Regulation and Supervision."
Savings Bank of Manchester's Board of Directors has the overall
responsibility for Savings Bank of Manchester's investment portfolio, including
approval of Savings Bank of Manchester's investment policy, appointment of
Savings Bank of Manchester's investment adviser and approval of Savings Bank of
Manchester's investment transactions. All investment transactions are reviewed
by the Board on a monthly basis. Savings Bank of Manchester's President and/or
Chief Financial Officer, or their designees, are authorized to make investment
decisions consistent with Savings Bank of Manchester's investment policy and the
recommendations of Savings Bank of Manchester's investment adviser and the
Board's Investment Committee. The Investment Committee meets quarterly with the
President and Chief Financial Officer in order to review and determine
investment strategies.
Savings Bank of Manchester's investment policy is designed to complement
Savings Bank of Manchester's lending activities, provide an alternative source
of income through interest, dividends and capital gains, diversify Savings Bank
of Manchester's assets and improve liquidity while minimizing Savings Bank of
Manchester's tax liability. Investment decisions are made in accordance with
Savings Bank of Manchester's investment policy and are based upon the quality of
a particular investment, its inherent risks, the composition of the balance
sheet, market expectations, Savings Bank of Manchester's liquidity, income and
collateral needs and how the investment fits within Savings Bank of Manchester's
interest rate risk strategy. Although Savings Bank of Manchester utilizes the
investment advisory services of a Boston-based investment firm, management is
ultimately and completely responsible for all investment decisions.
Savings Bank of Manchester's investment policy divides investments into two
categories, fixed income and equity portfolios. The primary objective of the
fixed income portfolio is to maintain an adequate source of liquidity sufficient
to meet regulatory and operating requirements, and to safeguard against deposit
outflows, reduced loan amortization and increased loan demand. The fixed income
portfolio primarily includes debt issues, including mortgage-backed and asset-
backed securities. Substantially all of Savings Bank of Manchester's mortgage-
backed securities are issued or guaranteed by agencies of the U.S. Government.
Accordingly, they carry lower credit risk than mortgage-backed securities of a
private issuer. Asset-backed securities are typically collateralized by the cash
flow from a pool of auto loans, credit card receivables, consumer loans and
other similar obligations. Both mortgage-backed and asset-backed securities
carry market risk, the risk that increases in market interest rates may cause a
decrease in market value, and prepayment risk, the risk that the securities will
be repaid before maturity and that Savings Bank of Manchester will have to
reinvest the funds at a lower interest rate.
Savings Bank of Manchester's investment policy permits Savings Bank of
Manchester to be a party to financial instruments with off-balance sheet risk in
the normal course of business in order to manage interest rate risk. Savings
Bank of Manchester's derivative position is reviewed by the Investment Committee
on a quarterly basis. The investment policy authorizes Savings Bank of
Manchester to be involved in and purchase various types of derivative
transactions and products including interest rate swap, cap and floor agreements
investment conduits. At August 31, 1999, Savings Bank of Manchester was a party
to one interest rate cap agreement with a notional principal amount of $25
million. Under the terms of the cap agreement, Savings Bank of Manchester paid
a premium totalling $122,500 which is included in other assets and being
amortized over three years which is the term of the agreement. Amortization for
the eight months ended August 31, 1999 totalled $23,800 and is recorded as an
interest expense on advances. The agreement provides that, if the London
Interbank Offered Rate exceeds 7%, Savings Bank of Manchester receives cash
payments on a quarterly basis. There were no cash payments due at
67
<PAGE>
August 31, 1999. Savings Bank of Manchester was not a party to any interest rate
swap, cap or floor arrangements during the years ended December 31, 1998, 1997
and 1996.
The marketable equity securities portfolio has the objective of producing
capital appreciation through long-term investment. Safety of principal and
prudent risk taking are of paramount importance. The total market value of the
marketable equity securities portfolio, excluding Federal Home Loan Bank stock,
is limited by the investment policy to 50% of Savings Bank of Manchester's Tier
1 capital . At August 31, 1999, the marketable equity securities portfolio
totalled $43.0 million or 36.4% of its authorized limit. At August 31, 1999,
the net unrealized gains associated with the marketable equity securities
portfolio were $12.7 million. In future periods and subject to market
conditions and other factors, Savings Bank of Manchester intends to increase its
marketable equity securities portfolio through periodic purchases of high
quality equity investments. Emphasis will be placed on companies with
established records of growth and financial strength.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Savings Bank of Manchester does not currently use or maintain a trading account.
Debt and equity securities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale." These securities
are reported at fair value, and unrealized gains and losses on the securities
are excluded from earnings and reported, net of deferred taxes, as a separate
component of capital.
All of Savings Bank of Manchester's debt and mortgage-backed and asset-
backed securities carry market risk insofar as increases in market rates of
interest may cause a decrease in their market value. They also carry prepayment
risk insofar as they may be called or repaid before maturity in times of low
market interest rates, so that Savings Bank of Manchester may have to invest the
funds at a lower interest rate. The marketable equity securities portfolio also
carries equity price risk in that, if equity prices decline due to unfavorable
market conditions or other factors, Savings Bank of Manchester's capital would
decrease.
68
<PAGE>
The following table presents the amortized cost and fair value of Savings
Bank of Manchester's securities, by type of security, at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At August 31, ------------------------------------------------------------------
1999 1998 1997 1996
-------------------- --------------------- --------------------- --------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---------- --------- ---------- ---------- ---------- --------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities held to maturity:
Asset-backed securities............. $19,258 $19,239 $23,204 $23,386 $25,674 $25,752 $24,860 $24,689
U.S. Government and agency
obligations...................... -- -- 3,506 3,524 7,055 7,071 14,502 14,489
Other debt securities............... 3,130 3,137 3,145 3,246 3,145 3,224 155 154
------- ------- ------- ------- ------- ------- ------- -------
Total......................... 22,388 22,376 29,855 30,156 35,874 36,047 39,517 39,332
------- ------- ------- ------- ------- ------- ------- -------
Debt securities available for sale:
U.S. Government and agency
obligations...................... 68,201 67,753 70,563 71,703 48,534 48,767 36,232 35,907
Corporate securities................ 36,574 36,168 40,128 40,420 23,771 24,010 32,745 32,795
------- ------- ------- ------- ------- ------- ------- -------
Total......................... 104,775 103,921 110,691 112,123 72,305 72,777 68,977 68,702
------- ------- ------- ------- ------- ------- ------- -------
Equity securities available for sale:
Marketable equity securities 30,258 42,968 29,427 42,773 29,389 40,635 29,737 37,797
Other equity securities 432 432 396 396 192 192 192 192
------- ------- ------- ------- ------- ------- ------- -------
Total......................... 30,690 43,400 29,823 43,169 29,581 40,827 29,929 37,989
------- ------- ------- ------- ------- ------- ------- -------
Total debt and equity
securities............... 157,853 169,697 170,369 185,448 137,760 149,651 138,423` 146,023
------- ------- ------- ------- ------- ------- ------- -------
Mortgage-backed securities:
Mortgage-backed securities held to
maturity:
FHLMC............................ 7,567 7,357 8,615 8,719 10,238 10,259 4,132 4,106
FNMA............................. 6,293 6,036 7,376 7,464 1,508 1,548 1,948 1,986
GNMA............................. 8,617 8,351 6,751 6,715 2,663 2,682 1,968 1,960
------- ------- ------- ------- ------- ------- ------- -------
Total mortgage-backed securities
held to maturity........... 22,477 21,744 22,742 22,898 14,409 14,489 8,048 8,052
------- ------- ------- ------- ------- ------- ------- -------
Mortgage-backed securities available
for sale:
FHLMC............................ 2,310 2,296 3,086 3,130 4,595 4,649 6,639 6,625
FNMA............................. 6,204 6,044 4,782 4,878 5,847 5,929 7,527 7,546
GNMA............................. 3,977 3,803 4,964 4,851 7,434 7,407 10,456 10,400
------- ------- ------- ------- ------- ------- ------- -------
Total mortgage-backed
securities available for
sale........................ 12,491 12,143 12,832 12,859 17,876 17,985 24,622 24,571
------- ------- ------- ------- ------- ------- ------- -------
Total mortgage-backed
securities.................. 34,968 33,887 35,574 35,757 32,285 32,474 32,670 32,623
------- ------- ------- ------- ------- ------- ------- -------
Total investment securities... $192,821 $203,584 $205,943 $221,205 $170,045 $182,125 $171,093 $178,646
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
69
<PAGE>
At August 31, 1999, Savings Bank of Manchester did not own any investment
or mortgage-backed securities of a single issuer, other than U.S. Government and
agency securities, which had an aggregate book value in excess of 10% of Savings
Bank of Manchester's capital at that date.
The following presents the activity in the investment securities and
mortgage-backed securities portfolios for the periods indicated.
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31, For the Year Ended December 31,
------------------------- --------------------------------
1999 1998 1998 1997 1996
----------- -------- --------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Mortgage-backed and asset-backed securities (1):
Mortgage-backed and asset-backed securities, beginning of period...... $58,805 $58,068 $58,068 $57,477 $42,405
Purchases:
Asset-backed securities - held to maturity......................... -- 5,069 5,069 6,336 --
Mortgage-backed securities - held to maturity...................... 2,971 12,235 12,235 4,929 17,181
Mortgage-backed securities - available for sale.................... 2,206 -- -- 2,990 7,340
Sales:
Mortgage-backed securities - available for sale.................... -- -- -- (1,297) --
Repayments and prepayments......................................... (9,678) (9,664) (16,510) (12,643) (9,210)
(Decrease) increase in net premium.................................... (51) 88 25 114 62
Change in unrealized net gain on securities
available for sale................................................. (375) (81) (82) 162 (301)
------- ------- ------- -------- -------
Net (decrease) increase in mortgage-backed and
asset-backed securities...................................... (4,927) 7,647 737 591 15,072
------- ------- ------- -------- -------
Mortgage-backed and asset-backed securities, end of period............ 53,878 65,715 58,805 58,068 57,477
------- ------- ------- -------- -------
Investment securities (1):
Investment securities, beginning of period............................ 161,943 123,804 123,804 121,350 125,438
Purchases:
Investment securities - held to maturity........................... -- -- -- 775 --
Investment securities - available for sale......................... 17,196 38,669 61,694 86,593 34,740
Sales:
Investment securities - available for sale......................... (5,223) (6,472) (18,132) (60,815) (8,509)
Maturities:
Investment securities - held to maturity........................... (3,500) (2,000) (3,500) (9,375) (12,925)
Investment securities - available for sale......................... (17,000) (5,000) (5,000) (18,815) (21,106)
(Decrease) increase in net premium.................................... (43) 55 17 159 77
Change in unrealized net gain on securities available for sale........ (2,922) 395 3,060 3,932 3,635
------- ------- ------- -------- -------
Net (decrease) increase in investment securities................... (11,492) 25,647 38,139 2,454 (4,088)
------- ------- ------- -------- -------
Investment securities, end of period.................................. 150,451 149,451 161,943 123,804 121,350
------- ------- ------- -------- -------
Total mortgage-backed, asset-backed and investment securities,
end of period......................................................... $204,329 $215,166 $220,748 $181,872 $178,827
======== ======== ======== ======== ========
</TABLE>
- --------------------
(1) Available for sale securities are presented at market value and held to
maturity securities are presented at amortized cost.
70
<PAGE>
The following table presents certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of Savings
Bank of Manchester's debt securities at August 31, 1999.
<TABLE>
<CAPTION>
At August 31, 1999
----------------------------------------------------------------------------------------------------
More than One Year More than Five
One Year or Less to Five Years Years to Ten Years More than Ten Years Total
------------------- ------------------ ------------------- ----------- ------- ------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- -------- --------- -------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity securities:
Mortgage-backed securities... $328 7.50% $ 96 7.50% $1,068 7.00% $20,985 6.93% $22,477 6.94%
Asset-backed securities...... -- -- 4,851 2.43 3,754 6.39 10,653 7.14 19,258 5.81
Other securities............. 10 5.50 135 7.75 -- -- 2,985 8.60 3,130 8.55
------- ----- ------- ------ ------- ------ ------- ----- -------- ------
Total debt securities
at amortized cost.... $338 7.44% $5,082 2.67% $4,822 6.53% $34,623 7.14% $44,865 6.57%
======= ======= ======= ======= ========
Available for sale securities:
U.S. Government and agency
obligations.............. $20,451 7.13% $41,988 6.21% $5,314 6.54% $ -- -- % $67,753 6,51%
Corporate securities........ 10,695 6.86 25,473 6.87 -- -- -- -- 36,168 6.88
Mortgage-backed
securities............... 57 7.71 745 6.55 2,370 6.83 8,971 7.39 12,143 7.57
------- ----- ------- ------ ------- ------ ------- ----- -------- ------
Total debt securities
at fair value........ $31,203 7.04% $68,206 6.46% $7,684 6.64% $8,971 7.39% $116,064 6.73%
======= ======= ======= ======= ========
</TABLE>
71
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Savings Bank
of Manchester's lending and other investment activities. In addition, Savings
Bank of Manchester also generates funds internally from loan principal
repayments and prepayments and maturing investment securities. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Savings Bank of Manchester may use borrowings
from the Federal Home Loan Bank of Boston to compensate for reductions in the
availability of funds from other sources.
Deposit Accounts. Substantially all of Savings Bank of Manchester's
depositors reside in Connecticut. Savings Bank of Manchester offers a wide
variety of deposit accounts with a range of interest rates and terms. Savings
Bank of Manchester's deposit accounts consist of interest-bearing checking,
noninterest-bearing checking, regular savings, money market savings and
certificates of deposit. The maturities of Savings Bank of Manchester's
certificate of deposit accounts range from seven days to five years. In
addition, Savings Bank of Manchester offers retirement accounts, including IRAs
and Keogh accounts and simplified employee pension plan accounts. Savings Bank
of Manchester also offers commercial business products to small businesses
operating within its primary market area. Deposit account terms vary with the
principal differences being the minimum balance deposit, early withdrawal
penalties, limits on the number of transactions and the interest rate. Savings
Bank of Manchester reviews its deposit mix and pricing on a weekly basis.
Savings Bank of Manchester believes it offers competitive interest rates on
its deposit products. Savings Bank of Manchester determines the rates paid
based on a number of factors, including rates paid by competitors, Savings Bank
of Manchester's need for funds and cost of funds, borrowing costs and movements
of market interest rates. While certificate accounts in excess of $100,000 are
accepted by Savings Bank of Manchester, and may receive preferential rates,
Savings Bank of Manchester does not actively seek such deposits as they are more
difficult to retain than core deposits. Savings Bank of Manchester does not
utilize brokers to obtain deposits and at August 31, 1999 had no brokered
deposits.
In the unlikely event Savings Bank of Manchester is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to Connecticut Bancshares as the sole
stockholder of Savings Bank of Manchester.
72
<PAGE>
The following table presents the deposit activity of Savings Bank of
Manchester for the periods indicated.
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31, For the Year Ended December 31,
--------------------- ----------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance................................... $855,117 $827,667 $827,667 $792,833 $764,789
Increase (decrease) before
interest credited................................ 11,959 (25,290) (4,969) 1,870 (3,552)
Interest credited................................... 20,246 21,854 32,419 32,964 31,596
Net increase (decrease)............................. 32,205 (3,436) 27,450 34,834 28,044
------ ------- ------- ------ ------
Ending balance...................................... $887,322 $824,231 $855,117 $827,667 $792,833
======== ======== ======== ======== ========
</TABLE>
At August 31, 1999, Savings Bank of Manchester had certificate of deposit
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Rate
- --------------- -------------- --------
(In thousands)
<S> <C> <C>
Three months or less............. $13,805 4.72%
Over 3 months through 6 months... 11,500 4.75
Over 6 months through 12 months.. 20,877 5.48
Over 12 months................... 13,382 5.83
------- ----
Total $59,564 5.24%
=======
</TABLE>
73
<PAGE>
The following table presents information concerning average balances and
weighted average interest rates for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
For the Eight Months Ended ------------------------------
August 31, 1999 1998
------------------------------ ------------------------------
Percent
Percent Weighted of Total Weighted
Average of Total Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts............ $227,504 26.3% 2.25% $215,769 25.8% 2.36%
Money market accounts....... 44,711 5.2 3.32 33,146 4.0 2.87
NOW accounts................ 109,116 12.6 1.37 94,394 11.2 1.38
Certificates of deposit..... 443,274 51.2 5.05 463,226 55.3 5.45
Demand deposits............. 41,122 4.7 -- 30,985 3.7 --
-------- ----- ---- -------- ----- ----
Total.................... $865,727 100.0% 3.61% $837,520 100.0% 3.90%
======== ===== ======== =====
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts............ $207,423 25.4% 2.27% $206,344 26.6% 2.28%
Money market accounts....... 30,709 3.8 2.56 30,089 3.9 2.37
NOW accounts................ 80,445 9.9 1.37 71,657 9.2 1.44
Certificates of deposit..... 471,865 57.8 5.58 448,918 57.9 5.60
Demand deposits............. 25,123 3.1 -- 18,836 2.4 --
-------- ---- ---- -------- ----- -----
Total.................... $815,565 100.0% 4.03% $775,844 100.0% 4.07%
======== ===== ======== =====
</TABLE>
74
<PAGE>
Certificates of Deposit by Rates and Maturities. 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, 1999.
<TABLE>
<CAPTION>
Period to Maturity from August 31, 1999 Total at December 31,
-------------------------------------------------- ------------------------
One to Two to Over Total at
Less than Two Three Three Auugust 31,
One Year Years Years Years 1999 1998 1997
--------- ------- -------- -------- ------------ --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
0.00 - 2.00%........ $ 30 $ -- $ -- $ -- $ 30 $ 21 $ 30
2.01 - 4.00%........ 2,982 -- -- -- 2,982 2,598 2,743
4.01 - 5.00%........ 237,669 12,954 2,563 12,779 265,965 222,709 74,900
5.01 - 6.00%........ 76,926 20,120 17,750 29,567 144,363 178,662 335,908
6.01 - 7.00%........ 18,288 8,686 1,352 138 28,464 32,907 52,072
7.01 - 8.00%........ 7,753 -- -- -- 7,753 9,227 10,100
8.01 - 9.00%........ -- -- -- -- -- 15 13
-------- ------- ------- ------- -------- -------- --------
Total............ $343,648 $41,760 $21,665 $42,484 $449,557 $446,139 $475,766
======== ======= ======= ======= ======== ======== ========
</TABLE>
Borrowings. Savings Bank of Manchester may use advances from the Federal
Home Loan Bank of Boston to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. The Federal Home Loan Bank of Boston functions
as a central reserve bank providing credit for savings banks and certain other
member financial institutions. As a member of the Federal Home Loan Bank of
Boston, Savings Bank of Manchester is required to own capital stock in the
Federal Home Loan Bank of Boston and is authorized to apply for advances on the
security of the capital stock and certain of its mortgage loans and other
assets, principally securities that are obligations of, or guaranteed by, the
U.S. Government or its agencies, provided certain creditworthiness standards
have been met. Advances are made under several different credit programs. Each
credit program has its own interest rate and range of maturities. Depending on
the program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At August 31, 1999, Savings Bank of Manchester had the
ability to borrow a total of approximately $385.0 million from the Federal Home
Loan Bank of Boston. At that date, Savings Bank of Manchester had outstanding
advances of $66.9 million. At August 31, 1999, Savings Bank of Manchester also
maintained an unused $15.0 million line of credit with a third party financial
institution.
Federal banking laws and regulations prohibit a bank from paying interest
on commercial checking accounts. However, Savings Bank of Manchester offers to
its commercial customers a transactional repurchase agreement, a form of non-
deposit borrowing by Savings Bank of Manchester, that is designed as a mechanism
to offer business customers the functional equivalent of a commercial checking
account that pays interest. This account, overseen by an outside agent, is not
an FDIC-insured deposit account, but is backed by a security interest in U.S.
Government and agency securities at a ratio of approximately 1.10 to 1.00. At
August 31, 1999, Savings Bank of Manchester had 1,593 of such accounts with
deposits aggregating $97.9 million.
75
<PAGE>
The following tables presents certain information regarding Savings Bank of
Manchester's Federal Home Loan Bank advances and short-term borrowed funds at or
for the periods ended on the dates indicated.
<TABLE>
<CAPTION>
At or For the Eight Months
Ended August 31, At or For the Year Ended December 31,
--------------------------- --------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ---------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average balance outstanding:
Federal Home Loan Bank advances.............. $48,422 $32,772 $36,534 $14,144 $15,319
Short-term borrowed funds.................... 86,161 73,443 76,523 61,677 59,833
Maximum amount outstanding at any
month-end during the period:
Federal Home Loan Bank advances.............. 66,899 45,000 45,000 17,987 19,650
Short-term borrowed funds.................... 97,848 85,050 87,790 72,780 63,609
Balance outstanding at end of period:
Federal Home Loan Bank advances.............. 66,899 45,000 45,000 17,987 15,000
Short-term borrowed funds.................... 97,847 85,050 79,545 71,179 58,747
Weighted average interest
rate during the period:
Federal Home Loan Bank advances.............. 6.08% 6.28% 6.31% 6.90% 7.98%
Short-term borrowed funds.................... 2.90 2.95 3.00 2.83 2.88
Weighted average interest rate at
end of period:
Federal Home Loan Bank advances.............. 6.10 6.35 6.21 6.54 7.38
Short-term borrowed funds.................... 2.95 3.10 2.84 3.21 3.09
</TABLE>
Subsidiary Activities
The following are descriptions of Savings Bank of Manchester's wholly owned
subsidiaries, which following the conversion, will be indirectly owned by
Connecticut Bancshares.
SBM, Ltd. SBM, Ltd. was organized in February, 1983 for the purpose of
acquiring and holding real estate acquired by Savings Bank of Manchester. In
1990, the purpose changed to acquire, hold and dispose of real estate acquired
through foreclosure. At August 31, 1999, SBM held property consisting of one
residential subdivision with a book value of $197,000.
923 Main, Inc. 923 Main was incorporated in December, 1994 for the
purpose of maintaining an ownership interest in a third party registered broker-
dealer, Infinex Financial Group. Infinex maintains an office at Savings Bank of
Manchester and offers to customers a complete range of nondeposit investment
products, including mutual funds, debt, equity and government securities,
retirement accounts, insurance products and fixed and variable annuities.
Savings Bank of Manchester receives a portion of the commissions generated by
Infinex from sales to customers. For 1998 and the eight months ended August 31,
1999, Savings Bank of Manchester received fees of $1.2 million and $804,000,
respectively, through its relationship with Infinex.
Savings Bank of Manchester Mortgage Company, Inc. SBM Mortgage was
established in January, 1999 to service and hold loans secured by real property.
SBM Mortgage was established and is managed to qualify as a "passive investment
company" for Connecticut income tax purposes. Income earned by a qualifying
passive investment company is exempt from Connecticut income tax. Income tax
savings to Savings Bank of Manchester from the use of a passive investment
company was approximately $541,000 for the eight months ended August 31, 1999.
76
<PAGE>
Savings Bank of Manchester Foundation, Inc.
In 1998, Savings Bank of Manchester established a private charitable
foundation, the Savings Bank of Manchester Foundation, Inc. This foundation,
which is not a subsidiary of Savings Bank of Manchester, provides grants to
individuals and not-for-profit organizations within the communities that Savings
Bank of Manchester serves. In 1998, Savings Bank of Manchester contributed
marketable equity securities with a cost basis and fair market value of $763,000
and $3.0 million, respectively, at the date of contribution and transfer. At
August 31, 1999, the foundation had assets of approximately $2.9 million. The
foundation's current five member Board of Trustees consists of current
directors, officers and employees of Savings Bank of Manchester. After the
conversion, Savings Bank of Manchester will continue to maintain the foundation.
However, Savings Bank of Manchester does not expect to make any further
contributions to the foundation. The existence of Savings Bank of Manchester's
current foundation is not expected to impact the business and affairs of the SBM
Foundation which is being established in connection with Savings Bank of
Manchester's conversion. See "The Conversion--Establishment of the Charitable
Foundation."
77
<PAGE>
Properties
Savings Bank of Manchester currently conducts its business through its main
office located in Manchester, Connecticut, and 22 other full-service banking
offices. Connecticut Bancshares believes that Savings Bank of Manchester's
facilities will be adequate to meet the then present and immediately foreseeable
needs of Savings Bank of Manchester and Connecticut Bancshares.
<TABLE>
<CAPTION>
Net Book Value
of Property
Leased, Original Date of or Leasehold
Licensed Year Lease/ Improvements
or Leased License at August 31,
Location Owned or Acquired Expiration 1999
-------- -------- ----------- ---------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
Main Branch and Executive Office:
923 Main Street
Manchester, CT 06040 Owned 1932 -- $ 5,419
Branch Offices:
285 East Center Street
Manchester, CT 06040 Leased 1956 2011 114
220 North Main Street
Manchester, CT 06040 Leased 1970 2005 130
241 West Middle Turnpike
Manchester, CT 06040 (1) 1983 2003 169
955 Sullivan Avenue
South Windsor, CT 06074 (1) 1965 2010 515
477 Connecticut Boulevard
East Hartford, CT 06108 Leased 1996 2006 95
236 Spencer Street
Manchester, CT 06040 Leased 1974 2004 --
1 Main Street
East Hartford, CT 06118 Leased 1975 2000(2) 11
62 Buckland Street
Manchester, CT 06040 Leased 1990 2009 104
Eastford Center
Eastford, CT 06242 Leased 1985 1999(3) 9
122A Prospect Hill Road
East Windsor, CT 06088 Leased 1985 1999(4) 18
6 Storrs Road
Mansfield, CT 06250 Leased 1986 2015 83
200 Merrow Road
Tolland, CT 06084 Leased 1989 2004 75
1320 Manchester Road
Glastonbury, CT 06033 (1) 1987 2007 273
435-W Hartford Turnpike
Vernon, CT 06066 Leased 1988 2003 75
1078 N. Main Street
Dayville, CT 06241 Leased 1990 2000(5) 48
Route 66
Columbia, CT 06237 Owned 1991 -- 243
1671 Boston Turnpike
Coventry, CT 06238 Leased 1993 2013 83
596 Middle Turnpike
Storrs, CT 06268 Owned 1995 -- 785
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
of Property
Leased, Original Date of or Leasehold
Licensed Year Lease/ Improvements
or Leased License at August 31,
Location Owned or Acquired Expiration 1999
-------- -------- ----------- ---------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
49 Hazard Avenue
Enfield, CT 06082 Leased 1995 2007 114
2133 Poquonock Avenue
Windsor, CT 06095 Leased 1996 2006 176
38 Wells Road
Wethersfield, CT 06109 Leased 1996 2008 124
55 South Main Street
West Hartford, CT 06107 Leased 1997 2016 236
ATM Facilities:
Rt.6
Andover, CT 06232 Leased 1974 2004 --
Junction 44 & 74
Ashford, CT 06278 Leased 1976 2001 1
Rt. 44A
Bolton, CT 06043 Leased 1968 2001 2
700 Burnside Ave.
East Hartford, CT 06108 Leased 1966 2000 --
60 Bidwell Street
Manchester, CT 06040 Licensed(6) 1990 -- --
Buckland Hills Mall
Manchester, CT 06040 Leased 1992 2004 --
31 Union Street
Rockville, CT 06066 Licensed(6) 1995 -- --
469 Hartford Rd
Manchester, CT 06040 Leased 1970 2002 --
71 Haynes Street
Manchester, CT 06040 Licensed(6) 1989 -- --
Administrative offices:
469 Hartford Road
Manchester, CT 06040 Leased 1970 2002 33
50-56 Cottage Street
Manchester, CT 06040 Owned 1999 -- 465
881 Main Street
Manchester, CT 06040 Leased 1994 2004 60
935 Main Street
Manchester, CT 06040 Owned (7) -- 2 ,734
935 Main Street
Units B102 & 102A
Manchester, CT 06040 Leased 1997 2000(8) 89
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
of Property
Leased, Original Date of or Leasehold
Licensed Year Lease/ Improvements
or Leased License at August 31,
Location Owned or Acquired Expiration 1999
-------- -------- ----------- ---------- ---------------
(In Thousands)
<S> <C> <C> <C> <C>
945 Main Street
Unit 102
Manchester, CT 06040 Leased 1999 2001 --
945 Main Street
Unit 305
Manchester, CT 06040 Owned 1997 -- 137
945 Main Street
Unit 309
Manchester, CT 06040 Owned 1998 -- 77
35-43 Oak Street
Manchester, CT 06040 Owned 1999 -- 750
681 Main Street
Plantsville, CT 06479 Leased 1997 (9) --
-------
Total.................. $13,247
=======
</TABLE>
- ----------------
(1) Savings Bank of Manchester owns the building and leases the land.
(2) Savings Bank of Manchester does not have an option to renew this lease.
Savings Bank of Manchester is currently negotiating the terms of a new
lease.
(3) In December, 1999, Savings Bank of Manchester renewed this lease for an
additional five-year period.
(4) In September, 1999, Savings Bank of Manchester renewed this lease for an
additional five-year period.
(5) Savings Bank of Manchester has an option to renew this lease for two
additional five-year periods.
(6) Savings Bank of Manchester maintains a license to possess the property.
Generally, the holder of a license has less property rights than the
possessor of a leasehold interest.
(7) Savings Bank of Manchester owns sixteen commercial condominiums, which were
all acquired at various times between 1990 and 1999.
(8) Savings Bank of Manchester has an option to renew this lease for an
additional 15-year period.
(9) Savings Bank of Manchester possesses this property on a month-to-month
basis.
Personnel
As of August 31, 1999, Savings Bank of Manchester had 330 full-time
employees and 70 part-time employees, none of whom is represented by a
collective bargaining unit. Savings Bank of Manchester believes its relationship
with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving Savings
Bank of Manchester, such as claims to enforce liens, condemnation proceedings on
properties in which Savings Bank of Manchester holds security interests, claims
involving the making and servicing of real property loans and other issues
incident to Savings Bank of Manchester's business. Savings Bank of Manchester is
not a party to any pending legal proceedings that it believes would have a
material adverse effect on the financial condition or operations of Savings Bank
of Manchester.
MANAGEMENT OF CONNECTICUT BANCSHARES
Directors are elected by the stockholders of Connecticut Bancshares for
staggered three-year terms, or until their successors are elected and qualified.
Connecticut Bancshares' Board of Directors consists of 15 persons divided into
three classes, each of which contains approximately one-third of the Board. One
class, consisting of Messrs. A. Paul Berte, John D. LaBelle, Jr., Jon L. Norris,
Laurence P. Rubinow and Gregory S. Wolff, has a term of office expiring at the
first annual meeting of stockholders; a second class, consisting of Messrs.
Thomas A. Bailey, Richard P. Meduski, Michael B. Lynch, John G. Sommers and
Thomas E. Toomey, has a term of office expiring at the second annual meeting of
stockholders; and a third class, consisting of Messrs. Timothy J. Devanney, M.
Adler Dobkin, Eric A. Marziali and William D. O'Neill and Ms. Sheila B.
Flanagan, has a term of office expiring at the
80
<PAGE>
third annual meeting of stockholders. Connecticut Bancshares anticipates that
its first annual meeting of stockholders will be held in September 2000.
The officers of Connecticut Bancshares are elected annually and serve at
the Board's discretion. The officers of Connecticut Bancshares are:
Name Position
- ---- --------
Thomas A. Bailey Chairman of the Board
Richard P. Meduski President and Chief Executive Officer
Charles L. Pike First Executive Vice President
Douglas K. Anderson Executive Vice President
Nicholas B. Mason Senior Vice President and Chief Financial Officer
Carole L. Yungk Corporate Secretary
81
<PAGE>
MANAGEMENT OF SAVINGS BANK OF MANCHESTER
Directors and Executive Officers
The Board of Directors of Savings Bank of Manchester is presently composed
of 15 members who are elected for terms of three years, approximately one third
of whom are elected annually as required by the Bylaws of Savings Bank of
Manchester. The executive officers of Savings Bank of Manchester are appointed
annually by the Board of Directors and hold office until their respective
successors are chosen and qualified, or until their death, earlier resignation
or removal from office. The following table presents information with respect to
the directors and executive officers of Savings Bank of Manchester.
Directors
<TABLE>
<CAPTION>
Position Held With Savings Bank of Director Term
NAME AGE (1) Manchester Since Expires
____ _______ __________________________________ ________ ________
<S> <C> <C> <C> <C>
Thomas A. Bailey 69 Director and Chairman of the Board 1974 2001
Richard P. Meduski 54 Director, President and Treasurer 1983 2001
A. Paul Berte 58 Director 1993 2000
Timothy J. Devanney (2) 47 Director 1999 2002
M. Adler Dobkin 68 Director 1976 2002
Sheila B. Flanagan 59 Director 1987 2002
John D. LaBelle, Jr. 50 Director 1991 2000
Michael B. Lynch 60 Director 1986 2001
Eric A. Marziali (2) 40 Director 1999 2002
Jon L. Norris 58 Director 1996 2000
William D. O'Neill (2) 60 Director 1998 2002
Laurence P. Rubinow 55 Director 1996 2000
John G. Sommers 44 Director 1993 2001
Thomas E. Toomey 66 Director 1981 2001
Gregory S. Wolff 47 Director 1997 2000
Executive Officers Who Are Not Directors
Position Held With Savings Bank of
Name Age (1) Manchester
- ---- ------- ------------------------------------
Charles L. Pike 55 First Executive Vice President
Douglas K. Anderson 49 Executive Vice President
Nicholas B. Mason 54 Senior Vice President and Chief Financial Officer
Roger A. Somerville 55 Senior Vice President
</TABLE>
_____________________________
(1) As of August 31, 1999.
(2) All of the directors except Messrs. Devanney, Marziali and O'Neill are also
directors of Connecticut Bankshares, M.H.C.
82
<PAGE>
Biographical Information
Below is certain information regarding the directors and executive officers
of Savings Bank of Manchester. Unless otherwise stated, each director and
executive officer has held his or her current occupation for the last five
years. There are no family relationships among or between the directors or
executive officers except as set forth below.
Thomas A. Bailey has served as the Chairman of the Board of Savings Bank of
Manchester since 1990. He is a retired attorney and formerly a partner of the
law firm of Gilman & Marks, Hartford, Connecticut.
Richard P. Meduski has served as the President and Treasurer of Savings
Bank of Manchester since 1988. He has served as the President and Chief
Executive Officer of Connecticut Bancshares since its formation.
A. Paul Berte is a self-employed attorney in Manchester, Connecticut.
Timothy J. Devanney is the President of Highland Park Market of Manchester
and Highland Park Market of Glastonbury, and a Member of Highland Park Market of
Farmington L.L.C., all three of which are retail grocery businesses. Mr.
Devanney is related to Mr. Toomey by marriage to Mr. Toomey's niece.
M. Adler Dobkin is Vice President of Rayco, Inc., a metal finishing
facility. He was previously the President of the company.
Sheila B. Flanagan is a retired attorney and formerly a consultant and in-
house counsel to the Massachusetts Mutual Life Insurance Company.
John D. LaBelle, Jr. is a principal with the law firm of LaBelle, LaBelle,
Naab & Horvath P.C., Manchester, Connecticut.
Michael B. Lynch is the President and Chief Executive Officer of Lynch
Motors, Inc., a Toyota-Pontiac automobile dealership located in Manchester,
Connecticut.
Eric A. Marziali has served as the President of United Abrasives, Inc. and
SAIT Overseas Trading and Technical Corp., and Vice President of United
Abrasives Canada, Inc., all related entities, which manufacture abrasive
products, since 1982.
Jon L. Norris is the co-owner and operator of Independent Insurance Center,
Inc., a full-service insurance agency in which he is also a principal financial
partner.
William D. O'Neill is a consultant to and former President of Fuss &
O'Neill Inc., a civil and environmental engineering firm with headquarters in
Manchester, Connecticut and offices in the states of Massachusetts, Rhode Island
and Vermont.
Laurence P. Rubinow is the President and Chief Executive Officer of the law
firm of Woodhouse, Rubinow & Macht, P.C., located in Manchester, Connecticut.
Mr. Rubinow is the son of Eleanor S. Rubinow, a Director Emeritus.
John G. Sommers is the President of Allied Printing Services Inc., a
commercial printing company, located in Manchester, Connecticut.
Thomas E. Toomey is the Executive Vice President of a marketing firm. He
was formerly the President of Toomey DeLong Food Brokers, a wholesale grocer,
which no longer operates. Mr. Toomey is related to Mr. Devanney by marriage of
his niece to Mr. Devanney.
83
<PAGE>
Gregory S. Wolff is the Chairman of Wolff-Zackin & Associates Inc., an
insurance agency located in Vernon, Connecticut.
Executive Officers Who Are Not Directors
Charles L. Pike joined Savings Bank of Manchester in 1983 and serves as the
First Executive Vice President and Senior Loan Officer. Mr. Pike is also First
Vice President of Connecticut Bancshares.
Douglas K. Anderson joined Savings Bank of Manchester in 1987 and served
full-time as Executive Vice President until 1995, at which time he changed his
employment status to part-time in order to become President and Chief Executive
Officer of Open Solutions, Inc., a computer software provider, located in
Glastonbury, Connecticut and Savings Bank of Manchester's primary computer
software provider. In August 1999, Mr. Anderson resigned as President and Chief
Executive Officer of Open Solutions and returned to full-time employment with
Savings Bank of Manchester. Mr. Anderson is now Executive Vice President of
Savings Bank of Manchester and Connecticut Bancshares and Chairman of Open
Solutions.
Nicholas B. Mason joined Savings Bank of Manchester in 1988 as Chief
Financial Officer and Senior Vice President. In addition, he serves as a
Secretary to the Hartford Mutual Investment Fund and a Director on the Board of
Directors of Bankers' Bank Northeast.
Roger A. Somerville joined Savings Bank of Manchester in 1984 as a
commercial loan officer. He has been Senior Vice President of Commercial
Lending since 1988. In addition, Mr. Somerville is a director of The Greater
Manchester Chamber of Commerce, Genesis Center, Inc., Community Health
Resources, Inc., Hartford Economic Development Co., Greater Hartford Business
Development Corp., and the Greater Manchester United Way.
Meetings and Committees of the Board of Directors of Savings Bank of Manchester
and Connecticut Bancshares
The business of Savings Bank of Manchester is conducted through meetings
and activities of the Board of Directors and its committees. During the year
ended December 31, 1998 the Board of Directors held 12 regular meetings and
three special meetings. Except for Messrs. Dobkin and Toomey, no director
attended fewer than 75% of the total meetings of the Board of Directors and
committees on which the director served.
The Board of Directors has established the following committees:
The Audit & Examination Committee consists of Messrs. Berte, LaBelle,
Marziali, Norris, Wolff and Ms. Flanagan. This committee reviews Connecticut
Bankshares, M.H.C.'s consolidated financial statements, supervises the internal
auditor and engages the external auditors. The committee meets quarterly and
also in March to review the annual financial statements and met four times in
1998.
The Investment Committee consists of Messrs. Devanney, Dobkin, O'Neill,
Rubinow and Toomey and Ms. Flanagan. The Investment Committee oversees the
interest rate risk management of Savings Bank of Manchester and approves all
investment and asset/liability policies. The committee meets quarterly and met
four times in 1998.
The Compensation Committee consists of Messrs. Berte, Dobkin, Lynch,
Sommers and Wolff and Ms. Flanagan. This committee is responsible for all
matters regarding compensation and fringe benefits for executive officers. The
committee meets as necessary and met ten times in 1998.
The Board of Directors has also established an Executive Committee, Loan
Committee, Pension-Retirement Committee and Nominating Committee.
84
<PAGE>
The Board of Directors of Connecticut Bancshares has established the
following committees: the Audit Committee consisting of Messrs. Berte, LaBelle,
Marziali and Wolff and Ms. Flanagan; the Pricing Committee consisting of the
entire Board of Directors of Connecticut Bancshares; the Compensation Committee
consisting of Messrs. Sommers, Berte, Dobkin, Lynch and Wolff and Ms. Flanagan;
and the Nominating Committee consisting of Messrs. Dobkin, Wolff and Berte, and
Ms. Flanagan.
Directors' Compensation
Fees. Non-employee directors of Savings Bank of Manchester each receive
$750 for each board meeting attended and $500 for each committee meeting
attended. Following the conversion, non-employee directors of Savings Bank of
Manchester will each receive an annual retainer of $15,000, $750 for each board
meeting attended and $200 for each committee meeting attended. In addition,
non-employee directors of Connecticut Bancshares will receive an annual retainer
of $15,000.
Directors' Consultation Plan. Savings Bank of Manchester has adopted a
post-retirement consultation program for incumbent non-employee directors to
ensure the continued availability of its retired directors as consultants to
management because of their significant knowledge of and involvement in Savings
Bank of Manchester's operations. A director who retires at age 70 with at least
10 years of service will receive an annual benefit equal to 50% of the average
cash board compensation (retainers and meeting fees) received by the director
over the three years preceding retirement. The benefit increases by 5% for each
additional year of service with a benefit equal to 100% of final average board
compensation payable after 20 years of service. The benefit will be payable
until the earlier to occur of the tenth anniversary of the director's retirement
or the director's death. A director with at least 10 years of service may elect
to retire before age 70 but after age 65 with a corresponding reduction in the
benefit equal to 5% for each year the director's age is less than age 70. The
plan provides that each retired director is guaranteed at least five annual
payments. In the event of a retired director's death before the receipt of at
least five annual payments, any remaining payments will be made to the retired
director's surviving spouse to ensure that a minimum of five payments are made.
The plan also provides that the surviving spouse of an active director with at
least 10 years of service who dies before age 70 will receive a benefit payable
for five years equal to 50% of the benefit the director would have been eligible
to receive had the director attained age 70 before his death. In the event of a
change in control (as defined in the plan), each incumbent director will be
deemed retired for purposes of the plan and will be eligible to receive a lump
sum benefit equal to the present value of the normal retirement benefit with
each director assumed to have at least 10 years of service. Savings Bank of
Manchester expects to accrue an additional $239,000 in 2000 with respect to its
anticipated liability under the program.
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Executive Compensation
Summary Compensation Table. The following information is furnished for the
President and chief executive officer and the four other highest paid executive
officers of Savings Bank of Manchester who received a salary and bonus of
$100,000 or more during the year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation (1)
-----------------------------------------------------
Name and All Other
Position Year (2) Salary Bonus (3) Compensation (4)
- ------------------- --------- ----------- -------------- ------------------
<S> <C> <C> <C> <C>
Richard P. Meduski,
President and Treasurer 1998 $280,000 $100,000 $41,135
Charles L. Pike,
First Executive Vice
President 1998 186,522 44,500 4,800
Roger A. Somerville,
Senior Vice President 1998 120,032 23,100 3,601
Nicholas B. Mason,
Senior Vice President and
Chief Financial Officer 1998 115,954 26,300 4,268
</TABLE>
_____________________________
(1) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary and
bonus reported.
(2) Compensation information for the years ended December 31, 1997 and 1996 has
been omitted because Savings Bank of Manchester was neither a public company
nor a subsidiary of a public company at that time.
(3) Represents board awarded discretionary cash bonus.
(4) Represents matching contributions under Savings Bank of Manchester's 401(k)
Plan in the amounts of $4,800, $4,800, $3,601 and $4,268 for Messrs.
Meduski, Pike, Somerville and Mason, respectively. Also includes $36,335
paid to Mr. Meduski for premiums on an insurance policy.
Employment Agreements. Upon the completion of the conversion, Savings
Bank of Manchester and Connecticut Bancshares each intend to enter into
employment agreements with Messrs. Meduski, Pike, Anderson, Mason and
Somerville. The employment agreements are intended to ensure that Savings Bank
of Manchester and Connecticut Bancshares will be able to maintain a stable and
competent management base after the conversion. The continued success of
Savings Bank of Manchester and Connecticut Bancshares depends to a significant
degree on the skills and competence of officers.
The employment agreements will provide for a three-year term. The term of
the employment agreements will be extended on an annual basis unless written
notice of non-renewal is given by the Board of Directors of Connecticut
Bancshares or Savings Bank of Manchester. The employment agreements provide
that each executive's base salary will be reviewed annually. The base salaries
which will be effective for such employment agreements for Messrs. Meduski,
Pike, Anderson, Mason and Somerville will be $_______, $______, $______, $______
and $_______, 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 Savings Bank of Manchester or
Connecticut Bancshares for cause, as defined in the employment agreements, at
any time. If Savings Bank of Manchester or Connecticut Bancshares chooses to
terminate an executive's employment for reasons other than for cause, or if an
executive resigns from Savings Bank of Manchester or Connecticut Bancshares
after a: (1) failure to re-elect the executive to his/her current offices; (2)
material change in the executive's functions, duties or responsibilities; (3)
relocation of the executive's principal place of employment by more than 25
miles; (4) reduction in the benefits and perquisites being provided to the
executive in the employment agreement; (5) liquidation or dissolution of Savings
Bank of Manchester or Connecticut Bancshares; or (6) breach of the employment
agreement by Savings Bank of Manchester or
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Connecticut Bancshares, the executive or, if the executive dies, 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 Savings Bank of Manchester and
Connecticut Bancshares during the remaining term of the employment agreement.
Savings Bank of Manchester and Connecticut Bancshares would also continue and/or
pay for the executive's life, health, dental and disability coverage for the
remaining term of the employment agreement. Upon termination of the executive
for reasons other than a change in control, the executive must adhere to a one
year non-competition restriction.
Under the employment agreements, if voluntary or involuntary termination
follows a change in control of Savings Bank of Manchester or Connecticut
Bancshares, the executive or, if the executive dies, his/her beneficiary, would
be entitled to a severance payment equal to the greater of: (1) the payments
due for the remaining terms of the agreement; or (2) three times the average of
the five preceding taxable years' annual compensation. Savings Bank of
Manchester and Connecticut Bancshares would also continue the executive's life,
health, and disability coverage for thirty-six months. Even though both Savings
Bank of Manchester and Connecticut Bancshares employment agreements provide for
a severance payment if a change in control occurs, the executive would only be
entitled to receive a severance payment under one agreement. The executive
would also be entitled to receive an additional tax indemnification payment if
payments under the employment agreements or any other payments triggered
liability under the Internal Revenue Code as an excise tax constituting "excess
parachute payments." Under applicable law, the excise tax is triggered by change
in control-related payments which equal or exceed three times the executive's
average annual compensation over the five years preceding the change in control.
The excise tax equals 20% of the amount of the payment in excess of one times
the executive's average compensation over the preceding five-year period. If a
change in control of Savings Bank of Manchester and Connecticut Bancshares
occurred, the total amount of payments due under the Agreements, based solely on
the 1998 cash compensation (and without regard to future base salary adjustments
or bonuses and excluding any benefits under any employee benefit plan which may
be payable) would be approximately $________ million.
Payments to the executive under Savings Bank of Manchester's employment
agreement will be guaranteed by Connecticut Bancshares if payments or benefits
are not paid by Savings Bank of Manchester. Payment under Connecticut
Bancshares' employment agreement would be made by Connecticut Bancshares. All
reasonable costs and legal fees paid or incurred by the executive in any dispute
or question of interpretation relating to the employment agreements will be paid
by Savings Bank of Manchester or Connecticut Bancshares, respectively, if the
executive is successful on the merits in a legal judgment, arbitration or
settlement. The employment agreements also provide that Savings Bank of
Manchester and Connecticut Bancshares will indemnify the executive to the
fullest extent legally allowable.
In addition to the foregoing employment agreements, Savings Bank of
Manchester intends to enter into an employment agreement with Mr. Bailey in his
capacity as Chairman of the Board of Directors of Savings Bank of Manchester.
The Chairman's employment agreement will be in effect through 2000. The
Chairman's base salary under the agreement will be $90,000. In addition to
those terms and conditions generally contained in the employment agreements as
described above, Mr. Bailey's employment agreement also provides that upon the
Chairman's retirement as an employee of Savings Bank of Manchester, the Chairman
will be retained as a consultant for a ten year period at his then current base
salary.
Change in Control Agreements. Upon conversion, Savings Bank of Manchester
intends to enter into change in control agreements with seven senior officers
who will not be covered by an employment agreement. Each change in control
agreement will be renewable on an annual basis. The change in control
agreements will have terms ranging from one to three years. The change in
control agreements will provide that if voluntary or involuntary termination
follows a change in control of Savings Bank of Manchester and Connecticut
Bancshares, the officers would be entitled to receive a severance payment equal
to one to three times their average annual compensation for the five most recent
taxable years. Savings Bank of Manchester would also continue to pay for the
officers' life, health and disability coverage for 12-36 months following
termination. If a change in control of Savings Bank of Manchester and
Connecticut Bancshares occurred, the total payments that would be due under the
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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 $__________ million.
Benefits
General. Savings Bank of Manchester currently pays 74% of the total costs
of the medical health and dental insurance plans and 100% of premiums for life
and disability benefits for full-time employees.
Pension Plan. Savings Bank of Manchester maintains a non-contributory
pension plan for its employees. Generally, employees of Savings Bank of
Manchester begin participation in the pension plan once they reach age 21 and
complete 1,000 hours of service in a consecutive 12-month period. A participant
in the pension plan becomes vested in his accrued benefit under the pension plan
upon the earlier of the: (i) attainment of their "normal retirement age" (as
described in the pension plan) while employed at Savings Bank of Manchester; or
(ii) completion of five vesting years with Savings Bank of Manchester.
Participants are credited with vesting years for each plan year in which they
complete at least 1,000 hours of service.
A participant's accrued benefit under the pension plan is determined by
multiplying 2% of the participant's annual compensation (defined as average
annual compensation for the three consecutive calendar years that produce the
highest average) by the number of years of service the participant has with
Savings Bank of Manchester up to thirty (30). This benefit is payable in equal
monthly installments for life with no death benefit. If a participant dies
while employed by Savings Bank of Manchester, a death benefit will be payable to
either his or her spouse or estate, or named beneficiary, equal to the entire
amount of the participant's accrued benefit in the plan. However, pension
benefits are reduced 1/15th for each of the first five years and 1/30th for each
of the next five years, by which benefit commencement precedes normal
retirement. Participants in the pension plan may elect to receive their
benefits in the form of a 50%, 75% or 100% joint and survivor annuity or a life
only payment option.
The following table indicates the annual retirement benefits that would be
payable under the pension plan and the related supplemental executive retirement
plan (see below) upon retirement at age 65 to a participant electing to receive
his pension benefit in the standard form of benefit, assuming various specified
levels of plan compensation and various specified years of credited service.
Under the Internal Revenue Code, maximum annual benefits under the pension plan
are limited to $130,000 per year and annual compensation for calculation
purposes is limited to $160,000 per year for the 1999 calendar year.
<TABLE>
<CAPTION>
Years of Service
Average Annual _________________________________________________________________________________________
Compensation 5 10 15 20 25 30+
- ---------------- ___________ __________ __________ __________ __________ __________
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 2,500 $ 5,000 $ 7,500 $ 10,000 $ 12,500 $ 15,000
50,000 5,000 10,000 15,000 20,000 25,000 30,000
75,000 7,500 15,000 22,500 30,000 37,500 45,000
100,000 10,000 20,000 30,000 40,000 50,000 60,000
125,000 12,500 25,000 37,500 50,000 62,500 75,000
150,000 15,000 30,000 45,000 60,000 75,000 90,000
175,000 17,500 35,000 52,500 70,000 87,500 105,000
200,000 20,000 40,000 60,000 80,000 100,000 120,000
250,000 25,000 50,000 75,000 100,000 125,000 150,000
300,000 30,000 60,000 90,000 120,000 150,000 180,000
350,000 35,000 70,000 105,000 140,000 175,000 210,000
</TABLE>
At August 31, 1999, which is the date of the most recent pension plan
statement, the pension plan's assets exceeded the benefit obligation by
approximately $2.4 million. The benefits listed on the table above, for the
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pension plan are not subject to a deduction for Social Security benefits or any
other offset amount. As of January 1, 1999, Messrs. Meduski, Pike, Somerville
and Mason had 15, 15, 14 and 10 years of service with Savings Bank of
Manchester, respectively, for purposes of the pension plan.
Supplemental Executive Retirement Plan. Savings Bank of Manchester
maintains a non-tax-qualified, supplemental executive retirement plan to provide
key personnel with pension benefits that cannot be provided directly through
Savings Bank of Manchester's pension plan as result of Internal Revenue Code
limitations on the benefits available through a tax-qualified plan. Benefits
under the supplemental executive retirement plan are based on the same formula
as the employee pension plan, but are determined without regard to the
limitations on the amount of salary that may be taken into account for benefits
purposes under the pension plan or the level of contributions permitted under
the pension plan. The benefits available under the supplemental executive
retirement plan are reduced by the benefits actually payable under the pension
plan. Supplemental executive retirement plan benefits are payable at the same
times and in the same forms as benefits payable under the pension plan. At
present, the only participants in the plan are Messrs. Meduski and Pike. At
August 31, 1999, the plan's benefit liability was $348,000.
In addition to this supplement retirement benefit, Savings Bank of
Manchester also provides Mr. Meduski with an annual supplemental payment of
$36,000 to cover the premiums on a life insurance policy in which Mr. Meduski is
the sole owner.
Upon conversion, Savings Bank of Manchester intends to amend and restate
the supplemental executive retirement plan to provide for similar supplemental
benefits with respect to the 401(k) plan and the employee stock ownership plan,
as well as benefits otherwise limited by other provisions of the Internal
Revenue Code or the terms of the employee stock ownership plan loan (see below).
Specifically, the amended and restated plan will provide benefits to eligible
individuals (designated by the Board of Directors of Savings Bank of Manchester
or its affiliates) that cannot be provided under the 401(k) Plan and/or the
employee stock ownership plan as a result of the limitations imposed by the
Internal Revenue Code, but that would have been provided under the 401(k) Plan
and/or the employee stock ownership plan but for such limitations. In addition
to providing for benefits lost under tax-qualified plans as a result of
limitations imposed by the Internal Revenue Code, the new plan will also provide
supplemental benefits to designated individuals who retire, who terminate
employment in connection with a change in control, or whose participation in the
employee stock ownership plan ends due to termination of the employee stock
ownership plan (regardless of whether the individual terminates employment)
before the complete scheduled repayment of the employee stock ownership plan
loan. Generally, if an eligible individual retires or a change in control of
Savings Bank of Manchester or Connecticut Bancshares occurs before complete
repayment of the employee stock ownership plan loan, the supplemental executive
retirement plan will provide the individual with a benefit equal to what the
individual would have received under the employee stock ownership plan had he
remained employed throughout the term of the employee stock ownership plan or
had the employee stock ownership plan not been terminated before the scheduled
repayment of the employee stock ownership plan loan less the benefits actually
provided under the employee stock ownership plan on behalf of such individual.
An individual's benefits under the supplemental executive retirement plan will
generally become payable upon the participant's retirement (in accordance with
the standard retirement policies of Savings Bank of Manchester), upon the change
in control of Savings Bank of Manchester or Connecticut Bancshares or as
determined under the applicable tax-qualified retirement plans sponsored by
Savings Bank of Manchester. The Board of Directors intends to designate Messrs.
Meduski, Pike, Anderson and Bailey as participants in the supplemental executive
retirement plan.
The amended and restated supplemental executive retirement plan will also
provide the Board of Directors with the opportunity to provide a retention
incentive for key personnel in the form of enhanced early retirement benefits.
Upon selection by the Board, a designated officer would be eligible to retire at
age 60 with a retirement benefit equal to 60 percent of his final average
compensation (base salary and cash bonus) less benefits payable under Savings
Bank of Manchester pension plan and the pension provisions of the supplemental
executive retirement plan. However, no benefit would be payable under this
provision in the event of the officer's termination of employment before age 60,
other than in the event of the officer's death, disability or upon a change in
control of Savings Bank of Manchester or Connecticut Bancshares. The plan
further provides that a designated officer's
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spouse would receive a survivor's benefit equal to 50 percent of the benefit
provided to the officer during his lifetime. It is anticipated that the Board
will designate Mr. Meduski as a participant under this provision in order to
ensure that his overall compensation reflects his significant role at Savings
Bank of Manchester and to provide an incentive for his continued employment. In
connection with Mr. Meduski's designation, it is anticipated that Savings Bank
of Manchester will accrue compensation expense of approximately $297,000 over
the next five years.
Savings Bank of Manchester currently maintains a grantor trust in
connection with the supplemental executive retirement plan. It is anticipated
that Savings Bank of Manchester will amend this trust agreement to include the
amended and restated supplemental executive retirement plan. The assets of the
grantor trust are subject to the claims of Savings Bank of Manchester's general
creditors in the event of Savings Bank of Manchester's insolvency until paid to
the individual according to the terms of the supplemental executive retirement
plans.
401(k) Plan. Savings Bank of Manchester has implemented the Savings Bank of
Manchester Savings Plan (the "401(k) Plan"), a tax-qualified profit sharing plan
with a qualified cash or deferred arrangement under Section 401(k) of the
Internal Revenue 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 contributions made by
Savings Bank of Manchester. Eligible employees may begin participating in the
401(k) Plan upon the completion of six months of service (as defined in the
401(k) Plan). Participants currently may make pre-tax salary deferrals to the
401(k) Plan in amounts from 1% to 15% of their total compensation, within a
legally permissible limit ($10,000 for 1999). In addition, the 401(k) Plan
provides for post-tax salary participant deferrals up to 10% of a participant's
total compensation. Savings Bank of Manchester makes a regular matching
contribution equal to 50% of the elective deferrals made by each participant up
to 6% of a participant's base compensation. This match is discretionary and may
increase or decrease as determined by Savings Bank of Manchester. A participant
is always 100% vested in his or her account under the 401(k) Plan.
Currently, participants may invest their accounts under the 401(k) Plan in
eight investment vehicles with varying investment characteristics. Savings Bank
of Manchester intends to add, as an investment option, an employer stock fund in
which participants may invest a portion of their account balances primarily in
Connecticut Bancshares common stock within the limitations set forth in the
401(k) Plan document. However, a participant's ability to acquire common stock
in the conversion will be based on his or her status as an eligible account
holder. Regardless of the source of funds, no eligible account holders may elect
to invest more than $250,000 in common stock.
Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service for any reason. However, participants may
request in-service distributions from the 401(k) Plan in the form of hardship
withdrawals, withdrawals of rollover contributions and the withdrawal of
unmatched after-tax contributions. Distributions from the 401(k) Plan generally
must comply with federal and state income taxes and distributions made before a
participant attains age 59 1/2 also must comply with a federal excise tax.
Incentive Compensation Programs. The Board of Directors of Savings Bank of
Manchester has typically authorized a discretionary annual cash incentive
compensation program for officers of Savings Bank of Manchester based on the
Board's evaluation of the fiscal year's operating results. The size of the
available incentive compensation pool is determined by the Board's executive
committee based upon the recommendation of the compensation committee. The
maximum bonus under the program is limited to 40% of base salary for the
President, 30% for senior officers and 20% for junior officers.
In May 1999, the Board authorized a long-term incentive compensation
program that provides cash incentive awards to eligible officers based on the
attainment of financial and individual performance objectives. All awards are
payable on a deferred basis upon the satisfaction of specific vesting
requirements. Under the long-term plan, vesting begins five years after the
year to which an award relates and such awards are forfeited in the event the
officer terminates employment for any reason, other than death, disability or
retirement prior to age 62. Vested awards are payable in installments over a
three-year period following the fifth anniversary of the award date. During the
vesting period and payment period, awards are credited interest at a rate equal
to Savings Bank of
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Manchester's five-year certificate of deposit rate. The program authorizes the
Board to establish a discretionary bonus pool annually. However, no pool may be
authorized if Savings Bank of Manchester's net income before provision for
income taxes and adjusted to exclude gains or losses on securities does not
reflect a four percent increase over Savings Bank of Manchester's budgeted net
income. In the event that a pool is established, one-third of the pool is
awarded to eligible officers in proportion that their compensation bears to the
compensation of all eligible officers and two-thirds of the pool is awarded on a
discretionary basis to eligible officers.
Employee Stock Ownership Plan. Savings Bank of Manchester's Board of
Directors has authorized the adoption of an employee stock ownership plan for
employees of Savings Bank of Manchester to be effective upon the completion of
the conversion. Employees who are employed by Savings Bank of Manchester on the
conversion effective date will be eligible to participate in the plan
immediately. Thereafter, new employees of Connecticut Bancshares and Savings
Bank of Manchester who have been credited with at least six months of service
will be eligible to participate in the employee stock ownership plan.
The employee stock ownership plan intends to purchase 5% of the shares sold
in the conversion through the offering. Following the conversion, the employee
stock ownership plan expects to acquire an additional number of shares through
open market purchases so that the employee stock ownership plan will acquire in
the aggregate, together with shares purchased in the conversion, 8% of the
outstanding shares of common stock of Connecticut Bancshares. In total, the
employee stock ownership plan expects to acquire 8% of the shares issued in the
conversion or between 844,560 shares, assuming 10,557,000 shares are issued in
the conversion, and 1,142,640 shares assuming 14,283,000 shares are issued in
the conversion. If the number of shares to be issued in the conversion is
increased to 16,425,450 shares, the employee stock ownership plan expects to
acquire 1,314,036 shares. It is anticipated that the employee stock ownership
plan will borrow funds from Connecticut Bancshares to purchase its stock. The
loan will equal 100% of the aggregate purchase price of the common stock. The
loan to the employee stock ownership plan will be repaid from Savings Bank of
Manchester's contributions to the employee stock ownership plan and, to a lesser
extent, from dividends payable on Connecticut Bancshares common stock held by
the employee stock ownership plan over the anticipated 15-year term of the loan.
The interest rate for the employee stock ownership plan loan is expected to be
the prime rate as published in The Wall Street Journal on the closing date of
the conversion. See "Pro Forma Data." If the employee stock ownership plan is
unable to acquire 5% of the common stock issued in the conversion through the
offering, it is anticipated that these additional shares will also be acquired
following the conversion through open market purchases.
In any plan year, Savings Bank of Manchester may make additional
discretionary contributions to the employee stock ownership plan for the benefit
of plan participants in either cash or shares of Connecticut Bancshares common
stock, which may be acquired through the purchase of outstanding shares in the
market or from individual stockholders or which constitute authorized but
unissued shares or shares held in treasury by Connecticut Bancshares. The
timing, amount, and manner of discretionary contributions will be affected by
several factors, including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds of
the loan will be held in a suspense account and released on a pro rata basis as
the loan is repaid. Discretionary contributions to the employee stock ownership
plan and shares released from the suspense account will be allocated among
participants on the basis of each participant's proportional share of total
compensation. Any forfeitures will be reallocated among the remaining plan
participants.
Participants who are employed at the effective date of the conversion will
be fully vested upon the completion of one year of service. Participants who
are hired after the conversion effective date will vest in their accrued
benefits under the employee stock ownership plan upon the completion of five
years of service. A participant is fully vested at retirement, upon death or
disability or upon termination of the employee stock ownership plan. Benefits
are distributable upon a participant's retirement, early retirement, death,
disability, or termination of employment. Savings Bank of Manchester's
contributions to the employee stock ownership plan are not fixed, so benefits
payable under the employee stock ownership plan cannot be estimated.
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The Board of Directors of Savings Bank of Manchester expects to appoint an
independent trustee for the employee stock ownership plan. The trustee votes all
allocated shares held in the employee stock ownership plan as instructed by the
plan participants and unallocated shares and allocated shares for which no
instructions are received are voted in the same ratio on any matter as those
shares for which instructions are given.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan must meet the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
of the Internal Revenue Service and the Department of Labor. Savings Bank of
Manchester intends to request a determination letter from the Internal Revenue
Service regarding the tax-qualified status of the employee stock ownership plan.
Savings Bank of Manchester expects to receive a favorable determination letter,
but cannot guarantee it.
Employee Severance Compensation Plan. Savings Bank of Manchester's Board
of Directors intends to adopt the Savings Bank of Manchester Employee Severance
Compensation Plan to provide benefits to eligible employees upon a change in
control of Connecticut Bancshares or Savings Bank of Manchester. Eligible
employees are those with a minimum of one year of service with Savings Bank of
Manchester. Generally, all eligible employees, other than officers who will
enter into separate employment agreements with Connecticut Bancshares and
Savings Bank of Manchester, will be eligible to participate in the severance
plan. Under the severance plan, if a change in control of Connecticut Bancshares
or Savings Bank of Manchester occurs, eligible employees who are terminated or
who terminate employment, but only upon the occurrence of events specified in
the severance plan, within 24 months of the effective date of a change in
control will be entitled to a payment equal to one month's compensation for each
year of service with Savings Bank of Manchester with a maximum payment equal to
24 months of compensation. However, employees of Savings Bank of Manchester as
of the effective date of the conversion will be eligible to receive a minimum
payment equal to one year's compensation without regard to their length of
service. Assuming that a change in control had occurred at December 31, 1998,
and all eligible employees were terminated, the maximum aggregate payment due
under the severance plan would be approximately $____ million.
Stock-Based Incentive Plan. Following the conversion, the Board of
Directors of Connecticut Bancshares intends to adopt a stock-based incentive
plan which will provide for the granting of options to purchase common stock
("Stock Options") and restricted stock ("Stock Awards"), to eligible officers,
employees, and directors of Connecticut Bancshares and Savings Bank of
Manchester. If the stock-based incentive plan is adopted within one year after
conversion, applicable regulations require such plan to be approved by a
majority of Connecticut Bancshares' 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, Connecticut Bancshares intends to
grant Stock Options in an amount equal to 10% of the shares of common stock
issued in the conversion. The amount granted would range from 1,055,700 shares,
assuming 10,557,000 shares are issued in the conversion to 1,428,300 shares,
assuming 14,283,000 shares are issued in the conversion. If the number of
shares to be issued in the conversion is increased to 16,425,450, shares, the
amount of options granted would equal 1,642,545 shares. Additionally,
Connecticut Bancshares intends to grant Stock Awards in an amount equal to 4% of
the shares of common stock issued in the conversion. The amount granted would
range from 422,280 shares, assuming 10,557,000 shares are issued in the
conversion to 571,320 shares, assuming 14,283,000 shares are issued in the
conversion. If the number of shares to be issued in the conversion is increased
to 16,425,450 shares, the amount of awards granted would equal 657,018 shares.
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 from authorized but unissued shares. Connecticut Bancshares intends to
appoint an independent fiduciary to serve as trustee of a trust to be
established in connection with the stock-based incentive
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plan. If 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 proprietary interest in Connecticut Bancshares as an incentive
to contribute to the success of Connecticut Bancshares and reward key employees
for outstanding performance. All employees of Connecticut Bancshares and its
subsidiaries, including Savings Bank of Manchester, 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 available for 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, applicable regulations provide that
no individual officer or employee of Savings Bank of Manchester 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). Federal regulations also provide that no individual officer or
employee of Savings Bank of Manchester 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: (1) Stock
Options intended to qualify as incentive Stock Options under Section 422 of the
Internal Revenue Code ("Incentive Stock Options"); and (2) Stock Options that do
not so qualify ("Non-Statutory Stock Options"). 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 Internal Revenue 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 Connecticut Bancshares Board of
Directors or approval by Connecticut Bancshares stockholders. If the
stockholders approve the Plan, Connecticut Bancshares intends to grant Stock
Options 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.
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 Connecticut Bancshares 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 fair market value on the date of
exercise exceeds the exercise price of the option. 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 Connecticut Bancshares for income tax purposes.
The stock-based incentive plan will provide for the granting of Stock
Awards. Grants of Stock Awards 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 Savings Bank of Manchester, actual performance of
Savings Bank of Manchester as compared to targeted goals such as the ratio of
Savings Bank of Manchester's net worth to total assets, Savings Bank of
Manchester's return on average assets, or such other
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performance standards as determined by the committee with the approval of the
Connecticut Bancshares Board of Directors.
When a participant becomes vested with respect to Stock Awards, 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
under Section 83(b) of the Internal Revenue Code). The amount of income
recognized by the participants will be a deductible expense for tax purposes for
Connecticut Bancshares. 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. Before
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 is adopted within one year after conversion, awards would become
vested and exercisable within the limits of 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 Savings
Bank of Manchester or Connecticut Bancshares, except that if an employee or
director dies or becomes disabled, Stock Options accelerate and become fully
vested and could be exercisable for up to one year thereafter or such longer
period as determined by Connecticut Bancshares. 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. If the optionee continues to perform services as a
director or consultant on behalf of Savings Bank of Manchester, Connecticut
Bancshares or an affiliate after retirement, unvested Stock Options would
continue to vest in accordance with their original vesting schedule until the
optionee ceases to serve as a consultant or director. If a participant dies, is
disabled or retires, Connecticut Bancshares, 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 if the optionee dies, the amount by
which the fair market value of the common stock exceeds the exercise price of
the Stock Options on the date of the employee's termination of employment.
Within the limits of any applicable regulatory requirements, the stock-
based incentive plan may be amended after the first anniversary date of the
conversion to provide for accelerated vesting of previously granted Stock
Options or Stock Awards if a change in control of Connecticut Bancshares or
Savings Bank of Manchester occurs. 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
Connecticut Bancshares or Savings Bank of Manchester or if a tender or exchange
offer, merger or other form of business combination, sale of all or
substantially all of the assets of Connecticut Bancshares or Savings Bank of
Manchester or similar transaction occurs or a contested election of directors
which resulted in the replacement of a majority of the Connecticut Bancshares
Board of Directors by persons not nominated by the directors in office before
the contested election occurs.
Transactions with Related Persons
Loans and Extensions of Credit. Federal regulations require that all loans
or extensions of credit to executive officers and directors must generally be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons,
unless the loan or extension of credit is made under a benefit program generally
available to all other employees and does not give preference to any insider
over any other employee, and must not involve more than the normal risk of
repayment or present other unfavorable features. In addition, loans made to a
director or executive officer in an amount that, when aggregated with the amount
of all other loans to the person and his or her related interests, are in excess
of the
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greater of $25,000 or 5% of Savings Bank of Manchester'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 Directors. See "Regulation and
Supervision--Federal Regulations--Transactions with Affiliates."
Except for loans made to employees and directors pursuant to Savings Bank
of Manchester's Employee Mortgage Rate, Savings Bank of Manchester currently
makes loans to its executive officers and directors on the same terms and
conditions offered to the general public. Savings Bank of Manchester's policy
provides that all loans made by Savings Bank of Manchester to its executive
officers and directors 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.
The aggregate amount of loans by Savings Bank of Manchester to its executive
officers and directors was approximately $16.4 million at August 31, 1999. All
such loans to executive officers and directors were performing according to
their original terms at August 31, 1999.
Other Transactions. Mr. Anderson, Savings Bank of Manchester's Executive
Vice President, is Chairman of the Board and a significant shareholder of Open
Solutions, Inc., Savings Bank of Manchester's computer software provider. For
the eight months ended August 31, 1999 and the year ended December 31, 1998,
Savings Bank of Manchester paid fees to Open Solutions of $294,000 and $156,000,
respectively.
In addition, Savings Bank of Manchester uses the services of the law firms
of LaBelle, LaBelle, Naab & Horvath, P.C. and Woodhouse, Rubinow & Macht, P.C.
Messrs LaBelle and Rubinow, directors of Savings Bank of Manchester, are
partners of each of their respective firms. Both law firms are used for a
variety of legal work relating to the ordinary course of Savings Bank of
Manchester's business. Total payments by Savings Bank of Manchester to Mr.
LaBelle's law firm totalled $230 for the eight months ended August 31, 1999 and
there were no fees paid to Mr. LaBelle's law firm for the year ended December
31, 1998. Total payments by Savings Bank of Manchester to Mr. Rubinow's law
firm totalled $27,163 and $38,846 for the eight months ended August 31, 1999 and
the year ended December 31, 1998, respectively.
REGULATION AND SUPERVISION
General
As a savings bank chartered by the State of Connecticut, Savings Bank of
Manchester is extensively regulated under state law with respect to many aspects
of its banking activities; this state regulation is administered by the
Connecticut Banking Commissioner. In addition, as a bank whose deposits are
insured by the Federal Deposit Insurance Corporation through the Bank Insurance
Fund, Savings Bank of Manchester must pay deposit insurance assessments and is
examined and supervised by the Federal Deposit Insurance Corporation. These
laws and regulations have been established primarily for the protection of
depositors, customers and borrowers of Savings Bank of Manchester, not bank
stockholders.
Connecticut Bancshares will also be required to file reports with, and
otherwise comply with the rules and regulations of, the Office of Thrift
Supervision, the Connecticut Banking Commissioner and the Securities and
Exchange Commission under the federal securities laws. The following discussion
of the laws and regulations material to the operations of Connecticut Bancshares
and Savings Bank of Manchester is a summary and is qualified in its entirety by
reference to such laws and regulations.
Savings Bank of Manchester is and Connecticut Bancshares, as a savings and
loan holding company, will be extensively regulated and supervised.
Regulations, which affect Savings Bank of Manchester on a daily basis, may be
changed at any time, and the interpretation of the relevant law and regulations
may also change because of new interpretations by the authorities who interpret
those laws and regulations. Any change in the regulatory structure or the
applicable statutes or regulations, whether by the Connecticut Banking
Commissioner, the State of
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Connecticut, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation or the Congress, could have a material impact on Connecticut
Bancshares, Savings Bank of Manchester, its operations or the Conversion.
Connecticut Banking Laws and Supervision
The Connecticut Banking Commissioner regulates Savings Bank of Manchester's
internal organization as well as its deposit, lending and investment activities.
The approval of the Connecticut Banking Commissioner is required for, among
other things, the establishment of branch offices and business combination
transactions. The Connecticut Banking Commissioner conducts periodic
examinations of Savings Bank of Manchester. The Federal Deposit Insurance
Corporation also regulates many of the areas regulated by the Connecticut
Banking Commissioner and federal law may limit some of the authority provided to
Savings Bank of Manchester by Connecticut law.
Lending Activities. Connecticut banking laws grant banks broad lending
authority. With certain limited exceptions, however, total secured and
unsecured loans made to any one obligor under this statutory authority may not
exceed 25% of Savings Bank of Manchester's equity capital and reserves for loan
and lease losses.
A savings bank may pay cash dividends out of its net profits. For purposes
of this restriction, "net profits" means the remainder of all earnings from
current operations. Further, the total amount of all dividends declared by a
savings bank in any calendar year may not exceed the sum of the bank's net
profits for the year in question combined with its retained net profits from the
preceding two calendar years. Additionally, earnings appropriated to reserves
for loan losses and deducted for federal income tax purposes are not available
for cash dividends without the payment of taxes at the then current income tax
rates on the amount used. Federal law also prevents an institution from paying
dividends or making other capital distributions if doing so would cause it to
become "undercapitalized." See "--Federal Regulations" and "--Prompt
Corrective Regulatory Action." The Federal Deposit Insurance Corporation may
limit a savings bank's ability to pay dividends. No dividends may be paid to
Savings Bank of Manchester's stockholders if such dividends would reduce
stockholders' equity below the amount of the liquidation account required by the
Connecticut conversion regulations.
Branching Activities. Any Connecticut-chartered bank meeting certain
statutory requirements may, with the Connecticut Banking Commissioner's
approval, establish and operate branches in any town or towns within the state.
In 1996, legislation was enacted which permits banks to establish mobile
branches with the Connecticut Banking Commissioner's approval.
Investment Activities. In 1996, legislation was enacted which requires the
board of directors of each Connecticut bank to adopt annually and to
periodically review an investment policy governing investments by such bank,
which policy must establish standards for the making of prudent investments. In
addition, Connecticut law now permits Connecticut banks to sell fixed and
variable rate annuities if licensed to do so by the Connecticut Insurance
Commissioner.
Further, legislation was enacted in 1996 which expands the ability of
Connecticut banks to invest in debt securities and debt mutual funds. Before
the legislation, Connecticut banks could invest in debt securities and debt
mutual funds without regard to any other liability to the Connecticut bank of
the maker or issuer of the debt securities and debt mutual funds, if the debt
securities and debt mutual funds were rated in the three highest rating
categories or otherwise deemed to be a prudent investment, and so long as the
total amount of debt securities and debt mutual funds of any one issuer did not
exceed 15% of Savings Bank of Manchester's total equity capital and reserves for
loan and lease losses and the total amount of all its investments in debt
securities and debt mutual funds did not exceed 15% of its assets. In 1996,
these percentages each were increased to 25%. In addition, before 1996, the
percentage limitation described above also applied to certain government and
agency obligations. As a result of the 1996 legislation, this limitation was
deleted for such obligations.
The 1996 legislation also expanded the ability of Connecticut banks to
invest in equity securities and equity mutual funds. Connecticut banks now may
invest in equity securities and equity mutual funds without regard
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to any other liability to the Connecticut bank of the issuer of equity
securities and equity mutual funds, so long as the total amount of equity
securities and equity mutual funds of any one issuer does not exceed 25% of the
bank's total equity capital and reserves for loan and lease losses and the total
amount of the bank's investment in all equity securities and equity mutual funds
does not exceed 25% of its assets. Before the enactment of this legislation,
Connecticut banks could invest up to 15% of their assets in the equity
securities and equity mutual funds of corporations incorporated and doing a
major portion of their business in the United States.
Recent Legislation. Connecticut legislation enacted in 1999 authorizes a
new form of Connecticut bank to be known as an uninsured bank. An uninsured
bank does not accept retail deposits and is not required to insure deposits with
the Federal Deposit Insurance Corporation. The 1999 legislation also authorizes
Connecticut banks with the prior approval of the Connecticut Banking
Commissioner to engage in a broad range of activities related to the business of
banking, or that are financial in nature or that are permitted under the Federal
Bank Holding Company Act or the Home Owners' Loan Act or the regulations
promulgated as a result of these statutes. The legislation also authorizes a
Connecticut bank to engage in any activity permitted for a national bank or a
federal savings association upon filing notice with the Connecticut Banking
Commissioner unless the Connecticut Banking Commissioner disapproves the
activity.
Enforcement. Under Connecticut law, the Connecticut Banking Commissioner
has extensive enforcement authority over Connecticut banks and, under certain
circumstances, affiliated parties, insiders, and agents. The Connecticut
Banking Commissioner's enforcement authority includes: cease and desist orders,
fines, receivership, conservatorship, removal of officers and directors,
emergency closures, dissolution, and liquidation.
Federal Regulations
Capital Requirements. Under Federal Deposit Insurance Corporation
regulations, federally insured state-chartered banks that are not members of the
Federal Reserve System ("state non-member banks"), such as Savings Bank of
Manchester, are required to comply with minimum leverage capital requirements.
For an institution determined by the Federal Deposit Insurance Corporation to
not be anticipating or experiencing significant growth 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 all other
institutions, the minimum leverage capital ratio is not less than 4%. 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).
Savings Bank of Manchester must also comply with the Federal Deposit
Insurance Corporation guidelines. The Federal Deposit Insurance Corporation
guidelines require state non-member banks to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted assets. The ratio of
regulatory capital to regulatory risk-weighted assets is referred to as Savings
Bank of Manchester'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 Federal Deposit Insurance Corporation'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, loans secured by one- to four-family
residential properties generally have a 50% risk weight and commercial loans
have a risk weighting of 100%.
State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. 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, a portion of the net
unrealized gain on equity securities and other capital instruments. The
includable amount of Tier 2 capital cannot exceed the amount of the
institution's Tier 1 capital.
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The Federal Deposit Insurance Corporation Improvement Act 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. The Federal Deposit Insurance
Corporation, along with the other federal banking agencies, has adopted a
regulation providing that the agencies will take into account the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy. See "Historical and Pro Forma Regulatory Capital
Compliance."
As a savings and loan holding company regulated by the Office of Thrift
Supervision, Connecticut Bancshares will not, under current law, be subject to
any separate regulatory capital requirements.
Standards for Safety and Soundness. As required by statute, the federal
banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness to implement 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.
Investment Activities
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act, all state-chartered Federal Deposit Insurance Corporation
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. The Federal Deposit
Insurance Corporation Improvement Act and the Federal Deposit Insurance
Corporation permit exceptions to these limitations. For example, state
chartered banks, such as Savings Bank of Manchester, may, with Federal Deposit
Insurance Corporation 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. In addition, the Federal
Deposit Insurance Corporation 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 Bank Insurance
Fund. The Federal Deposit Insurance Corporation has recently adopted revisions
to its regulations governing the procedures for institutions seeking approval to
engage in such activities or investments. These revisions, among other things,
streamline the application procedures for healthy banks and impose 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 approved by the Federal
Deposit Insurance Corporation, must have been divested by December 19, 1996,
under a Federal Deposit Insurance Corporation-approved divestiture plan, unless
such investments were grandfathered by the Federal Deposit Insurance
Corporation. Savings Bank of Manchester received grandfathered authority from
the Federal Deposit Insurance Corporation in March 1993 to invest in listed
stocks and/or registered shares. However, the maximum permissible investment is
100% of Tier 1 capital, as specified by the Federal Deposit Insurance
Corporation's regulations, or the maximum amount permitted by Connecticut law,
whichever is less. Such grandfathered authority may be terminated upon the
Federal Deposit Insurance Corporation's determination that such investments pose
a safety and soundness risk to Savings Bank of Manchester or if Savings Bank of
Manchester converts its charter, other than a mutual to stock conversion, or
undergoes a change in control. As of August 31, 1999, Savings Bank of
Manchester had $43.0 million of securities which were held under such
grandfathering authority. See "Business of Savings Bank of Manchester--
Investment Activities."
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Interstate Branching
Until recently, branching across state lines was generally not available to
a state bank such as Savings Bank of Manchester. Out-of-state branches of
banking institutions are authorized under the Connecticut Banking Law, but
similar authority does not exist generally under the laws of most other states.
Beginning June 1, 1997, the Interstate Banking Act permitted 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 before 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. In 1995, Connecticut
affirmatively "opted-in" to the provisions of the Interstate Banking Act.
Accordingly, beginning June 1, 1997, the Interstate Banking Act permitted a
bank, such as Savings Bank of Manchester, to acquire branches in a state other
than Connecticut 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.
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 Federal Deposit Insurance Corporation has adopted regulations to
implement the prompt corrective action legislation. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio
of 5% or greater. An institution is "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is "undercapitalized" if it has a total risk-based capital ratio of less than
8%, a Tier 1 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 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is considered 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, 1999, Savings Bank of
Manchester was a "well capitalized" institution and immediately upon completion
of the Conversion expects to remain a "well capitalized" institution.
"Undercapitalized" banks must adhere to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institution in an
amount equal to the lesser of 5% of the institution'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 must comply with one or more of a number of additional
restrictions, including but not limited to an order by the Federal Deposit
Insurance Corporation 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 must comply with additional sanctions including, subject to a
narrow exception, the appointment of a receiver or conservator 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. In a holding company context, at a minimum, the parent holding company of
a savings bank and any companies which are controlled by such parent holding
company are affiliates
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of the savings bank. Generally, Section 23A limits the extent to which the
savings bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to 10% of such savings bank's capital stock and surplus, and
contains an aggregate limit on all such transactions with all affiliates to 20%
of capital stock and surplus. The term "covered transaction" includes, among
other things, the making of loans or other extensions of credit to an affiliate
and the purchase of assets from 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 bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts an institution
with respect to loans to directors, executive officers, and principal
stockholders ("insiders"). Under Section 22(h), loans to insiders and their
related interests may not exceed, together with all other outstanding loans to
such persons and affiliated entities, the institution's total capital and
surplus. Loans to insiders above specified amounts must receive the prior
approval of the board of directors. Further, under 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 under a benefit or
compensation program that is widely available to Savings Bank of Manchester'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 Federal Deposit Insurance Corporation has extensive enforcement
authority over insured savings banks, including Savings Bank of Manchester.
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 unsafe or unsound practices.
The Federal Deposit Insurance Corporation has authority under Federal law
to appoint a conservator or receiver for an insured bank under limited
circumstances. The Federal Deposit Insurance Corporation 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 institution
became "critically undercapitalized." See "--Prompt Corrective Regulatory
Action." The Federal Deposit Insurance Corporation may also appoint itself as
conservator or receiver for an insured state non-member institution under
specific circumstances on the basis of the institution's financial condition or
upon the occurrence of other events, including: (1) insolvency; (2) substantial
dissipation of assets or earnings through violations of law or unsafe or unsound
practices; (3) existence of an unsafe or unsound condition to transact business;
and (4) insufficient capital, or the incurring of losses that will deplete
substantially all of the institution's capital with no reasonable prospect of
replenishment without federal assistance.
Insurance of Deposit Accounts
The Federal Deposit Insurance Corporation has adopted a risk-based
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and 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 Federal Deposit
Insurance Corporation by the institution's primary federal regulator and
information which the Federal Deposit Insurance Corporation 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. Assessment
rates for insurance fund deposits currently range from 0 basis points for the
strongest institution to 27 basis points for the weakest. Bank Insurance Fund
members are also required to assist in the repayment of bonds issued by the
Financing Corporation in the late 1980's to recapitalize the Federal Savings and
Loan Insurance Corporation. Bank Insurance Fund members are currently assessed
about 1.2 basis points,
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which is generally 20% of the amount charged Savings Association Insurance Fund
members. Effective January 1, 2000, full pro rata sharing of the payments
between Bank Insurance Fund and Savings Association Insurance Fund members will
occur. The Federal Deposit Insurance Corporation is authorized to raise the
assessment rates. The Federal Deposit Insurance Corporation has exercised this
authority several times in the past and may raise insurance premiums in the
future. If such action is taken by the Federal Deposit Insurance Corporation, it
could have an adverse effect on the earnings of Savings Bank of Manchester.
The Federal Deposit Insurance Corporation may terminate insurance of
deposits if it finds that the institution is in an unsafe or unsound condition
to continue operations, has engaged in unsafe or unsound practices, or has
violated any applicable law, regulation, rule, order or condition imposed by the
Federal Deposit Insurance Corporation. The management of Savings Bank of
Manchester 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 $44.3 million or less (which may be adjusted by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $44.3
million, the reserve requirement is $1.33 million plus 10% (which may be
adjusted by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $44.3 million. The first $5.0
million of otherwise reservable balances (which may be adjusted by the Federal
Reserve Board) are exempted from the reserve requirements. Savings Bank of
Manchester is in compliance with these requirements.
Community Reinvestment Act
Under the Community Reinvestment Act, as implemented by Federal Deposit
Insurance Corporation 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 Community Reinvestment Act neither establishes specific
lending requirements or programs for financial institutions nor limits an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The Community
Reinvestment Act requires the Federal Deposit Insurance Corporation, in
connection with its examination of an institution, to assess the institution's
record of meeting the credit needs of its community and to consider such record
when it evaluates applications made by such institution. The Community
Reinvestment Act requires public disclosure of an institution's Community
Reinvestment Act rating. Savings Bank of Manchester's latest Community
Reinvestment Act rating, received from the Federal Deposit Insurance Corporation
was "satisfactory."
Federal Home Loan Bank System
Savings Bank of Manchester is a member of the Federal Home Loan Bank
System, which consists of 12 regional Federal Home Loan Banks. The Federal Home
Loan Bank provides a central credit facility primarily for member institutions.
Savings Bank of Manchester, as a member of the Federal Home Loan Bank of Boston,
is required to acquire and hold shares of capital stock in the Federal Home Loan
Bank of Boston 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 Federal
Home Loan Bank of Boston, whichever is greater. Savings Bank of Manchester was
in compliance with this requirement with an investment in Federal Home Loan Bank
of Boston stock at August 31, 1999 of $5.9 million. At August 31, 1999, Savings
Bank of Manchester had $66.9 million in Federal Home Loan Bank of Boston
advances.
The Federal Home Loan Banks are required to provide funds for certain
purposes including contributing funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal
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Home Loan Banks pay to their members and result in the Federal Home Loan Banks
imposing a higher rate of interest on advances to their members. For the eight
months ended August 31, 1999 and 1998 and the years ended December 31, 1998,
1997 and 1996, cash dividends from the Federal Home Loan Bank of Boston to
Savings Bank of Manchester amounted to approximately $287,000, $275,000,
$369,000, $351,000 and $341,000, respectively. Further, there can be no
assurance that the impact of recent or future legislation on the Federal Home
Loan Banks will not also cause a decrease in the value of the Federal Home Loan
Bank stock held by Savings Bank of Manchester.
Holding Company Regulation
Federal law allows a state savings bank that qualifies as a "Qualified
Thrift Lender," 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. Such election allows its holding company to be regulated as a
savings and loan holding company by the Office of Thrift Supervision rather than
as a bank holding company by the Federal Reserve Board. Savings Bank of
Manchester has made such election and expects Connecticut Bancshares to receive
approval from the Office of Thrift Supervision to become a savings and loan
holding company. Connecticut Bancshares will be regulated as a savings and loan
holding company within the meaning of the Home Owners' Loan Act. As such,
Connecticut Bancshares will be required to register with the Office of Thrift
Supervision and will have to adhere to the Office of Thrift Supervision's
regulations and reporting requirements. In addition, the Office of Thrift
Supervision may examine and supervise Connecticut Bancshares and the Office of
Thrift Supervision has enforcement authority over Connecticut Bancshares and its
non-savings institution subsidiaries. Among other things, this authority
permits the Office of Thrift Supervision to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings institution.
Additionally, Savings Bank of Manchester will be required to notify the Office
of Thrift Supervision at least 30 days before declaring any dividend to
Connecticut Bancshares. By regulation, the Office of Thrift Supervision may
restrict or prohibit Savings Bank of Manchester from paying dividends.
Connecticut Bancshares will be a unitary savings and loan holding company
under federal law because Savings Bank of Manchester will be its only insured
subsidiary immediately after the conversion. Formerly, a unitary savings and
loan holding company was not restricted as to the types of business activities
in which it could engage, provided that its subsidiary savings association
continued to be a qualified thrift lender. Recent legislation, however,
restricts unitary savings and loan holding companies not existing or applied for
before May 4, 1999 to activities permissible for a financial holding company as
defined under the legislation, including insurance and securities activities,
and those permitted for a multiple savings and loan holding company as described
below. Upon any non-supervisory acquisition by Connecticut Bancshares of
another savings association as a separate subsidiary, Connecticut Bancshares
would become a multiple savings and loan holding company and would have
extensive limitations on the types of business activities in which it could
engage. The Home Owners' Loan Act 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, provided the prior approval of the Office of
Thrift Supervision is obtained, and to other activities authorized by Office of
Thrift Supervision regulation. Multiple savings and loan holding companies are
generally prohibited from acquiring or retaining more than 5% of a non-
subsidiary company engaged in activities other than those permitted by the Home
Owners' Loan Act.
The Home Owners' Loan Act prohibits a savings and loan holding company
from, directly or indirectly, acquiring more than 5% of the voting stock of
another savings association or savings and loan holding company or from
acquiring such an institution or company by merger, consolidation or purchase of
its assets, without prior written approval of the Office of Thrift Supervision.
In evaluating applications by holding companies to acquire savings associations,
the Office of Thrift Supervision considers the financial and managerial
resources and future prospects of Connecticut Bancshares and the institution
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
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The Office of Thrift Supervision 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: (1) interstate
supervisory acquisitions by savings and loan holding companies; and (2) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions.
To be regulated as a savings and loan holding company by the Office of
Thrift Supervision (rather than as a bank holding company by the Federal Reserve
Board), Savings Bank of Manchester must qualify as a Qualified Thrift Lender.
To qualify as a Qualified Thrift Lender, Savings Bank of Manchester must
maintain compliance with the test for a "domestic building and loan
association," as defined in the Internal Revenue Code, or with a Qualified
Thrift Lender Test. Under the Qualified Thrift Lender Test, a savings
institution is required to maintain at least 65% of its "portfolio assets"
(total assets less: (1) specified liquid assets up to 20% of total assets; (2)
intangibles, including goodwill; and (3) 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. As of August 31,
1999 Savings Bank of Manchester maintained in excess of 75% of its portfolio
assets in qualified thrift investments. Savings Bank of Manchester also met the
Qualified Thrift Lender test in each of the last 12 months and, therefore, met
the Qualified Thrift Lender test.
Connecticut Holding Company Regulations. Under Connecticut banking law, no
person may acquire beneficial ownership of more than 10% of any class of voting
securities of a Connecticut-chartered bank, or any bank holding company of such
a bank, without prior notification of, and lack of disapproval by, the
Connecticut Banking Commissioner. The Connecticut Banking Commissioner will
disapprove the acquisition if the bank or holding company to be acquired has
been in existence for less than five years, unless the Connecticut Banking
Commissioner waives this requirement, or if the acquisition would result in the
acquirer controlling 30% or more of the total amount of deposits in insured
depository institutions in Connecticut. Similar restrictions apply to any
person who holds in excess of 10% of any such class and desires to increase its
holdings to 25% or more of such class.
Federal Securities Laws
Connecticut Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. Upon
completion of the conversion, Connecticut Bancshares' common stock will be
registered with the Securities and Exchange Commission under the Exchange Act.
Connecticut Bancshares will then have to observe 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 Connecticut
Bancshares may be resold without registration. The resale restrictions of Rule
144 under the Securities Act govern shares purchased by an affiliate of
Connecticut Bancshares. If Connecticut Bancshares meets the current public
information requirements of Rule 144 under the Securities Act, each affiliate of
Connecticut Bancshares who complies with the other conditions of Rule 144
(including those that require the affiliate's sale to be aggregated with those
of 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 (1) 1% of the outstanding shares of Connecticut Bancshares or (2) the
average weekly volume of trading in such shares during the preceding four
calendar weeks. Provision may be made in the future by Connecticut Bancshares
to permit affiliates to have their shares registered for sale under the
Securities Act under specific circumstances.
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FEDERAL AND STATE TAXATION ON INCOME
Federal Income Taxation
General. Connecticut Bancshares and Savings Bank of Manchester intend to
report their income on a calendar year basis using the accrual method of
accounting. The federal income tax laws apply to Connecticut Bancshares and
Savings Bank of Manchester in the same manner as to other corporations with some
exceptions, including particularly Savings Bank of Manchester's reserve for bad
debts discussed below. The following discussion of tax matters is intended only
as a summary and does not purport to be a comprehensive description of the tax
rules applicable to Savings Bank of Manchester or Connecticut Bancshares.
Savings Bank of Manchester's federal income tax returns have been either audited
or closed under the statute of limitations through tax year 1995. For its 1998
tax year, Savings Bank of Manchester's maximum federal income tax rate was 35%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for
nonqualifying loans was computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $12.6 million of Savings Bank of Manchester accumulated bad debt
reserves would not be recaptured into taxable income unless Savings Bank of
Manchester makes a "non-dividend distribution" to Connecticut Bancshares as
described below.
Distributions. If Savings Bank of Manchester makes "non-dividend
distributions" to Connecticut Bancshares, they will be considered to have been
made from Savings Bank of Manchester's unrecaptured tax bad debt reserves,
including the balance of its reserves as of December 31, 1987, to the extent of
the "non-dividend distributions," and then from Savings Bank of Manchester's
supplemental reserve for losses on loans, to the extent of those reserves, and
an amount based on the amount distributed, but not more than the amount of those
reserves, will be included in Savings Bank of Manchester's taxable income. Non-
dividend distributions include distributions in excess of Savings Bank of
Manchester'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 liquidation. Dividends paid out of Savings
Bank of Manchester's current or accumulated earnings and profits will not be so
included in Savings Bank of Manchester's taxable income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Savings Bank of Manchester makes a
non-dividend distribution to Connecticut Bancshares, approximately one and one-
half times the amount of the distribution not in excess of the amount of the
reserves would be includable in income for federal income tax purposes, assuming
a 35% federal corporate income tax rate. Savings Bank of Manchester does not
intend to pay dividends that would result in a recapture of any portion of its
bad debt reserves.
Connecticut Taxation
Connecticut Bancshares and its subsidiaries are subject to the Connecticut
corporation business tax. Connecticut Bancshares and its subsidiaries will be
eligible to file a combined Connecticut corporation business tax return and will
pay the regular corporation business tax (income tax).
The Connecticut corporation business tax is based on the federal taxable
income before net operating loss and special deductions of Connecticut
Bancshares and its subsidiaries and makes certain modifications to federal
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taxable income to arrive at Connecticut taxable income. Connecticut taxable
income is multiplied by the state tax rate (8.5% for 1999 and 7.5% for 2000 and
thereafter) to arrive at Connecticut income tax.
In May 1998, the State of Connecticut enacted legislation permitting the
formation of passive investment company subsidiaries by financial institutions.
This legislation exempts qualifying passive investment companies from the
Connecticut corporation business tax and excludes dividends paid from a passive
investment company from the taxable income of the parent financial institution.
Savings Bank of Manchester's formation of a passive investment company in
January 1999 is expected to substantially eliminate the state income tax expense
of Connecticut Bancshares and its subsidiaries.
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SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table presents certain information as to the approximate
purchases of common stock by each director and executive officer of Savings Bank
of Manchester, including their associates, as defined by applicable regulations.
No individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 30% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Anticipated Anticipated Percent of Percent of
Number of Dollar Shares at Shares at
Shares to be Amount to be Minimum Maximum
Purchased (1) Purchased (1) of Estimated of Estimated
Name Valuation Range Valuation Range
- ---- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Thomas A. Bailey 7,500 $ 75,000 .08% .06%
Richard P. Meduski (2) 25,000 250,000 .26 .19
A. Paul Berte 5,000 50,000 .05 .04
Timothy J. Devanney 15,000 150,000 .15 .11
M. Adler Dobkin 6,000 60,000 .06 .04
Sheila B. Flanagan (2) 25,000 250,000 .26 .19
John D. LaBelle, Jr. 5,000 50,000 .05 .04
Michael B. Lynch 10,000 100,000 .10 .08
Eric A. Marziali (2) 25,000 250,000 .26 .19
Jon L. Norris 2,500 25,000 .02 .01
William D. O'Neill 20,000 200,000 .20 .15
Laurence P. Rubinow (2) 25,000 250,000 .26 .19
John G. Sommers 15,000 150,000 .15 .11
Thomas E. Toomey 15,000 150,000 .15 .11
Gregory S. Wolff (2) 25,000 250,000 .26 .19
Charles L. Pike (2) 25,000 250,000 .26 .19
Douglas K. Anderson (2) 25,000 250,000 .26 .19
Nicholas B. Mason 10,000 100,000 .10 .08
Roger A. Somerville 6,500 65,000 .06 .05
------- ---------- ---- ----
All Directors and Executive Officers 292,500 $2,925,000 2.99% 2.21%
as a Group (19 persons) (3)......... ======= ========== ==== ====
</TABLE>
_____________________________
(1) Includes proposed purchases with funds contained in the individual's 401(k)
plan account. Does not include shares to be awarded under the employee
stock ownership plan and stock-based incentive plan or options to acquire
shares under the stock-based incentive plan.
(2) Such amount represents the maximum allowable purchase for such individual.
(3) Including the effect of shares issued to SBM Foundation, the aggregate
beneficial ownership of all directors and executive officers as a group
would be 2.77% and 2.05% at the minimum and maximum of the estimated
valuation range, respectively.
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THE CONVERSION
The Boards of Directors of Connecticut Bankshares, M.H.C., Savings Bank of
Manchester, the Banking Commissioner of the State of Connecticut Department of
Banking and Connecticut Bankshares, M.H.C.'s corporators have approved the Plan
of Conversion subject to the satisfaction of certain other conditions. However,
any approvals by the Connecticut Banking Commissioner are not a recommendation
or endorsement of the plan of conversion.
General
On August 30, 1999, the Boards of Directors of Savings Bank of Manchester
and Connecticut Bankshares, M.H.C. unanimously adopted and, on October 6, 1999
and October 26, 1999, unanimously amended the plan of conversion under which
Savings Bank of Manchester will reorganize from the mutual holding company to
the stock holding company form. Following the conversion, Savings Bank of
Manchester will be held as a wholly owned subsidiary of Connecticut Bancshares,
a recently formed Delaware corporation. The following discussion of the plan of
conversion contains all material terms about the conversion. Nevertheless,
readers are urged to read carefully the plan of conversion, which is available
upon request. The plan of conversion is also filed as an exhibit to the
registration statement that Connecticut Bancshares has filed with the Securities
and Exchange Commission. See "Where You Can Find More Information." The
Connecticut Banking Commissioner of the State of Connecticut Department of
Banking has approved the plan of conversion, subject to certain conditions, and
the Federal Deposit Insurance Corporation has reviewed the application for
conversion without objection. Additionally, Savings Bank of Manchester's
corporators adopted the plan of conversion at a special meeting called for that
purpose on _________, 1999.
The conversion will be accomplished through adoption of Amended and
Restated Articles of Incorporation and Bylaws by Savings Bank of Manchester. As
part of the conversion, Savings Bank of Manchester will issue all of its newly
issued capital stock, 1,000 shares of common stock, to Connecticut Bancshares in
exchange for 50% of the net proceeds from the sale of common stock by
Connecticut Bancshares in connection with the conversion. Connecticut
Bancshares expects to receive approval from the Office of Thrift Supervision to
become a savings and loan holding company and to acquire all of Savings Bank of
Manchester's capital stock issued in the conversion.
The plan of conversion provides that the Board of Directors of Savings Bank
of Manchester, at any time before the completion of the conversion, may decide
not to use the holding company form of organization in implementing the
conversion. This decision may be made to avoid possible delays resulting from
overlapping regulatory processing, or policies or conditions, which could hurt
the ability of Savings Bank of Manchester's, Connecticut Bancshares' or
Connecticut Bankshares, M.H.C.'s ability to complete the conversion and transact
its business after the conversion as is contemplated and in accordance with
Savings Bank of Manchester's operating policies. If such a decision is made,
Savings Bank of Manchester will withdraw Connecticut Bancshares' registration
statement from the Securities and Exchange Commission and will take all steps
necessary to complete the conversion without Connecticut Bancshares, including
filing any necessary documents. In such event, if Savings Bank of Manchester
determines to complete the conversion, if permitted by the Connecticut Banking
Commissioner, Savings Bank of Manchester will issue and sell its common stock
and subscribers will be notified of the elimination of Connecticut Bancshares
and be permitted to affirm, modify or rescind their orders. Subscribers will
need to reconfirm their subscriptions before the end of the resolicitation
offering or their funds will be refunded with interest. The following
description of the plan of conversion assumes that a holding company form of
organization will be used in the conversion. If a holding company form of
organization is not used, all other pertinent terms of the plan of conversion as
described below will apply to the conversion of Savings Bank of Manchester from
the mutual holding company to stock holding company form of organization and the
sale of Savings Bank of Manchester's common stock.
The plan of conversion provides generally that: Connecticut Bankshares,
M.H.C. will convert from a Connecticut-chartered mutual holding company to a
stock bank and shall simultaneously combine or merge with and into Savings Bank
of Manchester, with Savings Bank of Manchester being the surviving entity,
pursuant to
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the combination; the shares of Savings Bank of Manchester's common stock
currently held by Connecticut Bankshares, M.H.C. will be extinguished;
Connecticut Bancshares will be organized for the purpose of acquiring all of the
outstanding shares of Savings Bank of Manchester; the common stock of
Connecticut Bancshares will be offered in the subscription offering to persons
having subscription rights; if necessary, shares of common stock not subscribed
for in the subscription offering will be offered in a direct community offering
to certain members of the general public, with preference given to natural
persons residing in Hartford, Tolland and Windham, Connecticut, and then to
certain members of the general public in a syndicated community offering through
a syndicate of registered broker-dealers under selected dealer agreements; and
Connecticut Bancshares will purchase all of the capital stock of Savings Bank of
Manchester to be issued in the conversion.
As part of the conversion, Connecticut Bancshares is making a subscription
offering of its common stock to holders of subscription rights in the following
order of priority: (1) holders of savings accounts with $50 or more on deposit
as of July 31, 1998; (2) Savings Bank of Manchester's employee stock ownership
plan; and (3) directors, officers and employees of Savings Bank of Manchester
without a higher subscription priority.
Shares of common stock not subscribed for in the subscription offering are
expected to be offered for sale in the direct community offering. The direct
community offering, if one is held, is expected to begin either at the same time
as or during or after the subscription offering. Shares of common stock not sold
in the subscription and direct community offerings may be offered in the
syndicated community offering. Regulations require that the direct community and
syndicated community offerings be completed within 45 days after completion of
the fully extended subscription offering unless extended by Savings Bank of
Manchester or Connecticut Bancshares with the approval of the regulatory
authorities. If the syndicated community offering is not feasible, the Board of
Directors of Savings Bank of Manchester will consult with the regulatory
authorities to determine an appropriate alternative method for selling the
unsubscribed shares of common stock, which may include a firm commitment public
offering. The plan of conversion provides that the conversion must be completed
within 24 months after the date of the approval of the plan of conversion by the
Board of Directors of Savings Bank of Manchester.
The completion of the offering, however, depends on market conditions and
other factors beyond Savings Bank of Manchester's control. No assurance can be
given as to the length of time that will be required to complete the direct
community or syndicated community offerings or other sale of the common stock.
If delays are experienced, significant changes may occur in the estimated pro
forma market value of Connecticut Bancshares and Savings Bank of Manchester as
converted, together with corresponding changes in the net proceeds realized by
Connecticut Bancshares from the sale of the common stock. If the conversion is
terminated, Savings Bank of Manchester would be required to charge all
conversion expenses against current income.
Orders for shares of common stock will not be filled until at least
9,775,000 shares of common stock have been subscribed for, the Connecticut
Banking Commissioner and any other applicable bank regulatory authority approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended subscription
offering and the Connecticut Banking Commissioner consents to an extension of
time to complete the conversion, subscribers will be given the right to
increase, decrease or rescind their subscriptions. Unless an affirmative
indication is received from subscribers that they wish to continue to subscribe
for shares, the funds will be returned promptly, together with accrued interest
at Savings Bank of Manchester's passbook rate from the date payment is received
until the funds are returned to the subscriber. If the period is not extended,
or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at Savings Bank of Manchester's passbook rate
from the date payment is received until the conversion is terminated.
Establishment of the Charitable Foundation
General. In furtherance of Savings Bank of Manchester'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 of conversion
provides that Savings Bank of Manchester and Connecticut Bancshares will
establish SBM Foundation, and will fund it with Connecticut Bancshares common
stock, as further described below. Connecticut Bancshares
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and Savings Bank of Manchester believe that the funding of SBM Foundation with
Connecticut Bancshares common stock is a means of establishing a common bond
between Savings Bank of Manchester and its community and thereby enables Savings
Bank of Manchester's community to share in the potential growth and success of
Connecticut Bancshares over the long-term. By further enhancing Savings Bank of
Manchester's visibility and reputation in its local community, Savings Bank of
Manchester believes that the foundation will enhance the long-term value of
Savings Bank of Manchester's community banking franchise.
Purpose of SBM Foundation. Savings Bank of Manchester emphasizes community
lending and community activities within its local community. In 1998, Savings
Bank of Manchester formed the Savings Bank of Manchester Foundation, Inc., a
foundation that provides grants to charitable organizations that focus primarily
on charitable causes and educational scholarships to qualified students in the
communities in which Savings Bank of Manchester operates. See "Business of
Savings Bank of Manchester--Savings Bank of Manchester Foundation, Inc."
SBM Foundation is being formed to complement, not to replace Savings Bank
of Manchester's existing community activities and its existing foundation's
activities. Savings Bank of Manchester intends to continue to emphasize
community lending and community activities following the conversion. However,
such activities are not Savings Bank of Manchester's sole corporate purpose.
SBM 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 Savings Bank of
Manchester. Savings Bank of Manchester believes that SBM Foundation will enable
Connecticut Bancshares and Savings Bank of Manchester to assist within the
communities in which Savings Bank of Manchester operates in areas beyond
community development and lending and will enhance its current activities under
the CRA. Savings Bank of Manchester received a "Satisfactory" CRA rating in its
last CRA examination by the Federal Deposit Insurance Corporation. Savings Bank
of Manchester's latest CRA rating received from the Connecticut Banking
Commissioner was "Outstanding."
The Board of Directors believes the establishment of SBM Foundation is
consistent with Savings Bank of Manchester's commitment to community service.
The Board further believes that the funding of SBM Foundation with Connecticut
Bancshares common stock will allow Savings Bank of Manchester's community to
share in the potential growth and success of Connecticut Bancshares long after
the conversion. SBM Foundation will accomplish that goal by providing for
continued ties between it and Savings Bank of Manchester, thereby forming a
partnership within the communities in which Savings Bank of Manchester operates.
Savings Bank of Manchester, however, does not expect the contribution to
SBM Foundation to take the place of Savings Bank of Manchester's traditional
community lending and charitable activities. For the year ended 1998, Savings
Bank of Manchester contributed $3.2 million to community organizations and to
the Savings Bank of Manchester Foundation, Inc. Savings Bank of Manchester
expects to continue making charitable contributions within its communities.
Upon conversion, Connecticut Bancshares intends to contribute to SBM Foundation
shares of its common stock equal to 8% of the common stock sold in the
conversion, or stock valued at approximately $10.6 million based on the purchase
price of $10.00 per share, if 13,225,000 shares are sold in the conversion. If
the number of shares sold in the conversion is increased to 15,208,750 shares,
Connecticut Bancshares intends to contribute to SBM Foundation stock valued at
approximately $12.2 million, based on the purchase price of $10.00 per share.
The conversion presents Savings Bank of Manchester and Connecticut Bancshares
with a unique opportunity to provide a substantial and continuing benefit to the
communities in which Savings Bank of Manchester operates, and to receive the
associated tax benefits, without any significant cash outlay by Savings Bank of
Manchester, and without any significant adverse impact to the depositors of
Savings Bank of Manchester.
Structure of SBM Foundation. SBM Foundation will be incorporated under
Delaware law as a non-stock corporation. Under its Bylaws, SBM Foundation's
Board of Directors will be comprised of between _____ and __ members, all of
whom will be existing or former directors or officers of Connecticut Bancshares
or Savings Bank of Manchester. The Certificate of Incorporation of SBM
Foundation provides that the corporation is organized exclusively for charitable
purposes as set forth in Section 501(c)(3) of the Internal Revenue Code. SBM
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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 Board of Directors of SBM Foundation will be responsible for
establishing its grant and donation policies, consistent with the purposes for
which it was established. As directors of a nonprofit corporation, directors of
SBM Foundation will at all times be bound by their fiduciary duty to advance SBM
Foundation's charitable goals, to protect its assets and to act in a manner
consistent with the charitable purposes for which SBM Foundation is established.
The Directors of SBM Foundation will also be responsible for directing the
activities of the foundation, including the management of the common stock of
Connecticut Bancshares held by SBM Foundation. However, all shares of common
stock held by SBM Foundation will be voted in the same ratio as all other shares
of the common stock on all proposals considered by stockholders of Connecticut
Bancshares.
SBM Foundation's place of business will be located at Connecticut
Bancshares' administrative offices. The Board of Directors of SBM Foundation
will appoint such officers and employees as may be necessary to manage its
operations.
Connecticut Bancshares intends to capitalize SBM Foundation with common
stock equal to 8% of the common stock sold in the conversion. This would range
from 782,000 shares, assuming 9,775,000 shares are sold in the conversion, to
1,058,000 shares assuming 13,225,000 shares are sold in the conversion. The
market value of the shares would range from approximately $7.8 million to $10.6
million assuming a purchase price of $10.00 per share. If the number of shares
sold in the conversion is increased to 15,208,750, shares, the foundation would
be funded with 1,216,700 shares of common stock.
SBM Foundation will receive working capital from any dividends that may be
paid on Connecticut Bancshares' common stock in the future, and within the
limits of 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 it with additional
liquidity. As a private foundation under Section 501(c)(3) of the Internal
Revenue Code, SBM 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
Connecticut Bancshares is that the amount of common stock that may be sold by
SBM Foundation in any one year shall not exceed 5% of the average market value
of the assets held by SBM Foundation, except where the Board of Directors of SBM
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 its
assets and/or would otherwise jeopardize its capacity to carry out its
charitable purposes. Upon completion of the conversion and the contribution of
shares to SBM Foundation immediately following the conversion, Connecticut
Bancshares would have 10,557,000, 12,420,00, 14,283,000 and 16,425,450, shares
issued and outstanding at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range. Because of the gift of common stock
to SBM Foundation, Connecticut Bancshares will have an increased number of
shares outstanding and, therefore, the voting and ownership interests of
stockholders in Connecticut Bancshares will be diluted by 7.4%, compared to
their interests in Connecticut Bancshares if SBM Foundation was not established.
For additional discussion of the dilutive effect, see "Pro Forma Data."
Tax Considerations. Connecticut Bancshares and Savings Bank of Manchester
have been advised by their independent tax advisors that an organization created
for the above purposes should qualify as a Section 501(c)(3) exempt organization
under the Internal Revenue Code, and should be classified as a private
foundation. SBM Foundation will submit a request to the Internal Revenue
Service to be recognized as an exempt organization. As long as SBM Foundation
files its application for tax-exempt status within 15 months from the date of
its organization, and provided the Internal Revenue Service approves the
application, its effective date as a Section 501(c)(3) organization will be the
date of its organization. Connecticut Bancshares' independent tax advisors,
however, have not rendered any advice on whether SBM Foundation's tax exempt
status will be affected by the requirement of the regulatory authorities that
all shares of common stock of Connecticut Bancshares held by SBM Foundation must
be voted in the same ratio as all other outstanding shares of common stock of
Connecticut
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Bancshares on all proposals considered by stockholders of Connecticut
Bancshares. See "--Regulatory Conditions Imposed on SBM Foundation."
Under Delaware law, Connecticut Bancshares 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. Connecticut Bancshares and Savings Bank of Manchester
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 making such a determination, Connecticut Bancshares and Savings Bank
of Manchester considered the dilutive impact of the contribution of common stock
to SBM Foundation on the amount of common stock to be sold in the conversion.
Based on such consideration, Connecticut Bancshares and Savings Bank of
Manchester believe that the contribution to SBM Foundation in excess of the 10%
annual limitation on charitable deductions described below is justified given
Savings Bank of Manchester's capital position and its earnings, the substantial
additional capital being raised in the conversion and the potential benefits of
SBM Foundation within the communities in which Savings Bank of Manchester
operates. See "Historical and Pro Forma Regulatory Capital Compliance,"
"Capitalization," and "Comparison of Independent Valuation and Pro Forma
Financial Information With and Without the Foundation." Thus, the amount of the
contribution will not adversely impact the financial condition of Connecticut
Bancshares and Savings Bank of Manchester. Connecticut Bancshares and Savings
Bank of Manchester therefore believe that the amount of the charitable
contribution is reasonable given Connecticut Bancshares' and Savings Bank of
Manchester's pro forma capital positions and does not raise safety and soundness
concerns.
Connecticut Bancshares and Savings Bank of Manchester have received an
opinion of their independent tax advisors that Connecticut Bancshares'
contribution of its own stock to SBM Foundation should not constitute an act of
self-dealing, and that Connecticut Bancshares should 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 amount that SBM Foundation is required to pay
Connecticut Bancshares for such stock. A 10% limitation of Connecticut
Bancshares' annual taxable income before the charitable contribution deduction
applies to such deduction. Connecticut Bancshares should be able to carry
forward for federal and state income tax purposes any unused portion of the
deduction for five years following the contribution. Connecticut Bancshares is
permitted under the Internal Revenue Code to carry the excess contribution over
the five year period following the contribution to SBM Foundation. Connecticut
Bancshares estimates that substantially all of the contribution should be
deductible over the six-year period. However, Connecticut Bancshares does not
have any assurance that the Internal Revenue Service will grant tax-exempt
status to the foundation. Furthermore, even if the contribution is deductible,
Connecticut Bancshares may not have sufficient earnings to be able to use the
deduction in full. Neither Connecticut Bancshares nor Savings Bank of Manchester
expect to make any further contributions to SBM Foundation or the Savings Bank
of Manchester Foundation, Inc. within the first five years following the initial
contribution, unless such contributions would be deductible under the Internal
Revenue Code. Any such decisions would be based on an assessment of, among
other factors, the financial condition of Connecticut Bancshares and Savings
Bank of Manchester at that time, the interests of shareholders and depositors of
Connecticut Bancshares and Savings Bank of Manchester, and the financial
condition and operations of SBM Foundation.
Although Connecticut Bancshares and Savings Bank of Manchester have
received an opinion of their independent tax advisors that Connecticut
Bancshares should be entitled to a deduction for the charitable contribution,
there can be no assurances that the Internal Revenue Service will recognize SBM
Foundation as a Section 501(c)(3) exempt organization or that the deduction will
be permitted. In such event, Connecticut Bancshares' tax benefit related to the
contribution to SBM Foundation would be expensed without tax benefit, resulting
in a reduction in earnings in the year in which the Internal Revenue Service
makes such a determination. See "Risk Factors--Contribution to the SBM
Foundation may not be tax deductible which could hurt Connecticut Bancshares'
profits."
As a private foundation, earnings and gains, if any, from the sale of
common stock or other assets are exempt from federal and state income taxation.
However, investment income, such as interest, dividends and
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capital gains, is generally taxed at a rate of 2.0%. SBM Foundation will be
required to make an annual filing with the Internal Revenue Service within four
and one-half months after the close of its fiscal year to maintain its tax-
exempt status. SBM Foundation will be required to make its annual information
return available for public inspection for a three-year period. 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 SBM Foundation. Establishment of SBM
Foundation is subject to the following conditions to be agreed to by SBM
Foundation in writing as a condition to receiving the Federal Deposit Insurance
Corporation's non-objection to the conversion:
1. the Federal Deposit Insurance Corporation can examine the
foundation;
2. the foundation must comply with supervisory directives imposed by
the Federal Deposit Insurance Corporation;
3. the foundation will operate according to written policies adopted
by its board of directors, including a conflict of interest policy
acceptable to the Federal Deposit Insurance Corporation;
4. the foundation will give a proposed operating plan to the Federal
Deposit Insurance Corporation before the completion of the
conversion
5. the foundation will provide annual reports to the Federal Deposit
Insurance Corporation describing the grants made and the grant
recipients; and
6. any shares of Connecticut Bancshares common stock held by SBM
Foundation must be voted in the same ratio as all other shares of
Connecticut Bancshares common stock voted on each and every
proposal considered by the stockholders of Connecticut Bancshares.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in the
best interests of Savings Bank of Manchester, its customers, employees and the
communities it serves. Savings Bank of Manchester's Board of Directors has
formed Connecticut Bancshares to serve as a holding company, with Savings Bank
of Manchester as its subsidiary, after the conversion. By converting to the
stock holding company form of organization, Connecticut Bancshares and Savings
Bank of Manchester will be structured in the form used by holding companies of
commercial banks, most business entities and by a growing number of savings
institutions. Management of Savings Bank of Manchester believes that the
conversion offers a number of advantages which will be important to the future
growth and performance of Savings Bank of Manchester. The capital raised in the
conversion is intended to support Savings Bank of Manchester's future lending
and operational growth and may also support possible future branching activities
and the acquisition of other financial institutions or financial service
companies or their assets and to increase its ability to render services to the
communities it serves. There are no current specific plans, arrangements or
understandings, written or oral, regarding these activities. The conversion is
also expected to afford Savings Bank of Manchester's management, depositors and
others the opportunity to become stockholders of Connecticut Bancshares and
participate more directly in, and contribute to, any future growth of
Connecticut Bancshares and Savings Bank of Manchester. The conversion will also
enable Connecticut Bancshares and Savings Bank of Manchester to raise additional
capital in the public equity or debt markets should the need arise, although
there are no current specific plans, arrangements or understandings, written or
oral, regarding any such financing activities.
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Effects of Conversion to Stock Form
General. Each depositor in Savings Bank of Manchester has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution through Connecticut Bankshares, M.H.C., based upon the balance
in his or her account, which interest may only be realized if the institution is
liquidated. However, this ownership interest is tied to the depositor's account
and has no 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, Savings Bank of Manchester's depositors would realize the
value of their ownership interest only in the unlikely event that the bank is
liquidated. In such event, the depositors of record at that time, as owners,
would be able to share in any residual surplus and reserves after the payment of
their claims, including claims of depositors to the amounts of their deposits.
When a mutual holding company converts to stock form, depositors lose all
rights to the net worth of the bank, except the right 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 Federal Deposit Insurance Corporation 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 Connecticut Bancshares or Savings Bank of Manchester will be
distributed in connection with the conversion other than the payment of those
expenses incurred in connection with the conversion.
Continuity. While the conversion is being accomplished, the normal
business of Savings Bank of Manchester will continue without interruption,
including being regulated by the Connecticut Banking Commissioner and the
Federal Deposit Insurance Corporation. After conversion, Savings Bank of
Manchester will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The Directors of Savings Bank of Manchester at the time of conversion will
serve as Directors of Savings Bank of Manchester after the conversion. The
Directors of Connecticut Bancshares will be solely composed of individuals who
served on the Board of Directors of Savings Bank of Manchester. All officers of
Savings Bank of Manchester at the time of conversion will retain their positions
after the conversion.
Savings Accounts and Loans. Savings Bank of Manchester's savings accounts,
account balances and existing Federal Deposit Insurance Corporation insurance
coverage of savings accounts will not be affected by the conversion.
Furthermore, the conversion will not affect the loan accounts, loan balances or
obligations of borrowers under their individual contractual arrangements with
Savings Bank of Manchester.
Effect on Voting Rights of Corporators. Connecticut Bankshares, M.H.C.
presently maintains a governing board of 93 corporators. Generally, corporators
consist of depositors of Savings Bank of Manchester who are residents of the
communities served by Savings Bank of Manchester. Corporators are nominated by
Connecticut Bankshares, M.H.C. nominating committee and elected by ballot at
corporators' meetings. Generally, corporators promote the goodwill of Savings
Bank of Manchester and consists, therefore, of individuals who are successful in
their occupations and respected in their communities. Corporators also possess
certain voting rights in Connecticut Bankshares, M.H.C. Upon conversion,
Connecticut Bankshares, M.H.C. and its Board of Corporators will no longer
exist. Instead, Connecticut Bancshares, as the sole stockholder of Savings Bank
of Manchester, will possess all voting rights in Savings Bank of Manchester.
The holders of the common stock of Connecticut Bancshares will possess all
voting rights in Connecticut Bancshares.
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Tax Effects. Savings Bank of Manchester has received an opinion from
Muldoon, Murphy & Faucette LLP, Washington, D.C., that addresses all the
material federal income tax consequences of the conversion. The opinion, which
relies upon standard factual representations given by Savings Bank of
Manchester, concludes that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended. Among other things, the opinion states that:
1. no gain or loss will be recognized to Savings Bank of Manchester in
its mutual holding company or stock holding company form by reason of
the conversion;
2. no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in Savings Bank of Manchester immediately
after the conversion, in the same dollar amounts and on the same terms
and conditions as their accounts at Savings Bank of Manchester in its
current form of organization plus interest in the liquidation account;
3. the tax basis of account holders' accounts in Savings Bank of
Manchester immediately after the conversion will be the same as the
tax basis of their accounts immediately before conversion;
4. the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
5. the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for the stock will begin on the
date of purchase; and
6. no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except if
subscription rights are deemed to have value as discussed below.
Unlike a private letter ruling issued by the Internal Revenue Service, an
opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service, the opinion
provides that the receipt of subscription rights by eligible account holders and
other individuals under the plan of conversion will be taxable if the
subscription rights are deemed to have a fair market value. RP Financial, whose
findings are not binding on the Internal Revenue Service, has issued a letter
indicating that the subscription rights do not have any value, based on the fact
that the rights are acquired by the recipients without cost, are nontransferable
and of short duration and afford the recipients the right only to purchase
shares of the common stock at a price equal to its estimated fair market value,
which will be the same price paid by purchasers in the direct community offering
for unsubscribed shares of common stock. If the subscription rights are deemed
to have a fair market value, the receipt of the rights may only be taxable to
those persons who exercise their subscription rights. Savings Bank of Manchester
could also recognize a gain on the distribution of subscription rights. Holders
of subscription rights are encouraged to consult with their own tax advisors as
to the tax consequences if the subscription rights are deemed to have a fair
market value.
Savings Bank of Manchester has also received an opinion from Arthur
Andersen LLP, Hartford, Connecticut, that, assuming the conversion does not
result in any federal income tax liability to Savings Bank of Manchester, its
account holders, or Connecticut Bancshares, implementation of the plan of
conversion will not result in any Connecticut income tax liability to those
entities or persons.
The opinions of Muldoon, Murphy & Faucette LLP and Arthur Andersen LLP, and
the letter from RP Financial are filed as exhibits to the registration statement
that Connecticut Bancshares has filed with the Securities and Exchange
Commission. See "Where You Can Find More Information."
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Prospective investors are urged to consult with their own tax advisors
regarding the tax consequences of the conversion particular to them.
Liquidation Account. In the unlikely event of a complete liquidation of
Savings Bank of Manchester, before the conversion, each depositor in Savings
Bank of Manchester would receive a pro rata share of any assets of Savings Bank
of Manchester remaining after payment of claims of all creditors, including the
claims of all depositors up to the withdrawal value of their accounts. Each
depositor's pro rata share of the remaining assets would be in the same
proportion as the value of his or her deposit account to the total value of all
deposit accounts in Savings Bank of Manchester at the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in Savings Bank of
Manchester, including certificates of deposit, will not be entitled to share in
any residual assets upon liquidation of Savings Bank of Manchester. However,
under the Connecticut Conversion regulations, Savings Bank of Manchester will ,
at the time of the conversion, establish a liquidation account in an amount
equal to the amount of its equity capital, less any subordinated debt approved
as bona fide capital of Savings Bank of Manchester, as of the latest practicable
date before the conversion.
The liquidation account will be maintained by Savings Bank of Manchester
for a period of ten years after the conversion for the benefit of eligible
account holders who retain their deposit accounts in Savings Bank of Manchester.
Each eligible account holder will , with respect to each deposit account held,
have a related inchoate interest in a sub-account portion of the liquidation
account balance.
The initial subaccount balance for a deposit account held by an eligible
account holder will be determined by multiplying the opening balance in the
liquidation account by a fraction of which the numerator is the amount of the
holder's "qualifying deposit" in the deposit account and the denominator is the
total amount of the "qualifying deposits" of all eligible account holders. The
initial subaccount balance shall not be increased, and it will be decreased as
provided below.
If the deposit balance in any deposit account of an eligible account holder
at the close of business on any annual closing day of Savings Bank of Manchester
after July 31, 1998 is less than the lesser of the deposit balance in such
deposit account at the close of business on any other annual closing date after
July 31, 1998 or the amount of the "qualifying deposit" in such deposit account
on July 31, 1998, then the subaccount balance for such deposit account shall be
adjusted by reducing the subaccount balance in an amount proportionate to the
reduction in the deposit balance. Once reduced, the subaccount balance shall not
be subsequently increased, notwithstanding any increase in the deposit balance
of the related deposit account. If any deposit account is closed, the related
subaccount balance shall be reduced to zero.
Only upon a complete liquidation of Savings Bank of Manchester, each
eligible account holder will be entitled to receive a liquidation distribution
from the liquidation account in the amount of the then current adjusted
subaccount balance(s) for deposit account(s) held by the holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of deposit account and other
liabilities or similar transactions with another federally insured institution
in which Savings Bank of Manchester is not the surviving institution will be
considered to be a complete liquidation. In any of these transactions, the
liquidation account will be assumed by the surviving institution.
In the unlikely event Savings Bank of Manchester is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to Connecticut Bancshares as the sole
stockholder of Savings Bank of Manchester.
The liquidation account will be a memorandum account on the books of
Savings Bank of Manchester and will not be reflected in the audited or unaudited
consolidated financial statements of Connecticut Bancshares or in Savings Bank
of Manchester's regulatory reports.
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The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock have been issued to persons and
entities entitled to purchase the common stock in the subscription offering. The
amount of the common stock which these parties may purchase will depend on the
availability of the common stock for purchase under the categories described in
the plan of conversion. Subscription priorities have been established for the
allocation of stock that may be available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with a savings
account of $50 or more on deposit at Savings Bank of Manchester as of July 31,
1998 will receive nontransferable subscription rights to subscribe for up to a
maximum of $250,000 worth of common stock, so long as the share equivalent of
such dollar amount does not exceed one-half of one percent (0.50%) of the total
number of shares offered in the conversion. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing eligible account holders so as to permit
each one, if possible, to purchase a number of shares sufficient to make the
person's total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. After that, unallocated shares will be
allocated proportionately, based on the amount of the eligible account holder's
qualifying deposits compared to total qualifying deposits of all subscribing
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, one or more times as
necessary, among those eligible account holders whose subscriptions are still
not fully satisfied on the same principle until all shares have been allocated
or all subscriptions satisfied. Nontransferable subscription rights received by
officers, directors, corporators and their associates in this category based on
any increased deposits in Savings Bank of Manchester in the one year period
preceding July 31, 1998 are subordinated to the subscription rights of other
eligible account holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion provides
that the employee stock ownership plan shall receive nontransferable
subscription rights to purchase up to 5% of the shares of common stock sold in
the conversion. If the plan's subscription is not filled in its entirety, the
employee stock ownership plan may purchase shares in the open market or may
purchase shares directly from Connecticut Bancshares. Additionally, the
employee stock ownership plan currently intends to purchase shares of common
stock in the open market after the effective date of the conversion to enable it
to acquire, together with the shares acquired in the subscription offering, up
to 8% of the outstanding shares of Connecticut Bancshares common stock or
844,560 shares and 1,142,640 shares at the minimum and maximum of the estimated
valuation range.
Category 3: Directors, Officers and Employees. To the extent there are
sufficient shares of common stock remaining after the satisfaction of
subscriptions by eligible account holders and the employee stock ownership plan,
directors, officers and employees of Savings Bank of Manchester and Connecticut
Bankshares, M.H.C. who are not eligible account holders shall receive
nontransferable subscription rights to subscribe for up to $250,000 of common
stock, so long as the share equivalent of such dollar amount does not exceed
one-half of one percent (0.50%) of the total number of shares offered in the
conversion.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the State of Connecticut Department of Banking, the Federal Deposit Insurance
Corporation or another agency of the U.S. Government. 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. Joint registrations will be allowed only if the qualifying account is so
registered. Each person exercising 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 with any other person for
the sale or transfer of the shares. Once tendered, subscription orders cannot be
revoked without the consent of Savings Bank of Manchester and Connecticut
Bancshares.
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Connecticut Bancshares and Savings Bank of Manchester will make reasonable
attempts to provide a prospectus and related offering materials to holders of
subscription rights. However, the subscription offering and all subscription
rights under the plan of conversion will expire at 12:00 Noon, Eastern time, on
___________, 2000, whether or not Savings Bank of Manchester has been able to
locate each person entitled to subscription rights. Orders for common stock in
the subscription offering received in hand by Savings Bank of Manchester after
that time will not be accepted. The subscription offering may be extended by
Connecticut Bancshares and Savings Bank of Manchester up to ______, 2000 without
regulatory approval. The Connecticut conversion regulations require that
Connecticut Bancshares complete the sale of common stock within 45 days after
the close of the subscription offering. If the direct community offering and the
syndicated community offerings are not completed within that period all funds
received will be promptly returned with interest at Savings Bank of Manchester's
passbook rate and all withdrawal authorizations will be canceled. If regulatory
approval of an extension of the time period has been granted, all subscribers
will be notified of the extension and of the duration of any extension that has
been granted, and will be given the right to increase, decrease or rescind their
orders. If an affirmative response to any resolicitation is not received by
Connecticut Bancshares from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with interest, or
withdrawal authorizations will be canceled. No single extension can exceed 90
days.
Direct Community Offering. Any shares of common stock which remain
unsubscribed for in the subscription offering will be offered by Connecticut
Bancshares to certain members of the general public in a direct community
offering, with preference given to natural persons residing in Hartford, Tolland
and Windham Counties of Connecticut. Purchasers in the direct community
offering are eligible to purchase up to $250,000 of common stock, which equals
25,000 shares. This amount may be increased up to 5% of the total offering of
shares without further approval of Connecticut Bankshares, M.H.C.'s corporators
or a resolicitation of subscribers unless required by the Connecticut Banking
Commissioner and any other applicable bank regulatory authority. If the
purchase limit is increased to 5% of the total offering of shares, orders
accepted in the direct community offering shall be filled up to a maximum of 2%
of the total offering and thereafter shall be allocated on a pro rata basis per
order until all orders have been filled or all of the remaining shares have been
allocated. The direct community offering, if held, may be concurrent with,
during or promptly after the subscription offering. The direct community
offering may terminate on or at any time after 12:00 Noon, Eastern time, on
_______, 2000, but no later than 45 days after the close of the subscription
offering, unless extended by Connecticut Bancshares and Savings Bank of
Manchester, with the approval of the Connecticut Banking Commissioner and any
other applicable bank regulatory authority. If regulatory approval of an
extension of the time period has been granted, all subscribers will be notified
of the extension and of the duration of any extension that has been granted, and
will be given the right to increase, decrease or rescind their orders. If an
affirmative response to any resolicitation is not received by Connecticut
Bancshares from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest. Connecticut Bancshares
and Savings Bank of Manchester have the absolute right to accept or reject in
whole or in part any orders to purchase shares in the direct community offering.
If an order is rejected in part, the purchaser does not have the right to cancel
the remainder of the order. Connecticut Bancshares presently intends to
terminate the direct community offering as soon as it has received orders for
all shares available for purchase in the conversion.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The plan of conversion provides that, if
necessary, all shares of common stock not purchased in the subscription offering
and direct community offering, if any, may be offered for sale to certain
members of 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 Connecticut Bancshares. Connecticut Bancshares and
Savings Bank of Manchester have the right to reject orders, in whole or 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.
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Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "--Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the syndicated community offering
for shares of common stock with an aggregate purchase price of more than
$250,000 of common stock, which equals 25,000 shares. See "--Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings" for a description of the commission to be paid to the selected
dealers and to Sandler O'Neill.
Sandler O'Neill may enter into agreements with selected dealers to assist
in the sale of shares in the syndicated community offering. During the
syndicated community offering, selected dealers may only solicit indications of
interest from their customers to place orders with Connecticut Bancshares as of
a certain date for the purchase of shares. When and if Sandler O'Neill and
Connecticut Bancshares believe that enough indications of interest and orders
have been received in the subscription offering, the direct community offering
and the syndicated community offering to consummate the conversion, Sandler
O'Neill will request, as of that certain date, selected dealers to submit orders
to purchase shares for which they have received indications of interest from
their customers. Selected dealers will send confirmations to customers on the
next business day after that certain date. Selected dealers may settle the trade
by debiting the accounts of their customers on a date which will be three
business days from that certain date. Customers who authorize selected dealers
to debit their brokerage accounts are required to have the funds for payment in
their account on but not before the settlement date. On the settlement date,
selected dealers will remit funds to the account that Connecticut Bancshares
established for each selected dealer. Each customer's funds so forwarded to
Connecticut Bancshares, along with all other accounts held in the same title,
will be insured by the Federal Deposit Insurance Corporation up to the
applicable $100,000 legal limit. After payment has been received by Connecticut
Bancshares from selected dealers, funds will earn interest at Savings Bank of
Manchester's passbook rate until the completion of the offering. At the
completion of the conversion, the funds received will be used to purchase the
shares of common stock ordered. The shares issued in the conversion cannot and
will not be insured by the Federal Deposit Insurance Corporation or any other
government agency. If the conversion is not completed, funds with interest will
be returned promptly to the selected dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The syndicated community offering may terminate no more than 45 days after
the expiration of the subscription offering, unless extended by Connecticut
Bancshares and Savings Bank of Manchester, with approval of the Connecticut
Banking Commissioner and any other applicable bank regulatory authority.
If Savings Bank of Manchester is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of Savings Bank of Manchester, if feasible. Any other
arrangements must be approved by the Connecticut Banking Commissioner and any
other applicable bank regulatory authority. The Connecticut Banking Commissioner
may grant one or more extensions of the offering period, provided that no single
extension exceeds 90 days, subscribers are given the right to increase, decrease
or rescind their subscriptions during the extension period, and the extensions
do not go more than two years beyond the date on which the Boards of Directors
approved the plan of conversion. If the conversion is not completed within 45
days after the close of the subscription offering, either all funds received
will be returned with interest, and withdrawal authorizations canceled, or, if
the Connecticut Banking Commissioner has granted an extension of time, all
subscribers will be given the right to increase, decrease or rescind their
subscriptions before the end of the extension period. If an extension of time
is obtained, all subscribers will be notified of the extension and of their
rights to modify their orders. If an affirmative response to any resolicitation
is not received by Connecticut Bancshares from a subscriber, the subscriber's
order will be rescinded and all funds received will be promptly returned with
interest or withdrawal authorizations will be canceled.
Persons in Non-Qualified States. Connecticut Bancshares and Savings Bank
of Manchester will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons entitled to subscribe for stock
under the plan of conversion reside. However, Connecticut Bancshares and Savings
Bank of Manchester are not required to offer stock in the subscription offering
to any person who resides in a foreign country or who resides in a state of the
United States to which both of the following apply: (a) less than 100 persons
eligible to subscribe for shares reside; and (b) the granting of subscription
rights or the offer or sale of
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shares to these persons would require Connecticut Bancshares or its employees
under the securities laws of the state to register as a broker, dealer or agent,
or to register or otherwise qualify the shares for sale in the state. Neither
Connecticut Bancshares nor Savings Bank of Manchester will make any payments to
persons residing in these states in lieu of granting subscription rights to
them.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
Savings Bank of Manchester and Connecticut Bancshares have retained Sandler
O'Neill to consult with and advise Savings Bank of Manchester and to assist
Savings Bank of Manchester and Connecticut Bancshares, on a best efforts basis,
in the distribution of shares in the offering. Sandler O'Neill is a broker-
dealer registered with the Securities and Exchange Commission and a member of
the National Association of Securities Dealers, Inc. Sandler O'Neill will
assist Savings Bank of Manchester in the conversion by acting as marketing
advisor with respect to the subscription offering and will represent Savings
Bank of Manchester as placement agent on a best efforts basis in the sale of the
common stock in the direct community offering if one is held; conducting
training sessions with directors, officers and employees of Savings Bank of
Manchester regarding the conversion process; and assisting in the establishment
and supervision of Savings Bank of Manchester's conversion center and, with
management's input, will train Savings Bank of Manchester's staff to record
properly and tabulate orders for the purchase of common stock and to respond
appropriately to customer inquiries.
Based on negotiations between Savings Bank of Manchester and Connecticut
Bancshares concerning the fee structure, Sandler O'Neill will receive a fee
equal to 1.50% of the aggregate dollar amount of all stock sold in the
subscription and direct community offerings. Such amount does not include any
shares sold to the employee stock ownership plan, directors, officers and
employees of Savings Bank of Manchester or Connecticut Bancshares or their
immediate families or any shares sold to SBM Foundation. Such fee will be paid
upon completion of the conversion. Sandler O'Neill shall be reimbursed for its
reasonable out-of-pocket expenses, including legal fees. In addition, Sandler
O'Neill will perform conversion agent services and records management services
for Savings Bank of Manchester in the conversion and will receive a fee for
these services of $60,000.
Sandler O'Neill has not prepared any report or opinion constituting a
recommendation or advice to Connecticut Bancshares or Savings Bank of Manchester
or to persons who subscribe for stock, nor has it prepared an opinion as to the
fairness to Connecticut Bancshares or Savings Bank of Manchester of the purchase
price or the terms of the stock to be sold. Sandler O'Neill expresses no
opinion as to the prices at which common stock to be issued may trade. Total
marketing fees to Sandler O'Neill are expected to be $1.3 million to $2.1
million at the minimum and 15% above the maximum of the estimated valuation
range, respectively. See "Pro Forma Data" for the assumptions used to arrive at
these estimates. Sandler O'Neill and selected dealers participating in the
syndicated community offering may receive a commission in the syndicated
community offering in a maximum amount to be agreed upon by Connecticut
Bancshares and Savings Bank of Manchester to reflect market requirements at the
time of the allocation of shares in the syndicated community offering.
With certain limitations, Connecticut Bancshares and Savings Bank of
Manchester have also agreed to indemnify Sandler O'Neill against liabilities and
expenses, including legal fees, incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions contained
in the offering material for the common stock or with regard to allocations of
shares if there is an oversubscription, or determinations of eligibility to
purchase shares.
Description of Sales Activities
The common stock will be offered in the subscription offering and direct
community offering principally by the distribution of this prospectus and
through activities conducted at Savings Bank of Manchester's conversion center
at its administrative office. The conversion center is expected to operate
during normal business hours throughout the subscription offering and direct
community offering. It is expected that at any particular time one or more
Sandler O'Neill employees will be working at the conversion center. Employees
of Sandler O'Neill will be
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responsible for mailing materials relating to the offering, responding to
questions regarding the conversion and the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Sandler O'Neill or by the selected dealers managed by Sandler O'Neill. The
management and employees of Savings Bank of Manchester may participate in the
offering in clerical capacities, providing administrative support in effecting
sales transactions or, when permitted by state securities laws, answering
questions of a mechanical nature relating to the proper execution of the order
form. Management of Savings Bank of Manchester may answer questions regarding
the business of Savings Bank of Manchester when permitted by state securities
laws. Other questions of prospective purchasers, including questions as to the
advisability or nature of the investment, will be directed to registered
representatives. The management and employees of Connecticut Bancshares and
Savings Bank of Manchester have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of common stock.
No officer, director or employee of Connecticut Bankshares, M.H.C., Savings
Bank of Manchester or Connecticut Bancshares will be compensated, directly or
indirectly, for any activities in connection with the offer or sale of
securities issued in the conversion.
None of Savings Bank of Manchester's personnel participating in the
offering is registered or licensed as a broker or dealer or an agent of a broker
or dealer. Savings Bank of Manchester's personnel will assist in the above-
described sales activities under an exemption from registration as a broker or
dealer provided by Rule 3a4-1 promulgated under the Securities Exchange Act of
1934, as amended. Rule 3a4-1 generally provides that an "associated person of an
issuer" of securities shall not be deemed a broker solely by reason of
participation in the sale of securities of the issuer if the associated person
meets certain conditions. These conditions include, but are not limited to, that
the associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participation, that the
person not be associated with a broker or dealer and that the person observe
certain limitations on his or her participation in the sale of securities. For
purposes of this exemption, "associated person of an issuer" is defined to
include any person who is a director, officer or employee of the issuer or a
company that controls, is controlled by or is under common control with the
issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with Savings Bank of
Manchester, must be received by Savings Bank of Manchester by 12:00 Noon,
Eastern time, on _________ __, 2000. Savings Bank of Manchester and Connecticut
Bancshares are not required to accept order forms that are not received by that
time or are executed defectively, or are received without full payment or
without appropriate withdrawal instructions. In addition, Savings Bank of
Manchester and Connecticut Bancshares are not obligated to accept orders
submitted on photocopied or telecopied stock order forms and will not accept
stock order forms without an accompanying executed certification form.
Nevertheless, Savings Bank of Manchester and Connecticut Bancshares 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 pay for the shares of common stock for which they subscribe in the direct
community offering at any time up to 48 hours before the completion of the
conversion. Connecticut Bancshares and Savings Bank of Manchester have the
right to waive or permit a subscriber to correct an incomplete or improperly
executed order form, but do not represent that they will do so. Under the plan
of conversion, the interpretation by Connecticut Bankshares, M.H.C., Connecticut
Bancshares and Savings Bank of Manchester of the terms and conditions of the
plan of conversion and of the order form will be final subject to the authority
of the Connecticut Banking Commissioner and any other applicable bank regulatory
authority. In order to purchase shares in the direct community offering, the
order form, accompanied by the required payment for each share subscribed for,
must be received by Savings Bank of Manchester before the direct community
offering terminates, which may be on or at any time after the end of the
subscription offering. Once received, an executed order form may not be
modified, amended or rescinded without the consent of Savings Bank of Manchester
unless the conversion has not been completed within 45 days after the end of the
subscription offering.
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In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, they must list all accounts on
the order form giving all names on each account and the account number. Failure
to list an account could result in fewer shares being allocated to a subscribing
member.
Full payment for subscriptions may be made by check, bank draft or money
order, or by authorization of withdrawal from deposit accounts maintained with
Savings Bank of Manchester. Appropriate means by which withdrawals may be
authorized are provided on the order form. No wire transfers will be accepted.
Interest will be paid on payments made by cash, check, bank draft or money order
at Savings Bank of Manchester's passbook rate from the date payment is received
until the completion or termination of the conversion. If payment is made by
authorization of withdrawal from deposit accounts, 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, unless the
certificate matures after the date of receipt of the order form but before
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until the conversion is completed or terminated, but a hold
will be placed on the funds, making them unavailable to the depositor until
completion or termination of the conversion. When the conversion is completed,
the funds received in the offering will be used to purchase the shares of common
stock ordered. The shares of common stock issued in the conversion cannot and
will not be insured by the Federal Deposit Insurance Corporation or any other
government agency. If the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes Savings Bank of Manchester to withdraw the
amount of the purchase price from his or her deposit account, Savings Bank of
Manchester will do so as of the effective date of conversion, though the account
must contain the full amount necessary for payment at the time the subscription
order is received. Savings Bank of Manchester 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 funds are actually 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 Savings Bank of Manchester's
passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price upon the completion
of the subscription and direct community offerings, if all shares are sold, or
upon the completion of the syndicated community offering; provided that there is
in force from the time of its subscription until that time, a loan commitment
from an unrelated financial institution or Connecticut Bancshares to lend to the
employee stock ownership plan, at that time, the aggregate purchase price of the
shares for which it subscribed.
Individual retirement accounts maintained in Savings Bank of Manchester do
not permit investment in the common stock. A depositor interested in using his
or her Individual Retirement Account funds to purchase common stock must do so
through a self-directed individual retirement account. Since Savings Bank of
Manchester does not offer those accounts, it will allow a depositor to make a
trustee-to-trustee transfer of the individual retirement account funds to a
trustee offering a self-directed individual retirement account program with the
agreement that the funds will be used to purchase Connecticut Bancshares' common
stock in the offering. There will be no early withdrawal or Internal Revenue
Service interest penalties for transfers. The new trustee would hold the common
stock in a self-directed account in the same manner as Savings Bank of
Manchester now holds the depositor's Individual Retirement Account funds. An
annual administrative fee may be payable to the new trustee. Depositors
interested in using funds in an individual retirement account at Savings Bank of
Manchester to purchase common stock should contact the conversion center as soon
as possible so that the necessary forms may be forwarded for execution and
returned before the subscription offering ends. In addition, federal laws and
regulations require that officers, directors and 10% shareholders who use self-
directed individual retirement account funds to purchase shares of common stock
in the subscription offering, make purchases for the exclusive benefit of
individual retirement accounts.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at the address specified in properly completed
order forms or to the last address of the persons appearing on the records of
Savings Bank of Manchester as soon as practicable following the sale of all
shares of common
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stock. Any certificates returned as undeliverable will be disposed of as
required by applicable law. Purchasers may not be able to sell the shares of
common stock which they purchased until certificates for the common stock are
available and delivered to them, even though trading of the common stock may
have begun.
To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, as amended, no prospectus will be mailed any later than
five days before that date or hand delivered any later than two days before that
date. Execution of the order form will confirm receipt or delivery under Rule
15c2-8. Order forms will only be distributed with a prospectus. By executing
and returning the regulatory mandated certification form, you will be certifying
that you received this prospectus and acknowledging that the common stock is not
a deposit account and is not insured or guaranteed by any federal or state
governmental agency. You will also be acknowledging that you received
disclosure concerning the risks involved in this Offering. The certification
form could be used as support to show that you understand the nature of this
investment.
Stock Pricing and Number of Shares to be Issued
The plan of conversion requires that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Connecticut Bancshares and Savings Bank of Manchester as
converted, as determined by an independent appraisal. Savings Bank of Manchester
and Connecticut Bancshares have retained RP Financial, which is experienced in
the evaluation and appraisal of business entities, to prepare an appraisal of
the pro forma market value of Connecticut Bancshares and Savings Bank of
Manchester as converted, as well as a business plan. RP Financial will receive a
fee expected to total approximately $47,500 for its appraisal services and
assistance in the preparation of a business plan, plus reasonable out-of-pocket
expenses incurred in connection with the appraisal. Savings Bank of Manchester
has agreed to indemnify RP Financial, its directors, officers, agents and
employees under certain circumstances against liabilities and expenses,
including legal fees, arising out of, related to, or based upon the conversion,
except where RP Financial's liability results from its own negligence or willful
misconduct.
RP Financial has prepared an appraisal of the estimated pro forma market
value of Connecticut Bancshares and Savings Bank of Manchester as converted
taking into account the formation of Connecticut Bancshares as the holding
company for Savings Bank of Manchester. For its analysis, RP Financial undertook
substantial investigations to learn about Savings Bank of Manchester's business
and operations. Management supplied financial information, including annual
financial statements, information on the composition of assets and liabilities,
and other financial schedules. In addition to this information, RP Financial
reviewed Savings Bank of Manchester's conversion application as filed with the
State of Connecticut Department of Banking and Connecticut Bancshares'
registration statement as filed with the Securities and Exchange Commission.
Furthermore, RP Financial visited Savings Bank of Manchester's facilities and
had discussions with Savings Bank of Manchester's management and its special
conversion legal counsel, Muldoon, Murphy & Faucette LLP. RP Financial did not
perform a detailed individual analysis of the separate components of Connecticut
Bancshares' or Savings Bank of Manchester's assets and liabilities.
RP Financial's analysis utilized three selected valuation procedures, the
Price/Book method, the Price/Earnings method, and Price/Assets method, all of
which are described in its report. RP Financial placed the greatest emphasis on
the Price/Earnings and Price/Book methods in estimating pro forma market value.
In applying these procedures, RP Financial reviewed, among other factors, the
economic make-up of Savings Bank of Manchester's primary market area, Savings
Bank of Manchester's financial performance and condition in relation to publicly
traded institutions that RP Financial deemed comparable to Savings Bank of
Manchester, the specific terms of the offering of Connecticut Bancshares' common
stock, the pro forma impact of the additional capital raised in the conversion,
conditions of securities markets in general, and the market for thrift
institution common stock in particular. RP Financial's analysis provides an
approximation of the pro forma market value of Connecticut Bancshares and
Savings Bank of Manchester as converted based on the valuation methods applied
and the assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of Connecticut Bancshares after the
conversion that were utilized in determining the appraised value. These
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assumptions included estimated expenses and an assumed after-tax rate of
return on the net conversion proceeds as described under "Pro Forma Data,"
purchases by the employee stock ownership plan of an amount equal to 8% of the
common stock sold in the conversion and purchases in the open market by the
stock-based incentive plan of a number of shares equal to 4% of the common stock
sold in the conversion at the $10.00 purchase price. See "Pro Forma Data" for
additional information concerning these assumptions. The use of different
assumptions may yield different results.
On the basis of the foregoing, RP Financial has advised Connecticut
Bancshares and Savings Bank of Manchester that, in its opinion, as of October
22, 1999, the estimated pro forma market value of Connecticut Bancshares and
Savings Bank of Manchester, as converted and, therefore, the common stock was
within the valuation range of $97.8 million to $132.3 million with a midpoint of
$115.0 million. After reviewing the methodology and the assumptions used by RP
Financial in the preparation of the appraisal, the Board of Directors
established the estimated valuation range which is equal to the valuation range
of $97.8 million to $132.3 million with a midpoint of $115.0 million. Assuming
that the shares are sold at $10.00 per share in the conversion, the estimated
number of shares would be between 9,775,000 and 13,225,000 with a midpoint of
11,500,000. The purchase price of $10.00 was determined by discussion among the
Boards of Directors of Savings Bank of Manchester and Connecticut Bancshares and
Sandler O'Neill, taking into account, among other factors, the requirement under
the Connecticut conversion regulations that the common stock be offered in a
manner that will achieve the widest distribution of the stock, and desired
liquidity in the common stock after the conversion. Since the outcome of the
offering relates in large measure to market conditions at the time of sale, it
is not possible to determine the exact number of shares that will be issued by
Connecticut Bancshares at this time. The estimated valuation range may be
amended, with the approval of the Connecticut Banking Commissioner and any other
applicable bank regulatory authority, if necessitated by developments following
the date of the appraisal in, among other things, market conditions, the
financial condition or operating results of Savings Bank of Manchester,
regulatory guidelines or national or local economic conditions. RP Financial's
appraisal report is filed as an exhibit to the registration statement that
Connecticut Bancshares has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of Connecticut Bancshares and Savings
Bank of Manchester as converted, as of the close of the subscription offering.
No shares will be sold unless RP Financial confirms that, to the best of
its knowledge and judgment, nothing of a material nature has occurred that would
cause it to conclude that the actual total purchase price on an aggregate basis
was materially incompatible with its estimate of the total pro forma market
value of Connecticut Bancshares and Savings Bank of Manchester as converted at
the time of the sale. If, however, the facts do not justify that statement, the
offering may be canceled, a new estimated valuation range and price per share
set and new subscription, direct community and syndicated community offerings
held. Under those circumstances, subscribers would have the right to modify or
rescind their subscriptions and to have their subscription funds returned
promptly with interest and holds on funds authorized for withdrawal from deposit
accounts would be released or reduced.
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 valuation range or
more than 15% above the maximum of the estimated valuation range. Based on a
purchase price of $10.00 per share and the RP Financial estimate of the pro
forma market value of the common stock ranging from a minimum of $97.8 million
to a maximum, as increased by 15%, of $152.1 million, the number of shares of
common stock expected to be sold is between a minimum of 9,775,000 shares and a
maximum, as adjusted by 15%, of 15,208,750 shares. The actual number of shares
issued between this range will depend on a number of factors and shall be
determined by Savings Bank of Manchester and Connecticut Bancshares.
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If market or financial conditions change so as to cause the aggregate
purchase price of the shares to be below the minimum of the estimated valuation
range or more than 15% above the maximum of the estimated valuation range, if
the plan of conversion is not terminated by Connecticut Bancshares and Savings
Bank of Manchester after consultation with the Connecticut Banking Commissioner
and any other applicable bank regulatory authority, purchasers will be
resolicited, in which case they will need to reconfirm, rescind, or modify their
subscriptions. Any change of more than 15% above the estimated valuation range
must be approved by the Connecticut Banking Commissioner and any other
applicable bank regulatory authority. If the number of shares issued in the
conversion is increased due to an increase of up to 15% in the estimated
valuation range to reflect changes in market or financial conditions, 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 Purchases of Shares."
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 Connecticut Bancshares' 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 Connecticut Bancshares' 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 the number of shares
contributed to the SBM Foundation, which is expected to be 8% of the common
stock sold in the conversion. Assuming the sale of shares at the maximum of the
estimated valuation range, Connecticut Bancshares will issue 1,058,000 shares of
its common stock from authorized but unissued shares to SBM Foundation
immediately following the completion of the conversion. In that event,
Connecticut Bancshares will have total shares of common stock outstanding of
14,283,000 shares. Of that amount, SBM Foundation will own 7.4%. Funding SBM
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 SBM Foundation were not
established. See "Pro Forma Data."
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents Savings Bank of Manchester furnished
to it. RP Financial also considered financial and other information from
regulatory agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of the information and
did not independently verify the financial statements and other data provided by
Savings Bank of Manchester and Connecticut Bancshares or independently value the
assets or liabilities of Connecticut Bancshares and Savings Bank of Manchester.
The appraisal is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of purchasing shares of common
stock. Moreover, because the appraisal must be based on many factors which
change periodically, there is no assurance that purchasers of shares in the
conversion will be able to sell shares after the conversion at prices at or
above the purchase price.
Copies of the appraisal report of RP Financial 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 Savings Bank of Manchester and the other locations specified under
"Where You Can Find More Information."
Limitations on Purchases of Shares
The plan of conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares subject to
adjustment as provided in the Plan of Conversion. The plan of conversion
provides for the following purchase limitations:
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1. The maximum purchase in the subscription offering by any person or
group of persons through a single deposit account or similarly
titled deposit accounts is $250,000, which equals 25,000 shares, so
long as the share equivalent of such dollar amount does not exceed
one-half of one percent (0.50%) of the total number of shares
offered in the conversion;
2. No person, related persons or persons acting together may purchase
more than $250,000, which equals 25,000 shares, in the direct
community offering;
3. The employee stock ownership plan may purchase, in the aggregate,
up to 5% of the shares of common stock sold in the conversion;
4. Directors and officers of Savings Bank of Manchester and
Connecticut Bancshares and their associates, in the aggregate, may
not purchase more than 30% of the total offering of shares in the
aggregate;
5. 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 up to $250,000 of common
stock subject to the overall maximum purchase limitation described
below ; and
6. The maximum number of shares of common stock which may be
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, except for the employee stock
ownership plan, shall not exceed 1.0% of the shares of common stock
sold in the conversion.
For purposes of the plan of conversion, directors and officers are not deemed to
be acting in concert solely by reason of their being directors or officers of
Savings Bank of Manchester or Connecticut Bancshares. Pro rata reductions within
each subscription rights category will be made in accordance with the procedures
outlined in the plan of conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the corporators
or subscribers for common stock, unless required by the Connecticut Banking
Commissioner or the Federal Deposit Insurance Corporation, 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 Connecticut Bancshares and Savings Bank of
Manchester. If such amount is increased, subscribers for the maximum amount
will be, and certain other large subscribers in the sole discretion of Savings
Bank of Manchester may be, given the opportunity to increase their subscriptions
up to the then applicable limit. Savings Bank of Manchester and Connecticut
Bancshares do not intend to increase the maximum purchase limitation unless
market conditions warrant that an increase in the maximum purchase limitation is
necessary to sell a number of shares in excess of the minimum of the estimated
valuation range.
The plan of conversion defines "acting in concert" to include a combination
or pooling of voting or other interests in the securities of an issuer for a
common purpose under any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party shall also be deemed to be acting in concert with
any person who is also acting in concert with that other party. Connecticut
Bancshares and Savings Bank of Manchester may presume that certain persons are
acting in concert based upon, among other things, joint account relationships
and the fact that persons may have filed joint Schedules 13D with the Securities
and Exchange Commission with respect to other companies.
The plan of conversion defines "associate," when used to indicate a
relationship with any person, to mean any corporation or organization other than
Connecticut Bankshares, M.H.C., Connecticut Bancshares, Savings Bank of
Manchester or a majority-owned subsidiary of Savings Bank of Manchester of which
a 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 a person has a substantial beneficial interest or as to which a
person serves as trustee or in a similar fiduciary capacity; and any relative or
spouse of a person, or any relative of a spouse, who either has the
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same home as a person or who is a director or officer of Savings Bank of
Manchester or any of its parents or subsidiaries. The term "associate," however,
does not include, for purposes of the stock purchase limitations in the
conversion, any stock benefit plan of Savings Bank of Manchester in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity, and, for purposes of the total shares that may be
held by officers and directors of Connecticut Bancshares and Savings Bank of
Manchester, does not include any tax-qualified employee stock benefit plan of
Savings Bank of Manchester. For example, a corporation of which a person serves
as an officer would be an associate of a person and, therefore, all shares
purchased by a corporation would be included with the number of shares which a
person could purchase individually under the above limitations.
The plan of conversion defines "officer" to mean the Chairman of the Board,
President, Vice President, Secretary, Treasurer or principal financial officer,
Comptroller or principal accounting officer, and any other person performing
similar functions of Connecticut Bankshares, M.H.C., Savings Bank of Manchester
or Connecticut Bancshares.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Connecticut Bankshares,
M.H.C., Savings Bank of Manchester and Connecticut Bancshares and by NASD
members. See "--Restrictions on Transferability by Directors and Officers and
NASD Members."
Restrictions on Repurchase of Stock
Under the Connecticut conversion regulations, savings banks and their
holding companies may not for a period of three years from the date of an
institution's conversion repurchase any of its common stock from any person,
except for: (1) a repurchase, on a pro rata basis pursuant to an offer approved
by the Connecticut Banking Commissioner, made to all stockholders, or (2) a
repurchase in the open market by a tax-qualified or non-tax-qualified stock
benefit plan in an amount reasonable and appropriate to fund such plans.
Furthermore, repurchases of any common stock are prohibited if they would cause
Savings Bank of Manchester's regulatory capital to be reduced below the amount
required for the liquidation account or if the repurchases would cause Savings
Bank of Manchester to become "undercapitalized" within the meaning of the
Federal Deposit Insurance Corporation prompt corrective action regulation.
Repurchases are generally prohibited during the first year following conversion.
However, 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. At this time, Connecticut Bancshares has no intention to
repurchase stock.
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased by directors and officers of Connecticut
Bancshares and Savings Bank of Manchester, and their associates, may not be sold
for a period of one year following the conversion, except upon the death of the
stockholder or unless approved by the Connecticut Banking Commissioner. Any
stock purchased after the conversion is free of this restriction. Accordingly,
shares of common stock issued by Connecticut Bancshares to directors and
officers of Connecticut Bancshares and Savings Bank of Manchester, and their
associates, shall bear a legend giving appropriate notice of the restriction
and, in addition, Connecticut Bancshares will give appropriate instructions to
the transfer agent for Connecticut Bancshares' common stock with respect to the
restriction on transfers. Any shares issued to directors and officers of
Connecticut Bancshares and Savings Bank of Manchester, and their associates, as
a stock dividend, stock split or otherwise with respect to restricted common
stock shall also be restricted.
Purchases of outstanding shares of common stock of Connecticut Bancshares
by directors and officers of Connecticut Bancshares and Savings Bank of
Manchester, or any person who was an executive officer or director of
Connecticut Bancshares and Savings Bank of Manchester after adoption of the plan
of conversion, and their associates during the three-year period following the
conversion may be made only through a broker or dealer registered with the
Securities and Exchange Commission or the State of Connecticut Department of
Banking, except with the prior written approval of the Connecticut Banking
Commissioner. This restriction does not apply, however,
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to negotiated transactions involving more than 1% of Connecticut Bancshares'
outstanding common stock or to the purchase of stock under the stock-based
incentive plan.
Connecticut Bancshares has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as
amended, for the registration of the common stock to be issued in the
conversion. This registration does not cover the resale of the shares. Shares of
common stock purchased by persons who are not affiliates of Connecticut
Bancshares may be resold without registration. Shares purchased by an affiliate
of Connecticut Bancshares will have resale restrictions under Rule 144 of the
Securities Act, as amended. If Connecticut Bancshares meets the current public
information requirements of Rule 144, each affiliate of Connecticut Bancshares
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 1% of the outstanding
shares of Connecticut Bancshares or the average weekly volume of trading in the
shares during the preceding four calendar weeks. Provision may be made in the
future by Connecticut Bancshares to permit affiliates to have their shares
registered for sale under the Securities Act of 1933, as amended, under certain
circumstances.
Under guidelines of the National Association of Securities Dealers, members
of that organization and their associates face certain restrictions on the
transfer of securities purchased with subscription rights and to certain
reporting requirements upon purchase of the securities.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the plan of
conversion by Connecticut Bankshares, M.H.C. and Savings Bank of Manchester will
be final; however, such interpretations have no binding effect on the
Connecticut Banking Commissioner and any other applicable bank regulatory
authority. The plan of conversion provides that, if deemed necessary or
desirable by the Boards of Directors, the plan of conversion may be
substantively amended by the Boards of Directors as a result of comments from
regulatory authorities or otherwise, without the further approval of Connecticut
Bankshares, M.H.C.'s corporators unless required by the Connecticut Banking
Commissioner.
Completion of the conversion requires the sale of all shares of the common
stock within 24 months following approval of the plan of conversion by Savings
Bank of Manchester's Board of Directors. If this condition is not satisfied,
the plan of conversion will be terminated and Savings Bank of Manchester will
continue its business in the mutual holding company form of organization. The
plan of conversion may be terminated by the Boards of Directors at any time.
RESTRICTIONS ON ACQUISITION OF CONNECTICUT BANCSHARES
AND SAVINGS BANK OF MANCHESTER
General
Savings Bank of Manchester's plan of conversion provides for the conversion
of Connecticut Bankshares, M.H.C.'s legal form of organization from a mutual
holding company to a stock holding company and, in connection therewith, the
adoption by Connecticut Bankshares, M.H.C.'s corporators of Amended and Restated
Articles of Incorporation and Bylaws of Savings Bank of Manchester. See "The
Conversion--General." As described below and elsewhere in this prospectus,
certain provisions in Connecticut Bancshares' 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, Savings Bank of Manchester's Amended and Restated
Articles of Incorporation 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 Connecticut Bancshares or Savings Bank of Manchester.
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Restrictions in Connecticut Bancshares' Certificate of Incorporation and Bylaws
General. The following discussion is a general summary of the material
provisions of Connecticut Bancshares' Certificate of Incorporation and Bylaws
and 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 stockholders may deem to be in their
best interests. 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
Connecticut Bancshares more difficult. The following summary is general and
reference should be made to the Certificate of Incorporation and Bylaws. See
"Where You Can Find More Information" as to how to obtain a copy of these
documents.
Limitation on Voting Rights. The Certificate of Incorporation of
Connecticut Bancshares 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 be entitled or permitted to any vote in respect of the shares
held in excess of such 10% limit. Additionally, the Certificate of
Incorporation 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 5% of the then outstanding shares of
common stock, be entitled to vote in respect of the shares held in excess of
such 5% limit unless such beneficial owner owns, controls or holds such shares
of common stock in the ordinary course of business and not with the purpose nor
with the effect of changing or influencing control of Connecticut Bancshares.
Beneficial ownership is determined by Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended, and includes
shares beneficially owned by that person or any of his affiliates, shares which
that person or his affiliates have the right to acquire under any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise and shares as to which that person and
his affiliates have sole or shared voting or investment power. Beneficial
ownership does not include shares under a publicly solicited revocable proxy or
shares that are not otherwise deemed to be beneficially owned by such person and
his affiliates. No director or officer (or any affiliate thereof) of
Connecticut Bancshares 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 employee stock ownership plan or any similar plan of
Connecticut Bancshares or Savings Bank of Manchester 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 Connecticut Bancshares 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.
Board of Directors. The Board of Directors of Connecticut Bancshares is
divided into three classes, each of which contains 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. Connecticut Bancshares' 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 Connecticut Bancshares. 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 after giving effect to the voting limitation
applicable to stockholders owning more than 10% of the outstanding shares.
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In the absence of these provisions, the vote of the holders of a majority
of the shares could remove any director or 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 Connecticut Bancshares
may be called only by a resolution adopted by a majority of the whole Board of
Directors of Connecticut Bancshares. The Certificate of Incorporation also
provides that any action required or permitted to be taken by the stockholders
of Connecticut Bancshares 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 45,000,000 shares of common stock and 1,000,000 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 Connecticut
Bancshares' 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 Connecticut Bancshares. 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 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. Connecticut Bancshares' Board currently has no plans for the
issuance of additional shares, other than the issuance of shares in the
conversion, including shares contributed to SBM 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 Connecticut Bancshares' outstanding shares of voting
stock entitled to vote to approve certain "Business Combinations" with an
"Interested Stockholder," and related transactions (subject to the limitations
on voting). 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 be approved by the vote of the holders of only a
majority of the outstanding shares of common stock of Connecticut Bancshares and
any other affected class of stock unless the transaction is with a person who
owns 15% or more of the corporation's voting stock. Under Connecticut
Bancshares' Certificate of Incorporation, the approval of the holders of at
least 80% of the shares of capital stock entitled to vote is required for any
business combination involving an Interested Stockholder (as defined below)
except (1) in cases where the proposed transaction has been approved by a
majority of those members of Connecticut Bancshares' Board of Directors who are
unaffiliated with the Interested Stockholder and were directors before the time
when the Interested Stockholder became an Interested Stockholder or (2) if the
proposed transaction meets certain conditions 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
Connecticut Bancshares 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 Connecticut Bancshares.
This provision of the Certificate of Incorporation applies to any "Business
Combination," which is defined to include:
1. any merger or consolidation of Connecticut Bancshares or any of its
subsidiaries with any Interested Stockholder or affiliate of an
Interested Stockholder or any corporation which is, or after such merger
or consolidation would be, an Affiliate of an Interested Stockholder;
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2. 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 Connecticut Bancshares or combined assets of
Connecticut Bancshares and its subsidiary;
3. the issuance or transfer to any Interested Stockholder or its affiliate
by Connecticut Bancshares (or any subsidiary) of any securities of
Connecticut Bancshares (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 Connecticut Bancshares;
4. the adoption of any plan for the liquidation or dissolution of
Connecticut Bancshares proposed by or on behalf of any Interested
Stockholder or affiliate thereof; and
5. any reclassification of securities, recapitalization, merger or
consolidation of Connecticut Bancshares 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 Connecticut
Bancshares or subsidiary owned directly or indirectly, by an Interested
Stockholder or affiliate thereof.
The directors and executive officers of Savings Bank of Manchester are
purchasing approximately 2.21% of the shares of the common stock to be sold in
the conversion based on the maximum of the estimated valuation range. In
addition, the employee stock ownership plan intends to purchase 8% of the common
stock issued in connection with the conversion, including shares issued to SBM
Foundation. Additionally, if stockholders approve the proposed stock-based
incentive plan, Connecticut Bancshares expects to acquire 4% of the common stock
issued in connection with the conversion, including shares issued to SBM
Foundation, and expects to issue options to purchase up to 10% of the common
stock issued in connection with the conversion, including shares issued to SBM
Foundation, to directors and executive officers. As a result, directors,
executive officers and employees may control the voting of approximately 23.12%
of Connecticut Bancshares' common stock on a diluted basis at the maximum of the
estimated valuation range, thereby enabling them to prevent the approval of the
transactions requiring the approval of at least 80% of Connecticut Bancshares'
outstanding shares of voting stock described above. Furthermore, the ability
of directors, executive officers and employees to prevent the approval of
transactions requiring the approval of at least 80% of the outstanding shares of
voting stock of Connecticut Bancshares will be enhanced by the regulatory
condition imposed on SBM Foundation that any shares held by it must be voted in
the same ratio as all other shares of Connecticut Bancshares common stock voted
on each and every proposal considered by stockholders.
Evaluation of Offers. The Certificate of Incorporation of Connecticut
Bancshares further provides that the Board of Directors of Connecticut
Bancshares, when evaluating an offer, to (1) make a tender or exchange offer for
any equity security of Connecticut Bancshares, (2) merge or consolidate
Connecticut Bancshares with another corporation or entity or (3) purchase or
otherwise acquire all or substantially all of the properties and assets of
Connecticut Bancshares, may, in connection with the exercise of its judgment in
determining what is in the best interest of Connecticut Bancshares and the
stockholders of Connecticut Bancshares, give consideration to those factors that
directors of any subsidiary (including Savings Bank of Manchester) 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: Connecticut Bancshares' present and future customers and
employees and those of its subsidiaries (including Savings Bank of Manchester);
the communities in which Connecticut Bancshares and Savings Bank of Manchester
operate or are located; the ability of Connecticut Bancshares to fulfill its
corporate objectives as a savings and loan holding company; and the ability of
Savings Bank of Manchester to fulfill the objectives of a stock savings bank
under applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of Connecticut Bancshares, 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 Connecticut
Bancshares, even if the price offered is significantly greater than the then
market price of any equity security of Connecticut Bancshares.
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Amendment of Certificate of Incorporation and Bylaws. Amendments to
Connecticut Bancshares' Certificate of Incorporation must be approved by a
majority 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 specific 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 Connecticut Bancshares and
amendment of Connecticut Bancshares' Bylaws and Certificate of Incorporation.
Connecticut Bancshares' 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.
Bylaw Provisions. The Bylaws of Connecticut Bancshares 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 Connecticut Bancshares. The
notice provision requires a stockholder who desires to raise new business to
provide information to Connecticut Bancshares 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 Connecticut Bancshares with information concerning the
nominee and the proposing stockholder.
Anti-Takeover Effects of Connecticut Bancshares' Certificate of Incorporation
and Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce Connecticut
Bancshares' vulnerability to takeover attempts and other transactions which have
not been negotiated with and approved by members of its Board of Directors.
Provisions of the stock-based incentive plan provide for accelerated benefits to
participants if a change in control of Connecticut Bancshares or Savings Bank of
Manchester occurs or a tender or exchange offer for their stock is made. See
"Management of Savings Bank of Manchester--Benefits--Stock-Based Incentive
Plan." Connecticut Bancshares and Savings Bank of Manchester 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 Connecticut Bancshares or Savings Bank of Manchester.
See "Management of Savings Bank of Manchester--Executive Compensation--
Employment Agreements," and "--Benefits--Employee Severance Compensation Plan."
The foregoing provisions and limitations may make it more difficult for
companies or persons to acquire control of Connecticut Bancshares.
Additionally, the provisions could deter offers to acquire the outstanding
shares of Connecticut Bancshares which might be viewed by stockholders to be in
their best interests.
Connecticut Bancshares' Board of Directors believes that the provisions of
the Certificate of Incorporation and Bylaws are in the best interest of
Connecticut Bancshares 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 Connecticut Bancshares 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 Delaware
takeover statute 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, the statute provides that a "Person" 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
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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 the
statute:
1. any business combination if, before 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;
2. 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 specific employee
stock plans;
3. 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
4. certain business combinations that are 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. Connecticut Bancshares' Certificate of
Incorporation and Bylaws do not currently contain such provision and, at the
present time, the Board of Directors does not intend to propose any such
amendment.
Restrictions in Savings Bank of Manchester's Amended and Restated Articles of
Incorporation and Bylaws
Although the Board of Directors of Savings Bank of Manchester is not aware
of any effort that might be made to obtain control of Savings Bank of Manchester
after the conversion, the Board of Directors believes that it is appropriate to
adopt provisions permitted by Connecticut law 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 Connecticut Bancshares, as
Savings Bank of Manchester's sole stockholder. See "Risk Factors--Anti-takeover
provisions and statutory provisions could make takeover attempts more difficult
to achieve and may decrease the market price of common stock."
Savings Bank of Manchester's stock Articles of Incorporation will contain a
provision whereby the acquisition of beneficial ownership of more than 5% or 10%
of the issued and outstanding shares of any class of equity securities of
Savings Bank of Manchester 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 five years following the date of completion of the
conversion without the prior written approval of the Board of Directors of
Savings Bank of Manchester, and, in the case of the 10% limit, the additional
approval of the Connecticut Banking Commissioner. If shares are acquired in
violation of this provision of Savings Bank of Manchester's stock Articles of
Incorporation, all shares beneficially owned by any person in excess of the 5%
or 10% limits 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. These limitations shall not apply to any transaction in which Savings
Bank of Manchester forms a holding company without a change in the respective
beneficial ownership interests of its stockholders other than by the exercise of
any dissenter or appraisal rights. If holders of revocable proxies for more
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than 10% of the shares of the common stock of Connecticut Bancshares seek, among
other things, to elect one-third or more of Connecticut Bancshares' Board of
Directors, to cause Connecticut Bancshares' stockholders to approve the
acquisition or corporate reorganization of Connecticut Bancshares or to exert a
continuing influence on a material aspect of the business operations of
Connecticut Bancshares, which actions could indirectly result in a change in
control of Savings Bank of Manchester, the Board of Directors of Savings Bank of
Manchester will be able to assert this provision of Savings Bank of Manchester's
stock Articles of Incorporation against such holders. Although the Board of
Directors of Savings Bank of Manchester is not currently able to determine when
and if it would assert this provision of Savings Bank of Manchester's stock
Articles of Incorporation, the Board, in exercising its fiduciary duty, may
assert this provision if it were deemed to be in the best interests of Savings
Bank of Manchester, Connecticut Bancshares 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 Savings
Bank of Manchester indirectly through a change in control of Connecticut
Bancshares.
In addition, stockholders will not be permitted to cumulate their votes in
the election of Directors. Furthermore, Savings Bank of Manchester'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 Savings Bank of Manchester in the years immediately following the
conversion. Moreover, the Bylaws limit persons eligible for election as
Directors to residents of Connecticut, which may limit candidates in a proxy
contest.
Finally, the Amended and Restated Articles of Incorporation provide for the
issuance of shares of preferred stock on such terms, including conversion and
voting rights, as may be determined by Savings Bank of Manchester's Board of
Directors without stockholder approval. Although Savings Bank of Manchester has
no arrangements, understandings or plans at the present time for the issuance or
use of the shares of undesignated preferred stock proposed to be authorized, the
Board believes that the availability of such shares will provide Savings Bank of
Manchester with increased flexibility in structuring possible future financings
and acquisitions and in meeting other corporate needs which may arise. If a
proposed merger, tender offer or other attempt to gain control of Savings Bank
of Manchester occurs 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 Savings Bank
of Manchester and its then existing stockholders.
Regulatory Restrictions
Connecticut Conversion Regulations. Regulations issued by the Connecticut
Banking Commissioner provide that for a period of three years following the date
of the completion of the conversion, no person, acting singly or together with
associates in a group of persons acting in concert, 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 Connecticut Bancshares without the
prior written approval of the Connecticut Banking Commissioner. Where any
person, directly or indirectly, acquires beneficial ownership of more than ten
percent (10%) of any class of any equity security of Connecticut Bancshares
without the prior written approval of the Connecticut Banking 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.
Change in Bank Control Act. The acquisition of ten percent (10%) or more
of the common stock outstanding may trigger the provisions of the Change in Bank
Control Act. The Federal Deposit Insurance Corporation has also adopted a
regulation under the Change in Bank Control Act which generally requires persons
who at any time intend to acquire control of a Federal Deposit Insurance
Corporation-insured state-chartered non-
133
<PAGE>
member bank, including a converted savings bank such as Savings Bank of
Manchester, to provide at least 60 days' prior written notice and certain
financial and other information to the Federal Deposit Insurance Corporation.
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 Savings Bank of Manchester's voting stock or
the power to direct the management or policies of Savings Bank of Manchester.
However, under Federal Deposit Insurance Corporation regulations, control is
presumed to exist where the acquiring party has voting control of at least ten
percent (10%) of any class of Savings Bank of Manchester's voting securities if
Savings Bank of Manchester has a class of voting securities which is registered
under Section 12 of the Exchange Act, or the acquiring party would be the
largest holder of a class of voting shares of Savings Bank of Manchester. The
statute and underlying regulations authorize the Federal Deposit Insurance
Corporation to disapprove a proposed acquisition on certain specified grounds.
Federal Reserve Board Regulations. If Savings Bank of Manchester does not
maintain its qualification as a qualified thrift lender, attempts to acquire
control of Savings Bank of Manchester will trigger the regulations of the
Federal Reserve Board under the Change in Bank Control Act.
Connecticut Banking Law. Under Connecticut banking law, no person may
acquire beneficial ownership of more than 10% of any class of voting securities
of a Connecticut-chartered bank, or any bank holding company of such a bank,
without prior notification of, and lack of disapproval by, the Connecticut
Banking Commissioner. Similar restrictions apply to any person who holds in
excess of 10% of any such class and desires to increase its holdings to 25% or
more of such class. Additionally, an out-of-state company which already
directly or indirectly controls voting power of 25% or more of the voting stock
of any bank or any bank holding company may not also acquire direct or indirect
ownership or control of more than 10% of the voting stock of another Connecticut
bank or Connecticut bank holding company unless such bank or holding company has
been in existence for at least five years and the Connecticut Banking
Commissioner approves the acquisition. 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 Connecticut Banking Commissioner.
Prior approval of the Connecticut Banking Commissioner is also required
before any action is taken that causes any Connecticut stock bank to organize a
holding company to acquire the shares of the Connecticut stock bank. The
Connecticut Banking 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 Connecticut Banking Commissioner finds that the terms of such plan
of acquisition are reasonable and in accordance with the law and sound public
policy. Any such company shall engage directly or indirectly only in such
activities as are now or may hereafter be proper activities for holding
companies under Connecticut law.
DESCRIPTION OF CONNECTICUT BANCSHARES STOCK
General
Connecticut Bancshares is authorized to issue 45,000,000 shares of common
stock having a par value of $.01 per share and 1,000,000 shares of preferred
stock having a par value of $.01 per share. Connecticut Bancshares currently
expects to issue up to 16,425,450, shares of common stock at the maximum of the
estimated valuation range, as adjusted by 15% and including shares issued to SBM
Foundation. Connecticut Bancshares will not issue any shares of preferred stock
in the conversion. Each share of Connecticut Bancshares' 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 purchase price for the common
stock, as required by the plan of conversion, all stock will be duly authorized,
fully paid and nonassessable.
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The common stock of Connecticut Bancshares will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency.
Common Stock
Dividends. Connecticut Bancshares 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 Connecticut Bancshares is limited by law
and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of common stock of Connecticut Bancshares will be
entitled to receive and share equally in dividends as may be declared by the
Board of Directors of Connecticut Bancshares out of funds legally available
therefor. If Connecticut Bancshares issues preferred stock, the holders of
preferred stock may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. After the conversion, the holders of common stock of
Connecticut Bancshares will possess exclusive voting rights in Connecticut
Bancshares. They will elect Connecticut Bancshares' Board of Directors and act
on 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 Connecticut Bancshares and Savings
Bank of Manchester," each holder of common stock will be entitled to one vote
per share and will not have any right to cumulate votes in the election of
directors. If Connecticut Bancshares issues preferred stock, holders of
Connecticut Bancshares preferred stock may also possess voting rights. Certain
matters require a vote of 80% of the outstanding shares entitled to vote. See
"Restrictions on Acquisition of Connecticut Bancshares and Savings Bank of
Manchester."
As a subsidiary of a Connecticut mutual holding company, corporate powers
and control of Savings Bank of Manchester are indirectly vested in the
corporators of Connecticut Bankshares, M.H.C., who elect Connecticut Bankshares,
M.H.C.'s directors, and who, in turn, elect the directors of Savings Bank of
Manchester. Savings Bank of Manchester's directors then appoint the officers of
Savings Bank of Manchester. After the conversion, voting rights will be vested
exclusively in Connecticut Bancshares, which will own all of the outstanding
capital stock of Savings Bank of Manchester, and will be voted at the direction
of Connecticut Bancshares' Board of Directors. Consequently, the holders of the
common stock of Connecticut Bancshares will not have direct control of Savings
Bank of Manchester.
Liquidation. If there is any liquidation, dissolution or winding up of
Savings Bank of Manchester, Connecticut Bancshares, as the holder of Savings
Bank of Manchester's capital stock, would be entitled to receive all of Savings
Bank of Manchester's assets available for distribution after payment or
provision for payment of all debts and liabilities of Savings Bank of
Manchester, including all deposit accounts and accrued interest, and after
distribution of the balance in the special liquidation account to eligible
account holders. Upon liquidation, dissolution or winding up of Connecticut
Bancshares, the holders of its common stock would be entitled to receive all of
the assets of Connecticut Bancshares available for distribution after payment or
provision for payment of all its debts and liabilities. If Connecticut
Bancshares issues preferred stock, the preferred stock holders may have a
priority over the holders of the common stock upon liquidation or dissolution.
Indemnification and Limit on Liability. Connecticut Bancshares'
Certificate of Incorporation contains provisions which limit the liability of
and indemnify its directors, officers and employees. 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 Connecticut Bancshares shall be indemnified
and held harmless by Connecticut Bancshares 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 Connecticut Bancshares the expenses
incurred in defending any such proceeding in advance of its final disposition.
In addition, a director of Connecticut Bancshares shall not be personally liable
to Connecticut Bancshares or its stockholders for monetary damages except for
liability for any breach of the duty of loyalty, for
135
<PAGE>
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 Law, or for any transaction from which the director derived an
improper personal benefit.
Preemptive Rights; Redemption. Holders of the common stock of Connecticut
Bancshares will not be entitled to preemptive rights with respect to any shares
that may be issued. The common stock cannot be redeemed.
Preferred Stock
Connecticut Bancshares will not issue any preferred stock in the conversion
and it has no current plans to issue any preferred stock after the conversion.
Preferred stock may be issued with 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 that 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.
Restrictions on Acquisition
Acquisitions of Connecticut Bancshares are restricted by provisions in its
Certificate of Incorporation and Bylaws and by rules and regulations of various
regulatory agencies. See ''Regulation and Supervision" and "Restrictions on
Acquisition of Connecticut Bancshares and Savings Bank of Manchester."
DESCRIPTION OF SAVINGS BANK OF MANCHESTER STOCK
General
If the holding company form of organization is not utilized in connection
with the conversion, Savings Bank of Manchester may offer shares of its common
stock in connection with the conversion. The following is a discussion of its
stock.
The Amended and Restated Articles of Incorporation of Savings Bank of
Manchester, to be effective upon the conversion, authorize the issuance of
capital stock consisting of 10,000 shares of common stock, without par value,
and 1,000 shares of preferred stock, without par value. The 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 Savings Bank of Manchester 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 Amended and Restated
Articles of Incorporation without the approval of Savings Bank of Manchester's
stockholders. Assuming that the holding company form of organization is
utilized, all of the issued and outstanding common stock of Savings Bank of
Manchester will be held by Connecticut Bancshares. Savings Bank of Manchester
stock will represent non-withdrawable capital, will not be an account of an
insurable type and will not be insured by the Federal Deposit Insurance
Corporation.
Common Stock
Dividends. The holders of Savings Bank of Manchester'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 Savings Bank of Manchester out of its legally
available funds. See "Dividend Policy" for certain restrictions on the payment
of dividends and "Federal and State Taxation of Income--Federal Income 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 Savings
Bank of Manchester's common stock will possess exclusive voting rights in
Savings Bank of Manchester. 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 Connecticut Bancshares and Savings Bank of Manchester--Anti-
Takeover Effects of Connecticut Bancshares' Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up
of Savings Bank of Manchester, the holders of common stock will be entitled to
receive, after payment of all Savings Bank of Manchester's debts and liabilities
(including all deposit accounts and accrued interest thereon), and distribution
of the balance in the special liquidation account to eligible account holders,
all assets of Savings Bank of Manchester available for distribution in cash or
in kind. If additional preferred stock is issued after 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 Savings Bank of Manchester's
common stock will not be entitled to preemptive rights with respect to any
shares of Savings Bank of Manchester which may be issued. Upon receipt by
Savings Bank of Manchester 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 ________________.
REGISTRATION REQUIREMENTS
Connecticut Bancshares has registered the common stock with the Securities
and Exchange Commission under Section 12(g) of the Securities Exchange Act of
1934, as amended, and will not deregister its common stock for a period of at
least three years following the conversion. As a result of registration, the
proxy and tender offer rules, insider trading reporting and restrictions, annual
and periodic reporting and other requirements of that statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for Connecticut
Bancshares by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon, Murphy &
Faucette LLP and the State of Connecticut tax consequences of the conversion
have been opined upon by Arthur Andersen LLP, Hartford, Connecticut. Muldoon,
Murphy & Faucette LLP and Arthur Andersen LLP have consented to the references
to their opinions in this prospectus. Certain legal matters in connection with
this offering will be passed upon for Sandler O'Neill by Shipman & Goodwin LLP,
Hartford, Connecticut.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
RP Financial has consented to the summary in this prospectus of its report
to Savings Bank of Manchester setting forth its opinion as to the estimated pro
forma market value of Connecticut Bancshares and Savings Bank of
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Manchester, as converted, and its letter with respect to subscription rights,
and to the use of its name and statements with respect to it appearing in this
prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Connecticut Bancshares has filed with the Securities and Exchange
Commission a Registration Statement on Form S-1 (File No. 333-_____) under the
Securities Act of 1933, as amended, with respect to the common stock offered in
the conversion. This prospectus does not contain all the information contained
in the registration statement, certain parts of which are omitted as permitted
by the rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
NW, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The registration statement also is available through the
Securities and Exchange Commission's World Wide Web site on the Internet at
http://www.sec.gov.
Following the conversion, Connecticut Bancshares will also file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission, all of which can be inspected and copied at
the Securities Exchange Commission's Public Reference Room. Copies of these
materials can also be obtained, upon payment of a copying fee, by writing to the
Securities and Exchange Commission.
Savings Bank of Manchester has filed an application for approval of
conversion with the Connecticut Banking Commissioner and has provided copies of
the conversion application to the Federal Deposit Insurance Corporation and the
Federal Reserve Bank of Boston. This prospectus omits certain information
contained in that application. The conversion application may be examined at
the Office of the Connecticut Banking Commissioner, State of Connecticut
Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103.
Copies of the conversion application may be examined at the Federal Deposit
Insurance Corporation's offices at 15 Braintree Hill Office Park, Suite 100,
Braintree, Massachusetts 02184 and at the Federal Reserve Bank of Boston's
offices at 600 Atlantic Avenue, Boston, Massachusetts 02106.
Connecticut Bancshares has filed with the Office of Thrift Supervision an
application to become the holding company for Savings Bank of Manchester. This
prospectus omits certain information contained in that application. The
application may be inspected, without charge, at the offices of the Office of
Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at the offices
of the Regional Director of the Office of Thrift Supervision at the Northeast
Regional Office of the Office of Thrift Supervision, 10 Exchange Place, 18/th/
Floor, Jersey City, New Jersey 07302.
A copy of the plan of conversion, Connecticut Bancshares' Certificate of
Incorporation and Bylaws and Savings Bank of Manchester's Amended and Restated
Articles of Incorporation and Bylaws are available without charge from Savings
Bank of Manchester by contacting the conversion center at (___) ___-____.
A copy of RP Financial's appraisal report is available for inspection at
Savings Bank of Manchester's administrative offices located at 923 Main Street,
Manchester, Connecticut.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
CONNECTICUT BANKSHARES, M.H.C. AND SUBSIDIARY
---------------------------------------------
Page
----
Report of Independent Public Accountants F-2
Consolidated Statements of Condition as of August 31, 1999
(unaudited) and December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Eight
Months Ended August 31, 1999 and 1998 (unaudited)
and for the Years Ended December 31, 1998, 1997 and 1996 31
Consolidated Statements of Changes in Capital for the Eight
Months Ended August 31, 1999 (unaudited) and for the
Years Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Eight
Months Ended August 31, 1999 and 1998 (unaudited) and
for the Years Ended December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
All schedules, except those set forth above, are
omitted as the required information either
is not applicable or is included in the
Consolidated Financial Statements or related Notes.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
Connecticut Bankshares, M.H.C.:
We have audited the accompanying consolidated statements of condition of
Connecticut Bankshares, M.H.C. (a Connecticut mutual holding company) and its
subsidiary, The Savings Bank of Manchester (collectively, the Bank), as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in capital and cash flows for each of the three years in the
period ended December 31, 1998. 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 Connecticut
Bankshares, M.H.C. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Hartford, Connecticut /s/ Arthur Andersen LLP
January 15, 1999, except
for Note 14 as to which the
date is October 26, 1999
F-2
<PAGE>
CONNECTICUT BANKSHARES, M.H.C. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION
------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
August 31, December 31, December 31,
ASSETS 1999 1998 1997
------ ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents $ 42,823 $ 45,048 $ 14,660
Securities available for sale (cost of
$147,956 at August 31, 1999 (unaudited),
$153,346 at December 31, 1998 and $119,762
at December 31, 1997) 159,464 168,151 131,589
Securities held to maturity (market value
of $44,120 at August 31, 1999 (unaudited),
$53,054 at December 31, 1998 and $50,536
at December 31, 1997) 44,865 52,597 50,283
Loans held for sale 35 121 266
Loans, net 899,692 806,787 798,292
Federal Home Loan Bank stock, at cost 5,909 5,909 5,571
Premises and equipment, net 14,735 15,621 15,709
Accrued interest receivable 6,905 6,435 6,724
Other real estate owned 901 1,759 4,708
Excess of purchase price over fair value
on branch acquisitions 2,542 2,830 3,262
Other assets 3,798 3,029 2,022
---------- ---------- ----------
Total assets $1,181,669 $1,108,287 $1,033,086
========== ========== ==========
LIABILITIES AND CAPITAL
-----------------------
Deposits $ 887,322 $ 855,117 $ 827,667
Short-term borrowed funds 97,847 79,545 71,179
Mortgagors' escrow accounts 5,059 7,627 7,540
Advances from Federal Home Loan Bank 66,899 45,000 17,987
Current and deferred income taxes 186 1,019 1,157
Other liabilities 6,314 7,172 6,365
---------- ---------- ----------
Total liabilities 1,063,627 995,480 931,895
---------- ---------- ----------
Commitments and contingencies (Notes 8, 11 and 14)
Capital:
Surplus 14,957 14,957 14,957
Undivided profits 95,260 88,597 79,279
Accumulated other comprehensive income 7,825 9,253 6,955
---------- ---------- ----------
Total capital 118,042 112,807 101,191
---------- ---------- ----------
Total liabilities and capital $1,181,669 $1,108,287 $1,033,086
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
CONNECTICUT BANKSHARES, M.H.C. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
---------------------------------------------
(In Thousands)
Accumulated
Other
Undivided Comprehensive
Surplus Profits Income Total
------- ------- ------ -----
BALANCE, December 31, 1995 $15,160 $59,443 $ 2,539 $ 77,142
------- ------- ------- --------
Comprehensive income:
Net income - 9,431 - 9,431
Change in unrealized
gain on securities
available for sale,
net of taxes - - 1,962 1,962
------- ------- ------- --------
Total comprehensive income - 9,431 1,962 11,393
------- ------- ------- --------
Transfers, net (99) 99 - -
------- ------- ------- --------
BALANCE, December 31, 1996 15,061 68,973 4,501 88,535
------- ------- ------- --------
Comprehensive income:
Net income - 10,202 - 10,202
Change in unrealized
gain on securities
available for sale,
net of taxes - - 2,454 2,454
------- ------- ------- --------
Total comprehensive income - 10,202 2,454 12,656
------- ------- ------- --------
Transfers, net (104) 104 - -
------- ------- ------- --------
BALANCE, December 31, 1997 14,957 79,279 6,955 101,191
------- ------- ------- --------
Comprehensive income:
Net income - 9,318 - 9,318
Change in unrealized
gain on securities
available for sale,
net of taxes - - 2,298 2,298
------- ------- ------- --------
Total comprehensive income - 9,318 2,298 11,616
------- ------- ------- --------
BALANCE, December 31, 1998 14,957 88,597 9,253 112,807
------- ------- ------- --------
Comprehensive income:
Net income - 6,663 - 6,663
Change in unrealized
gain on securities
available for sale,
net of taxes - - (1,428) (1,428)
------- ------- ------- --------
Total comprehensive income - 6,663 (1,428) 5,235
------- ------- ------- --------
BALANCE, August 31, 1999
(unaudited) $14,957 $95,260 $ 7,825 $118,042
======= ======= ======= ========
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
CONNECTICUT BANKSHARES, M.H.C. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In Thousands)
<TABLE>
<CAPTION>
For the Eight Months Ended
August 31, For the Year Ended December 31,
--------------------------- -------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,663 $ 6,855 $ 9,318 $ 10,202 $ 9,431
Adjustments:
Provision for loan losses 400 800 1,200 1,200 1,200
Depreciation 1,717 1,685 2,295 1,645 1,386
Provision for loss on other real estate owned 44 322 385 903 1,129
Deferred income tax provision (benefit) 201 (368) 495 (199) (525)
Amortization/accretion -
Premium on deposits 288 288 407 407 402
Premium on loans and bonds 442 293 538 725 755
Net losses (gains) on sales of other real estate owned 41 319 (324) 404 135
Gains on sale of securities, net (246) (3,035) (2,621) (4,007) (842)
Net gains on mortgage loan sales (438) (1,079) (2,415) (410) (924)
Changes in operating assets and liabilities -
Accrued interest receivable (470) 182 289 (442) 465
Other assets (769) (800) (1,007) (1,663) (1,217)
Other liabilities (858) (1,391) 807 914 658
-------- ------- -------- ------- -------
Net cash provided by operating activities 7,015 4,071 9,367 9,679 12,054
-------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations and purchases, net of repayments (108,668) (58,559) (103,303) (83,211) (67,852)
Proceeds from sales of loans 15,450 66,086 94,332 12,139 27,886
Proceeds from maturities of held to maturity securities 3,500 2,000 3,500 9,375 12,925
Proceeds from maturities of available for
sale securities 17,000 5,000 5,000 18,815 21,106
Proceeds from sales of available for sale securities 5,469 9,507 20,753 66,119 9,351
Purchases of held to maturity securities (2,971) (17,304) (17,304) (12,040) (17,181)
Purchases of available for sale securities (19,402) (38,669) (61,694) (89,583) (42,080)
Proceeds from principal payments of
mortgage-backed securities 9,678 9,664 16,510 12,643 7,340
Proceeds from sales of other real estate owned 1,085 2,891 3,503 3,530 1,487
Purchases of premises and equipment (219) (2,263) (3,192) (5,263) (2,526)
-------- ------- -------- ------- -------
Net cash used in investing activities (79,078) (21,647) (41,895) (67,476) (49,544)
-------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in savings, money market, NOW and demand deposits 28,787 23,610 57,077 16,033 13,262
Net increase (decrease) in time and other deposits 3,418 (27,046) (29,627) 18,801 14,782
Net increase (decrease) in short-term borrowed funds 18,302 5,884 379 19,918 (5,515)
(Decrease) increase in mortgagors' escrow accounts (2,568) (3,528) 87 (145) 432
Increase (decrease) in advances from Federal Home Loan Bank 21,899 35,000 35,000 (5,000) (2,593)
-------- ------- -------- ------- -------
Net cash provided by financing activities 69,838 33,920 62,916 49,607 20,368
-------- ------- -------- ------- -------
Net (decrease) increase in cash and cash equivalents (2,225) 16,344 30,388 (8,190) (17,122)
CASH AND CASH EQUIVALENTS, beginning of period 45,048 14,660 14,660 22,850 39,972
-------- ------- -------- ------- -------
CASH AND CASH EQUIVALENTS, end of period $ 42,823 $ 31,004 $ 45,048 $ 14,660 $ 22,850
======== ======= ======== ======= =======
SUPPLEMENTAL INFORMATION:
Cash paid for -
Interest and dividends $ 23,940 $ 24,664 $ 37,214 $ 33,101 $ 34,881
Income taxes 2,100 3,275 5,025 6,550 7,525
Non-cash transactions -
Transfers from loans to other real estate owned 213 841 1,164 3,878 1,830
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
CONNECTICUT BANKSHARES, M.H.C. AND SUBSIDIARY
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AUGUST 31, 1999 AND 1998 (UNAUDITED) AND
----------------------------------------
DECEMBER 31, 1998, 1997 AND 1996
--------------------------------
1. Organization and Significant Accounting Policies:
------------------------------------------------
Organization -
------------
The accompanying consolidated financial statements include the accounts
of Connecticut Bankshares, M.H.C. (Connecticut Bankshares or the MHC)
and its wholly-owned subsidiary, The Savings Bank of Manchester (SBM),
and its wholly-owned subsidiaries, SBM, Ltd. and 923 Main, Inc.
(collectively, the Bank). Savings Bank of Manchester Mortgage Company,
Inc. (SBM Mortgage), a passive investment company for Connecticut
income tax purposes, was established in January 1999 to service and
hold loans secured by real property. SBM Mortgage is included in the
consolidated financial statements as of August 31, 1999 and for the
eight months then ended. All material intercompany balances and
transactions have been eliminated in consolidation.
The Bank with its main office located in Manchester, Connecticut
operates through twenty-three branches located primarily in eastern
Connecticut. The Bank's primary source of income is interest received
on loans to customers, which include small and middle market businesses
and individuals residing within the Bank's service area. As discussed
in Note 13, the Bank adopted a Plan of Conversion pursuant to which
Connecticut Bankshares will merge into the Bank, with the Bank being
the surviving corporation, and the Bank will continue as a state-
chartered stock bank.
In 1998, the Bank contributed securities with a fair market value of
approximately $3 million to the newly formed Savings Bank of Manchester
Foundation, Inc. (the Foundation), a not-for-profit organization. The
Foundation was formed to provide charitable contributions for the
surrounding community. In connection with the contribution, the Bank
realized a gain of approximately $2.3 million on the transfer of
securities.
Unaudited interim financial statements -
--------------------------------------
The consolidated financial statements and related notes as of August
31, 1999 and for the eight months ended August 31, 1999 and 1998 are
unaudited. All adjustments, consisting of only normal recurring
adjustments, which in the opinion of management are necessary for fair
presentation of financial condition, results of operations, statements
of changes in capital and cash flows, have been made. The results of
operations for the eight months ended August 31, 1999 are not
necessarily indicative of the results which may be expected for a full
year.
F-6
<PAGE>
Use of estimates in the preparation of financial statements -
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of income
and expenses during the reporting periods. Operating results in the
future could vary from the amounts derived from management's estimates
and assumptions. A material estimate that is particularly susceptible
to changes in the near term relates to the determination of the
allowance for loan losses (see Note 4).
Cash flows -
----------
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks.
Investment and mortgage-backed securities -
-----------------------------------------
Investments are classified into one of three categories and accounted
for as follows:
Category Accounting Treatment
-------- --------------------
Trading, representing debt, Reported at fair value, with
equity and mortgage-backed unrealized gains and losses
securities which are held for included in noninterest income
resale in the near term
Held to maturity, representing Reported at amortized cost
debt and mortgage-backed
securities for which the Bank
has the positive intent and
ability to hold to maturity
Available for sale, Reported at fair value, with
representing debt, equity and unrealized gains and losses, net
mortgage-backed securities of tax, reported as a separate
not classified as trading component of accumulated other
or held to maturity comprehensive income
Any security that experiences a decline in value that management
believes is other than temporary is reduced to its net realizable value
by a charge to noninterest income. Realized gains and losses from the
sale of investments are recorded on the trade date by specific
identification of the security sold.
Loans held for sale -
-------------------
Loans held for sale are valued at the lower of acquisition cost (less
principal payments received) or estimated market value. Market is
determined by reference to outstanding commitments from investors
calculated on an individual loan basis. Net unrealized losses are
recognized in a valuation allowance established by charges to
noninterest income.
F-7
<PAGE>
Loans -
-----
Loans are stated at their principal amounts outstanding net of unearned
income. Interest on loans is recorded as income based on rates applied
to principal amounts outstanding. Some installment and commercial loans
are made on a discounted basis, and the unearned discount is recorded
in income by use of a method that approximates the effective interest
method. In determining income recognition on loans, generally no
interest is recognized with respect to loans on which a default of
interest or principal has occurred for a period of ninety days or more
and collection of any portion of the loan is considered to be doubtful,
or for a lesser period if circumstances indicate collection of any
portion of the loan is doubtful.
Loan origination fees and certain direct loan origination costs are
capitalized, and the net fee or cost is recognized in interest income
using the effective interest method over the contractual life of the
loans. When loans are prepaid, sold or participated out, the
unamortized portion of deferred fees is recognized as income at that
time. As of August 31, 1999 and December 31, 1998 and 1997, net
deferred loan fees were approximately $1,472,000, $1,021,000 and
$960,000, respectively.
The allowance for loan losses is established through a provision
charged to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is
unlikely. The allowance represents an amount which, in management's
judgment, will be adequate to absorb losses on existing loans that may
become uncollectible. Management's judgment in determining the adequacy
of the allowance is based on the evaluation of individual performing
and impaired loans, risk characteristics of the loan portfolios,
assessment of current economic and real estate market conditions,
estimates of the current value of underlying collateral, past and
current loan loss experience and other relevant factors.
The Bank has identified certain loans as impaired based upon
management's belief it is probable that the borrower will be unable to
pay all principal and interest amounts in accordance with the loan
agreement's contractual terms. The Bank is required to account for the
time value of money when determining the adequacy of the Bank's
allowance for loan losses for certain impaired loans.
Certain impaired loans are required to be measured based on the present
value of expected future cash flows discounted at the loan's original
effective interest rate. As a practical expedient, impairment also may
be measured based on the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. When the
measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is
doubtful, at which time payments received are recorded as reductions of
principal.
Premises and equipment -
----------------------
Premises and equipment are stated at cost, less accumulated
depreciation of approximately $10,076,000, $12,925,000 and $10,630,000
as of August 31, 1999 and December 31, 1998 and 1997, respectively.
Depreciation of premises and equipment and amortization of leasehold
improvements are computed using the straight-line basis over the
estimated useful lives of the assets (5-39 years) or in the case of
leasehold improvements, the lease term if shorter.
F-8
<PAGE>
Excess of purchase price over fair value on branch acquisitions -
---------------------------------------------------------------
In 1997, the Bank acquired certain assets of a branch in West Hartford,
Connecticut. The premium of $250,000, for lease rights acquired, is
being amortized over the remaining term of the lease (10 years) using
the straight-line method.
In 1995, the Bank acquired certain fixed assets and assumed certain
deposit liabilities of two branches in Storrs and Enfield, Connecticut.
In consideration of the assumption of approximately $47,408,000 of
deposit liabilities, the Bank received approximately $42,392,000 in
cash and $1,553,000 in other assets. The resultant core deposit premium
intangible of approximately $4,062,000 is being amortized over 10 years
using the straight-line method.
Other real estate owned -
-----------------------
Other real estate owned, comprised of real estate acquired through
foreclosure or acceptance of a deed in lieu of foreclosure, is carried
at the lower of cost or fair market value, net of estimated costs to
sell. Property is transferred to other real estate owned at the lower
of cost or fair market value, with any excess over cost charged to the
allowance for loan losses. Any further decline in value based on
subsequent changes to estimated fair market value or any loss upon
ultimate disposition of the property is charged to other real estate
owned expenses.
Mortgage servicing rights -
-------------------------
The Bank applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights,"
which requires that the cost of mortgage servicing rights to be
amortized in proportion to, and over the period of, estimated net
servicing revenues. Impairment of mortgage servicing rights is assessed
based on the fair value of those rights. Fair values are estimated
using discounted cash flows based on a current market interest rate.
The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceed their fair
value.
Effective January 1, 1997, the Bank adopted SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," (as amended by SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125 (an amendment of
FASB Statement No. 125)"), which supersedes SFAS No. 122 and
establishes standards to account for transfers and servicing of
financial assets and extinguishment of liabilities. The standards are
based on consistent application of a financial-components approach that
focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when extinguished.
The adoption of this statement had no effect on the Bank's financial
condition or results of operations.
When participating interests in loans sold have an average contractual
interest rate, adjusted for normal servicing fees, that differs from
the agreed yield to the purchaser, gains or losses are recognized equal
to the present value of such differential over the estimated remaining
life of such loans. The resulting "excess servicing receivable" or
"deferred servicing revenue" is amortized over the estimated life using
a method approximating the effective interest method.
F-9
<PAGE>
Quoted market prices are not available for the excess servicing
receivables. Thus, the excess servicing receivables and the
amortization thereon periodically are evaluated in relation to
estimated future servicing revenues, taking into consideration changes
in interest rates, current prepayment rates and expected future cash
flows. The Bank evaluates the carrying value of the excess servicing
receivables by estimating the future servicing income of the excess
servicing receivables based on management's best estimate of remaining
loan lives and discounted at the original discount rate.
Short-term borrowed funds -
-------------------------
Short-term borrowings are comprised of uninsured accounts which are
secured by investment securities.
Income taxes -
------------
Items of income and expense recognized in different time periods for
financial reporting purposes and for purposes of computing income taxes
currently payable (temporary differences) give rise to deferred income
taxes which are reflected in the financial statements. A deferred tax
liability or asset is recognized for the estimated future tax effects,
based upon enacted law, attributed to temporary differences. If
applicable, the deferred tax asset is reduced by the amount of any tax
benefits that, based on available evidence, are not likely to be
realized.
Related party transactions -
--------------------------
Directors and officers of the Bank and their associates have been
customers of, and have had transactions with the Bank, and management
expects that such persons will continue to have such transactions in
the future. All deposit accounts, loans, services and commitments
comprising such transactions were made in the ordinary course of
business, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions
with other customers who are not directors or officers and, in the
opinion of management, the transactions did not involve more than
normal risks of collectibility, favored treatment or terms, or present
other unfavorable features (see Note 4 for further details regarding
related party transactions).
Comprehensive income -
--------------------
SFAS No. 130, "Reporting Comprehensive Income" establishes standards
for separately reporting comprehensive income and its components.
Components of comprehensive income represent changes in equity
resulting from transactions and other events and circumstances from
non-owner sources. Comprehensive income for the eight months ended
August 31, 1999 and the years ended December 31, 1998, 1997 and 1996 is
as follows (in thousands):
<TABLE>
<CAPTION>
For the Eight For the Year Ended
Months Ended December 31,
----------------------------
August 31, 1999 1998 1997 1996
---------------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 6,663 $ 9,318 $10,202 $ 9,431
Unrealized gains on securities:
Change in unrealized holding gains
arising during the period (1,182) 4,919 6,461 2,804
Less: reclassification adjustment
for gains included in net
income (246) (2,621) (4,007) (842)
------- ------- ------- -------
Comprehensive income $ 5,235 $11,616 $12,656 $11,393
======= ======= ======= =======
</TABLE>
F-10
<PAGE>
Segment information -
-------------------
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires public companies to report certain financial
information about significant revenue-producing segments of the
business for which such information is available and utilized by the
chief operating decision-maker. Specific information to be reported for
individual operating segments includes a measure of profit and loss,
certain revenue and expense items and total assets. As a community-
oriented financial institution, substantially all of the Bank's
operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses
performance based on an ongoing review of these community-banking
operations, which constitutes that Bank's only operating segment for
financial reporting purposes under SFAS No. 131.
New accounting standards -
------------------------
Effective January 1, 1999 the Bank adopted SFAS No. 134, "Accounting
for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an
amendment of SFAS No. 65." This statement requires that after the
securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities shall classify the resulting mortgage-
backed securities or other retained interests based on its ability and
intent to sell or hold those investments. The adoption did not have any
effect on the Bank's financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the statement of income and requires that an entity
formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. This statement was amended
by SFAS No. 137, "Accounting for Derivatives and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." As a result,
SFAS No. 133 will be effective in 2001 for the Bank. Management does
not expect that the adoption of this statement will have a material
impact on the Bank's financial position or results of operations.
Reclassifications -
-----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
F-11
<PAGE>
2. Regulatory Matters:
------------------
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. The
regulations require the Bank to meet specific capital adequacy guidelines
that involve quantitative measures of 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 banking regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum capital ratios (set forth in the table
below) of Tier I leverage capital (as defined in the regulations) to total
average assets (as defined), and minimum ratios of Tier I and total capital
(as defined) to risk weighted assets (as defined). To be considered
adequately capitalized (as defined) under the regulatory framework from
Prompt Corrective Action, the Bank must maintain minimum Tier I leverage,
Tier I risk-based and total risk-based ratios as set forth in the table.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
categorizes banks based on capital levels and triggers certain mandatory and
discretionary supervisory responses for institutions that fall below certain
capital levels. A bank generally is categorized as "well capitalized" if it
maintains a leverage capital ratio of at least 5%, a Tier I risk-based
capital ratio of at least 6% and a total risk-based capital ratio of at
least 10%, and it is not subject to a written agreement, order or capital
directive.
As of August 31, 1999 and December 31, 1998 and 1997, management believes
that the Bank met all capital adequacy requirements to which they are
subject. As of the most recent notification from the Federal Deposit
Insurance Corporation, the Bank was categorized as well capitalized under
the regulatory framework for Prompt Corrective Action, and the highest
capital category, as defined in the FDICIA regulations. Management believes
that there are no events or conditions which have occurred subsequent to the
notification that would change its category.
Actual capital amounts and ratios for the Bank, which are substantially the
same as the amounts and ratios for SBM, were (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well Capitalized Under
Capital Adequacy Prompt Corrective Action
---------------------------------- ---------------------------
Required Actual Required
Amount (Ratio) Amount (Ratio) Amount (Ratio)
--------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
August 31, 1999:
Tier I Capital
(to Total
Average Assets) $47,267 (4.0%) $107,073 (9.1%) $59,083 (5.0%)
Tier I Capital
(to Risk
Weighted Assets) 32,520 (4.0%) 107,073 (13.2%) 48,780 (6.0%)
Total Capital (to
Risk Weighted
Assets) 65,039 (8.0%) 117,243 (14.4%) 81,299 (10.0%)
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized Under
Capital Adequacy Prompt Corrective Action
---------------------------------- ---------------------------
Required Actual Required
Amount (Ratio) Amount (Ratio) Amount (Ratio)
--------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998:
Tier I Capital
(to Total
Average Assets) $43,320 (4.0%) $100,719 (9.3%) $54,150 (5.0%)
Tier I Capital
(to Risk
Weighted Assets) 31,974 (4.0%) 100,719 (12.6%) 47,961 (6.0%)
Total Capital (to
Risk Weighted
Assets) 57,951 (8.0%) 110,689 (13.9%) 72,438 (10.0%)
December 31, 1997:
Tier I Capital
(to Total
Average Assets) $40,679 (4.0%) $ 90,511 (8.9%) $50,849 (5.0%)
Tier I Capital
(to Risk
Weighted Assets) 29,197 (4.0%) 90,511 (12.4%) 43,796 (6.0%)
Total Capital (to
Risk Weighted
Assets) 58,362 (8.0%) 99,726 (13.7%) 72,952 (10.0%)
</TABLE>
3. Investment Securities:
---------------------
As of August 31, 1999 and December 31, 1998 and 1997, the amortized cost and
market value of investment securities were (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
August 31, 1999
---------------
Available for Sale:
U.S. Government and
agency obligations $ 68,201 $ 125 $ (573) $ 67,753
Corporate securities 36,574 38 (444) 36,168
Marketable equity
securities 30,258 14,213 (1,503) 42,968
Mortgage-backed
securities 12,491 132 (480) 12,143
Other equity securities 432 - - 432
-------- ------- ------- --------
Total $147,956 $14,508 $(3,000) $159,464
======== ======= ======= ========
Held to Maturity:
Other securities $ 3,130 $ 8 $ (1) $ 3,137
Asset-backed securities 19,258 190 (209) 19,239
Mortgage-backed
securities 22,477 22 (755) 21,744
-------- ------- ------- --------
Total $ 44,865 $ 220 $ (965) $ 44,120
======== ======= ======= ========
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
December 31, 1998
-----------------
Available for Sale:
U.S. Government and
agency obligations $ 70,563 $ 1,164 $ (24) $ 71,703
Corporate securities 40,128 348 (56) 40,420
Marketable equity
securities 29,427 13,625 (279) 42,773
Mortgage-backed
securities 12,832 279 (252) 12,859
Other equity securities 396 - - 396
-------- ------- ----- --------
Total $153,346 $15,416 $(611) $168,151
======== ======= ===== ========
Held to Maturity:
U.S. Government and
agency obligations $ 3,506 $ 18 $ - $ 3,524
Other securities 3,145 102 (1) 3,246
Asset-backed securities 23,204 339 (157) 23,386
Mortgage-backed
securities 22,742 226 (70) 22,898
-------- ------- ----- --------
Total $ 52,597 $ 685 $(228) $ 53,054
======== ======= ===== ========
December 31, 1997
-----------------
Available for Sale:
U.S. Government and
agency obligations $ 48,534 $ 287 $ (54) $ 48,767
Corporate securities 23,771 256 (17) 24,010
Marketable equity
securities 29,389 11,764 (518) 40,635
Other equity securities 192 - - 192
Mortgage-backed
securities 17,876 319 (210) 17,985
-------- ------- ----- --------
Total $119,762 $12,626 $(799) $131,589
======== ======= ===== ========
Held to Maturity:
U.S. Government and
agency obligations $ 7,055 $ 29 $ (13) $ 7,071
Asset-backed securities 25,674 235 (157) 25,752
Other securities 3,145 80 (1) 3,224
Mortgage-backed
securities 14,409 84 (4) 14,489
-------- ------- ----- --------
Total $ 50,283 $ 428 $(175) $ 50,536
======== ======= ===== ========
</TABLE>
As of August 31, 1999 and December 31, 1998, the amortized cost and market
values of debt securities, by contractual maturity, are shown below (in
thousands). Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
F-14
<PAGE>
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
----------------- ------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
August 31, 1999
------------------------
Due in one year or less $ 95 $ 95 $ 31,187 $ 31,146
Due after one year
through five years 4,901 5,007 68,180 67,462
Due after five years
through ten years 3,754 3,714 5,408 5,313
Due after ten years 13,638 13,560 - -
------- ------- ------- -------
22,388 22,376 104,775 103,921
Mortgage-backed
securities 22,477 21,744 12,491 12,143
------ ------ -------- --------
Total $44,865 $44,120 $117,266 $116,064
======= ======= ======== ========
December 31, 1998
-----------------
Due in one year or less $ 3,506 $ 3,524 $ 34,605 $ 34,725
Due after one year
through five years 2,920 3,045 74,714 75,965
Due after five years
through ten years 5,964 5,994 1,372 1,433
Due after ten years 17,465 17,593 - -
------ ------ ------- --------
29,855 30,156 110,691 112,123
Mortgage-backed
securities 22,742 22,898 12,832 12,859
------ ------ ------- -------
Total $52,597 $53,054 $123,523 $124,982
======= ======= ======== ========
</TABLE>
For the eight months ended August 31, 1999 and the years ended December 31,
1998 and 1997, proceeds from the sales of available for sale securities were
approximately $5,469,000, $20,753,000 and $66,119,000, respectively. Gross
gains of approximately $676,000, $3,980,000 and $4,360,000, respectively,
and gross losses of approximately $430,000, $1,359,000 and $353,000,
respectively, were realized on those sales for the eight months ended August
31, 1999, and the years ended December 31, 1998 and 1997.
As of August 31, 1999 and December 31, 1998, investment securities with a
book value of approximately $97,576,000 and $107,358,000 were pledged as
security for short-term borrowed funds, U.S. Treasury tax and loan payments
and municipal deposits held by the Bank, respectively.
4. Loans:
-----
As of August 31, 1999 and December 31, 1998 and 1997, the Bank's residential
mortgage loan portfolio was entirely secured by one to four family homes,
located primarily in central and eastern Connecticut. The commercial
mortgage loan portfolio was secured primarily by multi-family, commercial
and manufacturing properties located in Connecticut and surrounding states.
A variety of different assets, including business assets, rental income
properties, and manufacturing and commercial properties, secured a majority
of the commercial loans. The composition of the Bank's loan portfolio as of
August 31, 1999 and December 31, 1998 and 1997 is as follows (in thousands):
F-15
<PAGE>
<TABLE>
<CAPTION>
August 31, December 31,
1999 --------------------
----------- 1998 1997
---- ----
<S> <C> <C> <C>
Residential mortgages $519,960 $464,623 $489,105
Commercial real estate mortgages 186,107 167,577 141,146
Commercial business loans 131,362 114,650 106,874
Installment loans 73,054 70,522 71,112
-------- -------- --------
Total loans 910,483 817,372 808,237
Less - Allowance for loan losses (10,791) (10,585) (9,945)
-------- -------- --------
Total loans, net $899,692 $806,787 $798,292
======== ======== ========
</TABLE>
The Bank services certain loans that it has sold without recourse to third
parties. The aggregate amount of loans serviced for others approximated
$213,235,000, $218,660,000, $152,768,000, and $154,856,000 as of August 31, 1999
and December 31, 1998, 1997 and 1996, respectively. Income from servicing loans
for others was approximately $386,000 and $309,000 for the eight months ended
August 31, 1999 and 1998, respectively, and $503,000, $402,000 and $355,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. Mortgage
servicing rights of approximately $2,575,000, $2,480,000, $783,000 and $536,000
were capitalized as of August 31, 1999 and December 31, 1998, 1997 and 1996,
respectively. Amortization of mortgage servicing rights was approximately
$308,000, $276,000, $54,000 and $40,000 for the eight months ended August 31,
1999 and the years ended December 31, 1998, 1997 and 1996, respectively.
As of August 31, 1999 and December 31, 1998 and 1997, loans to related parties
totaled approximately $16,400,000, $16,200,000 and $14,300,000, respectively.
Related parties include directors and officers of the Bank, their respective
affiliates in which they have a controlling interest and their immediate family
members. For the eight months ended August 31, 1999 and the years ended December
31, 1998 and 1997, all loans to related parties were performing.
Allowance for loan losses -
- -------------------------
The allowance for loan losses is maintained at a level determined by management
to be the best estimate of losses incurred in the loan portfolio. The allowance
is increased or decreased by provisions or credits charged to operations, which
represent an estimate of losses that occurred during the period and a correction
of estimates of losses recorded in prior periods. Confirmed losses, net of
recoveries, are charged directly to the allowance and the loans are written
down.
The determination of the adequacy of loan losses by management is based on an
assessment of risk elements in the portfolio, identified factors affecting
specific loans and available information about the current economic environment
in which the Bank and its borrowers operates. Management reviews overall
portfolio quality through an analysis of current levels and trends in
chargeoffs, delinquency and nonaccruing loan data and the credit risk profile of
each component of the portfolio.
The allowance for loan losses consists of a formula allowance for various loan
portfolio classifications and a valuation allowance for loans identified as
impaired, if necessary. The allowance is an estimate, and ultimate losses may
vary from current estimates. Changes in the estimate are recorded in the results
of operations in the period in which they become known, along with provisions
for estimated losses incurred during that period.
F-16
<PAGE>
A loan is considered to be impaired when it is probable that a creditor will
be unable to collect all amounts due according to the contractual terms of
the loan agreement. Impaired loans, as defined, may be measured based on the
present value of expected future cash flows, discounted at the loan's
original effective interest rate or on the loan's observable market price or
the fair value of the collateral if the loan is collateral-dependent. When
the measurement of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance.
For the eight months ended August 31, 1999 and 1998 and the years ended
December 31, 1998, 1997 and 1996, an analysis of the allowance for loan
losses is (in thousands):
<TABLE>
<CAPTION>
For the
Eight Months Ended For the Year Ended
August 31, December 31,
-------------------- ---------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $10,585 $ 9,945 $ 9,945 $9,131 $ 8,484
Provision for loan losses 400 800 1,200 1,200 1,200
Loans charged off (332) (411) (1,087) (946) (1,762)
Recoveries 138 350 527 560 1,209
------- ------- ------- ------ -------
Balance, end of period $10,791 $10,684 $10,585 $9,945 $ 9,131
======= ======= ======= ====== =======
</TABLE>
5. Nonperforming Assets:
--------------------
Nonperforming assets include loans for which the Bank does not accrue
interest ("nonaccrual loans"), loans 90 days past due and still accruing
interest and other real estate owned. Nonaccrual loans and loans 90 days
past due and still accruing interest represent the Bank's impaired loans.
For the eight months ended August 31, 1999 and 1998 and the years ended
December 31, 1998, 1997 and 1996, the average recorded investment in
impaired loans was approximately $3,744,000, $2,699,000, $2,200,000,
$5,000,000 and $8,000,000, respectively. As of August 31, 1999 and December
31, 1998 and 1997, nonperforming assets were (in thousands):
<TABLE>
<CAPTION>
August 31, December 31,
1999 -----------------------
---- 1998 1997
---- ----
<S> <C> <C> <C>
Nonaccrual loans $5,050 $ 784 $2,077
Loans 90 days past due and
accruing interest 912 740 758
Other real estate owned 901 1,759 4,708
------ ------ ------
Total nonperforming assets $6,863 $3,283 $7,543
====== ====== ======
</TABLE>
The increase in nonaccrual loans from December 31, 1998 to August 31, 1999 is
primarily due to a $4.3 million commercial real estate loan which is in
foreclosure as of October 1999.
For the eight months ended August 31, 1999 and 1998 and the years ended
December 31, 1998, 1997 and 1996, had interest income been accrued on
nonaccrual loans at contractual rates, interest income would have increased
by approximately $181,000, $108,000, $136,000, $337,000 and $379,000,
respectively. For the eight months ended August 31, 1999 and 1998 and the
years ended December 31, 1998, 1997 and 1996, interest income on impaired
loans of approximately $99,000, $47,000, $80,000, $32,000 and $225,000,
respectively, was recognized. As of the eight months ended August 31, 1999
and 1998 and the years ended December 31, 1998, 1997 and 1996, no
significant additional funds were committed to customers whose loans were
nonperforming.
F-17
<PAGE>
As of August 31, 1999 and December 31, 1998 and 1997, the Bank had impaired
loans of approximately $5,962,000, $1,524,000 and $2,835,000, respectively,
for which no valuation allowance was required. For the eight months ended
August 31, 1999 and 1998 and the years ended December 31, 1998, 1997 and
1996, no chargeoffs occurred on impaired loans.
6. Deposits:
--------
As of August 31, 1999 and December 31, 1998 and 1997, deposits consisted of
(in thousands):
<TABLE>
<CAPTION>
August 31, December 31,
1999 ------------------
---- 1998 1997
---- ----
<S> <C> <C> <C>
Certificates of Deposit:
One to twelve-month certificates $170,449 $127,195 $135,719
One to five year certificates 219,544 261,973 283,760
Time certificates in denominations
of $100,000 or more 59,564 56,971 56,287
-------- -------- --------
449,557 446,139 475,766
-------- -------- --------
Savings accounts 226,934 220,653 206,568
Money market accounts 58,455 38,387 32,221
NOW accounts 106,482 110,841 86,193
Demand deposits 45,894 39,097 26,919
-------- -------- --------
Total deposits $887,322 $855,117 $827,667
======== ======== ========
</TABLE>
For the eight months ended August 31, 1999 and 1998 and the years ended
December 31, 1998, 1997 and 1996, interest expense on time deposits in
denominations greater than $100,000 was approximately $1,913,000,
$2,019,000, $2,921,000, $3,022,000 and $2,724,000, respectively.
7. Advances from Federal Home Loan Bank and Short-Term Borrowed Funds:
------------------------------------------------------------------
As of August 31, 1999 and December 31, 1998 and 1997, the Bank had the
following borrowings from Federal Home Loan Bank of Boston (FHLB) (in
thousands):
<TABLE>
<CAPTION>
Interest August 31, December 31,
Rate Maturity Date 1999 1998 1997
---- ------------- ---- ---- ----
<S> <C> <C> <C> <C>
5.65% February 5, 1998 $ - $ - $ 5,000
8.96% August 23, 1999 - 2,000 2,000
5.96% September 1, 1999 23,899 - -
8.91% September 7, 1999 1,000 1,000 1,000
8.76% September 20, 1999 2,000 2,000 2,000
6.05% May 2, 2005 30,000 30,000 -
4.99% January 8, 2008 (1) 10,000 10,000 -
------- ------- -------
Total advances from Federal
Home Loan Bank $66,899 $45,000 $10,000
======= ======= =======
</TABLE>
(1) Advance was callable quarterly and was called subsequent to August
31, 1999.
F-18
<PAGE>
The Bank's FHLB stock collateralizes these advances. In addition, mortgage
loans and otherwise unencumbered investment securities qualified as
collateral available to the FHLB were pledged to secure these advances,
unused credit lines and letters of credit issued by the FHLB.
The Bank maintains a line of credit of $34,000,000 with the FHLB which
accrues interest at variable rates determined by the FHLB on a daily basis.
Amounts drawn against the line of credit are due within one day of
withdrawal, however, such amounts are automatically renewed provided that
the Bank has sufficient cash balances deposited with the FHLB. Borrowings
under the line of credit are secured by U.S. Government treasury and/or
agency bonds. The outstanding borrowings on the FHLB line of credit of
approximately $23,899,000, $0, and $7,987,000 are included in advances from
Federal Home Loan Bank in the accompanying consolidated statements of
condition at August 31, 1999 and December 31, 1998 and 1997, respectively.
The Bank also maintains a $15,000,000 line of credit with a correspondent
bank. No amounts were outstanding on the correspondent line as of August
31, 1999 or December 31, 1998 and 1997.
Short-term borrowed funds represents commercial transactional repurchase
accounts (business checking accounts which are not Federal Deposit Insurance
Corporation insured).
8. Pension Plans:
-------------
The Bank has a non-contributory defined benefit pension plan (the Plan)
covering substantially all employees. The benefits are based on years of
service and average compensation, as defined in the Plan. The Bank's
funding policy is to contribute annually the maximum amount allowed by
federal tax regulations.
The following table sets forth changes in benefit obligation, changes in
plan assets and the funded status of the Bank's pension plan for the periods
indicated. The table also provides a reconciliation of the plan's funded
status and the amounts recognized in the Bank's consolidated statements of
condition (in thousands):
<TABLE>
<CAPTION>
August 31, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Change in benefit obligations:
Benefit obligation, beginning of
period $18,082 $13,275 $11,090
Service cost 944 989 784
Interest cost 774 980 845
Actuarial (gain) loss (2,183) 3,251 947
Benefits paid (399) (413) (391)
------- ------- -------
Benefit obligation, end of period 17,218 18,082 13,275
------- ------- -------
Change in plan assets:
Fair value of plan assets,
beginning of period 17,163 16,747 13,713
Actual return on plan assets 2,847 715 3,425
Employer contribution - 114 -
Benefits paid (399) (413) (391)
------- ------- -------
Fair value of plan assets, end of period 19,611 17,163 16,747
------- ------- -------
Funded status 2,393 (919) 3,472
Unrecognized transition asset (296) (348) (425)
Unrecognized prior service cost 109 115 123
Unrecognized net actuarial gain (5,813) (1,648) (5,189)
------- ------- -------
Net prepaid recognized $(3,607) $(2,800) $(2,019)
======= ======= =======
</TABLE>
F-19
<PAGE>
The components of net periodic pension cost for the periods indicated were
as follows (in thousands):
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31,
------------------------------
For the Year Ended December 31,
----------------------------------------------
1999 1998 1998 1997 1996
------------- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Service cost $ 944 $ 659 $ 989 $ 785 $ 808
Interest cost 774 653 980 844 815
Expected return on
plan assets (865) (715) (1,119) (1,001) (872)
Amortization and
deferral (46) (77) (69) (69) (69)
---- ----- ------- ------- -----
Net periodic pension
cost $ 807 $ 520 $ 781 $ 559 $ 682
==== ===== ======= ======= =====
</TABLE>
Significant actuarial assumptions used in determining the actuarial present
value of the projected benefit obligation and the net periodic pension cost
were as follows:
<TABLE>
<CAPTION>
For the Eight
Months Ended
August 31, For the Year Ended December 31,
-------------------------------
1999 1998 1997 1996
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Discount rate 7.5% 6.5% 7.5% 7.75%
Rate of increase in compensation
levels 4.5 4.5 4.5 4.5
Long-term rate of return on assets 8.0 8.0 8.0 8.0
</TABLE>
The Bank has entered into deferred compensation agreements with certain
officers providing for benefits after retirement. The liabilities under
these agreements are being accrued over the officers' remaining periods of
employment so that, on the date of retirement, the then-present value of the
benefits will have been accrued. As of August 31, 1999 and December 31, 1998
and 1997, approximately $348,000, $276,000 and $176,000, respectively, had
been accrued under these agreements.
In addition to providing pension benefits, the Bank provides certain health
care benefits for retired employees (the Health Care Plan). Only employees
retiring before January 1, 1989 are eligible for these benefits, provided
they attain age 55 while working for the Bank. In addition, all employees
who have attained age 55 and have ten years of vested service are covered
under the Health Care Plan until age 65. Effective January 1, 1993, the
Bank began to accrue for the estimated costs of these benefits through
charges to expense during the years that the employees earn these benefits.
The following table reconciles the Health Care Plan's funded status to the
accrued postretirement cost (in thousands):
<TABLE>
<CAPTION>
August 31, December 31,
-----------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 459 $ 490 $ 757
Other fully eligible participants 135 94 46
Other active participants 390 384 236
------ ------ ------
984 968 1,039
Unrecognized actuarial gain 570 588 491
Unrecognized prior service cost (172) (181) (194)
------ ------ ------
Prepaid postretirement cost $1,382 $1,375 $1,336
====== ====== ======
</TABLE>
F-20
<PAGE>
For the eight months ended August 31, 1999 and the years ended December 31,
1998, 1997 and 1996, net postretirement health care cost included the
following components (in thousands):
<TABLE>
<CAPTION>
For the Eight For the Years Ended
Months Ended December 31,
------------------------------------
August 31, 1999 1998 1997 1996
---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Service cost $ 43 $ 39 $ 34 $ 35
Interest cost 40 75 71 74
Amortization and deferral (11) (9) (15) (10)
---- ----- ----- -----
$ 72 $ 105 $ 90 $ 99
==== ===== ===== =====
</TABLE>
Significant actuarial assumptions used in determining the actuarial present
value of the projected benefit obligation and the net postretirement health
care cost are as follows:
<TABLE>
<CAPTION>
August 31, December 31,
---------------------
1999 1998 1997 1996
----------- ------ ------ -----
<S> <C> <C> <C> <C>
Discount rate 7.5% 6.5% 7.5% 7.75%
Rate of increase in
compensation levels 4.0 4.0 4.0 4.0
</TABLE>
The health care cost trend rate used to measure the accumulated
postretirement benefit obligation is 7% as of August 31, 1999 and December
31, 1998. Increasing the health care cost trend rate by 1% would increase
the accumulated postretirement benefit cost by approximately $66,000 and
$84,000, respectively, and the net postretirement benefit cost by
approximately $6,000 and $13,000, respectively, (pretax) annually as of
August 31, 1999 and December 31, 1998.
9. Income Taxes:
------------
The provision for income taxes for the eight months ended August 31, 1999
and 1998 is based on the estimated effective tax rate for the years then
ended. For the years ended December 31, 1998, 1997 and 1996, the provision
(benefit) for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current tax provision:
Federal $3,156 $5,766 $4,731
State 557 1,017 1,647
------ ------ ------
Total current 3,713 6,783 6,378
------ ------ ------
Deferred tax provision (benefit):
Federal 421 (169) (419)
State 74 (30) (106)
------ ------ ------
Total deferred 495 (199) (525)
------ ------ ------
Total provision for income
taxes $4,208 $6,584 $5,853
====== ====== ======
</TABLE>
F-21
<PAGE>
As of December 31, 1998 and 1997, the components of the net deferred income
tax liability included in current and deferred income taxes in the
accompanying consolidated statements of condition were (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
<S> <C> <C>
Total deferred tax assets $ 7,541 $ 6,429
Total deferred tax liabilities (7,949) (6,602)
Total state valuation allowance (704) (1,124)
------- -------
Net deferred tax liability $(1,112) $(1,297)
======= =======
</TABLE>
The deferred tax assets are primarily the result of financial accruals not
currently deductible for tax return purposes and the allowance for loan
losses reflected as a current expense for financial reporting purposes and a
future charge-off for tax return purposes. The deferred tax liabilities are
primarily attributed to accelerated deprecation on premises and equipment
for tax return purposes and unrealized gains in the securities available for
sale portfolio.
Effective for taxable years commencing after December 31, 1998, financial
service companies are permitted to establish in the State of Connecticut a
passive investment company (PIC) to hold and manage loans secured by real
property. Income earned by the PIC will be exempt from Connecticut
corporation business tax and dividends received by the financial service
company from the PIC will not be taxable. In 1999, the Bank established a
PIC, as a wholly-owned subsidiary, and transferred a portion of its real
estate mortgage portfolio from the Bank to the PIC. During 1999, the
deferred state tax assets that the valuation allowance was established for
were written off upon the transfer to the PIC and the valuation allowance
was eliminated. Prior to 1999, all state deferred tax assets were reserved
for due to uncertainty of realization.
For the years ended December 31, 1998, 1997 and 1996, the provision for
income taxes differed from the amount computed by applying the statutory
federal income tax rate (35%) to income before income taxes for the
following reasons (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Tax provision at statutory rate $4,734 $5,875 $5,349
Increase (decrease) in tax
resulting from:
State income taxes, net of
federal tax benefit 817 1,037 1,043
Gain on contribution of
securities to Savings Bank of
Manchester Foundation, Inc. (921) - -
Dividends received deduction (409) (409) (341)
Federal and state refunds and
credit carryforwards, net of
valuation allowance provided
of $97,149 in 1996 - - (378)
Reduction in state tax rate - 65 50
Change in valuation allowance (420) (63) 80
Other, net 407 79 50
------ ------ ------
$4,208 $6,584 $5,853
====== ====== ======
</TABLE>
F-22
<PAGE>
As of December 31, 1998, the Bank's allowance for loan losses for federal
income tax return purposes was approximately $13,000,000. Of this allowance,
if $12,600,000 or any portion thereof is used for purposes other than to
absorb loan losses and write-downs of other real estate owned, such amounts
will become subject to income tax at the then current tax rate. Management
does not anticipate that retained income will be used in such a way so as to
require the payment of taxes on taxable income resulting from the recapture
of the tax allowance. As a result, in accordance with SFAS No. 109, no
provision for such tax has been provided in the accompanying consolidated
financial statements.
10. Merchant Credit Card Operations:
-------------------------------
In 1994, the Bank entered into an agreement with a merchant credit card
processing servicer to provide processing services for the Bank. In July
1996, this processor sold its operations to a third party. In connection
with this sale, the Bank received $1.5 million as compensation for its
acknowledgement and consent related to such sale and its assignment of
rights under its agreement to another bank which amount is reflected as gain
in sale of credit card operations in the 1996 consolidated statement of
operations.
11. Commitments and Contingencies:
-----------------------------
Cash and due from banks withdrawal and usage reserve requirements -
-----------------------------------------------------------------
The Bank is required to maintain reserves against its transaction accounts
and non-personal time deposits. As of August 31, 1999 and December 31, 1998
and 1997, cash and due from banks withdrawal/usage reserve requirements of
approximately $6,612,000, $5,600,000 and $2,347,000, respectively, existed
as a result of Federal Reserve requirements to maintain certain average
balances.
Lease commitments -
-----------------
The Bank leases certain of its premises and equipment under lease agreements
which expire at various dates through June 2010. The Bank has the option to
renew certain of the leases at fair rental values. Rental expense was
approximately $760,000 and $741,000 for the eight months ended August 31,
1999 and 1998, respectively and approximately $1,120,000, $1,136,000 and
$974,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
As of August 31, 1999 and December 31, 1998, minimum rental commitments
under noncancellable operating leases were (in thousands):
<TABLE>
<CAPTION>
August 31, December 31,
Year 1999 1998
---- ---- ----
<S> <C> <C>
1999 $ 141 $ 901
2000 775 775
2001 659 659
2002 661 661
2003 563 563
Thereafter 3,883 3,883
------ ------
$6,682 $7,442
====== ======
</TABLE>
F-23
<PAGE>
Loan commitments and letters of credit -
--------------------------------------
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments included commitments to extend credit of
approximately $179,857,000, $153,725,000 and $130,589,000 as of August 31,
1999 and December 31, 1998 and 1997, respectively, and standby letters of
credit of approximately $4,978,000, $6,556,000 and $6,389,000 as of August
31, 1999 and December 31, 1998 and 1997, respectively.
These consolidated financial instruments involve, to varying degrees,
elements of credit and interest rate risk. The Bank's exposure to credit
loss in the event of non-performance by the other party to the financial
instrument is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments as it does for
existing loans. Management believes that the Bank controls the credit risk
of these financial instruments through credit approvals, lending limits,
monitoring procedures and the receipt of collateral when deemed necessary.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
could expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Bank management evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank, upon extension of
credit is based on management's credit evaluation of the customer.
Collateral held varies but may include income producing commercial
properties, accounts receivable, inventory and property, plant and
equipment.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in existing loan facilities to customers. The Bank holds real
estate and marketable securities as collateral supporting those commitments
for which collateral is deemed necessary.
12. Parent Company Financial Information:
------------------------------------
Connecticut Bankshares, M.H.C. has conducted no activities other than board
of director meetings for the period from inception to August 31, 1999.
Summarized information relative to the statements of condition as of August
31, 1999 and December 31, 1998 and 1997 and statements of operations and
cash flows for the eight months ended August 31, 1999 and 1998, the years
ended December 31, 1998 and 1997 and the period from July 29, 1996
(inception) to December 31, 1996 of Connecticut Bankshares, M.H.C. (parent
company only) are presented as follows (in thousands):
F-24
<PAGE>
<TABLE>
<CAPTION>
December 31,
August 31, ------------------
Statements of Condition 1999 1998 1997
--------------- ---- ----
<S> <C> <C> <C>
Assets:
Cash $ 50 $ 50 $ 50
Investment in banking subsidiaries 117,992 112,757 101,141
------- -------- --------
Total assets $ 118,042 $112,807 $101,191
======= ======== ========
Liabilities and stockholder's investment:
Stockholder's investment $ 118,042 $112,807 $101,191
------- -------- --------
Total liabilities and
stockholder's investment $ 118,042 $112,807 $101,191
======= ======== ========
For the Eight
Months Ended For the Period
August 31, Ended December 31,
--------------- -------------------------
Statements of Operations 1999 1998 1998 1997 1996
---- ---- ---- ---- ----
Undistributed equity in earnings
of subsidiary $ 6,663 $ 6,855 $ 9,318 $ 10,202 $ 9,431
------- ------- -------- -------- -------
Net income $ 6,663 $ 6,855 $ 9,318 $ 10,202 $ 9,431
======= ======= ======== ======== =======
For the Eight
Months Ended For the Period
August 31, Ended December 31,
------------- -------------------------
Statements of Cash Flows 1999 1998 1998 1997 1996
---- ---- ---- ---- ----
Cash Flows from Operating Activities:
Net income $ 6,663 $ 6,855 $ 9,318 $ 10,202 $ 9,431
Adjustments:
Undistributed equity in earnings of
subsidiary (6,663) (6,855) (9,318) (10,202) (9,431)
------- ------- -------- -------- -------
Net cash provided by operating
activities - - - - -
------- ------- -------- -------- -------
Cash Flows from Investing Activities:
Equity transfer - - - - 50
------- ------- -------- -------- -------
Net cash provided by financing
activities - - - - 50
------- ------- -------- -------- -------
Net increase in cash - - - - 50
Cash, beginning of period 50 50 50 50 -
------- ------- -------- -------- -------
Cash, end of period $ 50 $ 50 $ 50 $ 50 $ 50
======= ======= ======== ======== =======
</TABLE>
The Bank has paid no dividends to the parent company for the eight months
ended August 31, 1999 and 1998 and the years ended December 31, 1998, 1997
and 1996.
F-25
<PAGE>
13. Disclosures about Fair Values of Financial Instruments:
------------------------------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires entities to disclose the estimated fair value of financial
instruments, both assets and liabilities recognized and not recognized in
the consolidated statements of condition, for which it is practicable to
estimate fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash and due from banks and accrued interest receivable -
-------------------------------------------------------
The carrying amount is a reasonable estimate of fair value.
Securities -
----------
For marketable equity securities and other securities held for investment
purposes, fair values are based on quoted market prices or dealer quotes if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans held for sale -
-------------------
The fair value of residential mortgage loans held for sale is estimated
using quoted market prices provided by government agencies.
Loans -
-----
The fair value of the net loan portfolio is estimated by discounting the
loans' future cash flows using the prevailing interest rates as of yearend
at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
The book and fair values of unrecognized commitments to extend credit and
standby letters of credit were not significant as of August 31, 1999,
December 31, 1998 and 1997.
Deposits -
--------
The fair value of savings, NOW, demand and certain money market deposits is
the amount payable on demand as of yearend. The fair value of certificates
of deposit is estimated by discounting the future cash flows using the rates
offered for deposits of similar remaining maturities as of yearend.
Advances from Federal Home Loan Bank -
------------------------------------
The fair value of the advances is based on the estimated costs to prepay the
debt (prior to maturity) as of yearend.
Values not determined -
---------------------
SFAS No. 107 excludes certain financial, as well as non-financial,
instruments from its disclosure requirements, including premises and
equipment, the intangible value of the Bank's portfolio of loans serviced
(both for itself and for others) and related servicing network, and the
intangible value inherent in the Bank's deposit relationships (i.e., core
deposits), among other assets and liabilities. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Bank.
F-26
<PAGE>
As of August 31, 1999 and December 31, 1998 and 1997, the estimated fair
values and recorded book balances of the Bank's financial instruments were
(in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
August 31, 1999 1998 1997
------------------- ---------------- ----------------
Recorded Recorded Recorded
Book Fair Book Fair Book Fair
Balance Value Balance Value Balance Value
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 42,823 $ 42,823 $ 45,048 $ 45,048 $ 14,660 $ 14,660
Securities available for sale 159,464 159,464 168,151 168,151 131,589 131,589
Securities held to maturity 44,865 44,120 52,597 53,054 50,283 50,536
Loans held for sale 35 35 121 122 266 266
Loans, net 899,692 901,312 806,787 822,418 798,292 806,497
Federal Home Loan Bank stock 5,909 5,909 5,909 5,909 5,571 5,571
Accrued interest receivable 6,905 6,905 6,435 6,435 6,724 6,724
December 31,
--------------------------------------------------
August 31, 1999 1998 1997
--------------- ---------------- ----------------
Recorded Recorded Recorded
Book Fair Book Fair Book Fair
Balance Value Balance Value Balance Value
------- ----- ------- ------ ------- ----
Liabilities:
Deposits -
Savings $226,934 $226,934 $220,653 $220,653 $206,568 $206,568
Money market 58,455 58,455 38,387 38,387 32,221 32,221
Certificates of deposit 449,557 449,375 446,139 449,360 475,765 475,806
NOW 106,482 106,482 110,841 110,841 86,193 86,193
Demand 45,894 45,894 39,097 39,097 26,919 26,919
Short-term borrowed funds 97,847 97,847 79,545 79,545 79,166 79,166
Mortgagors' escrow accounts 5,059 5,053 7,627 7,637 7,540 7,548
Advances from Federal Home
Loan Bank 66,899 65,786 45,000 44,504 10,000 10,222
</TABLE>
14. Conversion of MHC to Stock Form of Ownership:
--------------------------------------------
On August 30, 1999, the Boards of Directors of the MHC and the Bank adopted
a Plan of Conversion and, on October 6, 1999 and October 26, 1999,
unanimously amended the Plan of Conversion (as amended, the Plan), pursuant
to which the MHC will reorganize from the mutual holding company form to the
stock holding company form. SBM will be held as a wholly-owned subsidiary
of Connecticut Bancshares, Inc., a recently formed Delaware Corporation.
All of the outstanding common stock of the Bank will be sold to a newly
chartered holding company (the Company) which will issue and sell its stock
pursuant to the Plan. All of the stock of the Company to be issued in the
conversion is being offered to eligible account holders, employee benefit
plans of the Bank and certain other eligible subscribers in a subscription
offering pursuant to subscription rights in order of priority as set forth
in the Plan. The Bank plans to establish an Employee Stock Ownership Plan
("ESOP") for the benefit of eligible employees, to become effective upon the
conversion. The ESOP may borrow the proceeds necessary to fund the purchase
of an amount up to 8% of the common stock outstanding upon consummation of
the conversion; however, the ESOP may not purchase in the conversion more
than 5% of the common stock sold. The Bank expects to make annual
contributions adequate to fund the repayment of any indebtedness of the
ESOP.
The Plan provides for the establishment of an additional charitable
foundation (the "New Foundation") in connection with the conversion. The New
Foundation will be funded with a contribution of common shares by the
Company equal to 8% of the total shares of common stock sold in the
conversion. This contribution will result in the recognition of expense,
equal to the fair value of the shares contributed, in the period in which
the contribution is made. The New Foundation will be dedicated to charitable
purposes within the Bank's local community, including community development
activities.
F-27
<PAGE>
Effective upon the conversion, the Company intends to enter into employment
agreements with certain executives. The agreements will include, among
other things, provisions for minimum annual compensation and certain lump-
sum severance payments in the event of a "change in control."
Conversion costs will be deferred and deducted from the proceeds of the
shares sold in the conversion. If the conversion is not completed, all
costs incurred will be charged to expense. The Bank had approximately
$85,000 in conversion costs as of August 31, 1999.
The deposit accounts of the Bank's depositors will continue to be insured by
the FDIC and will not be affected by the conversion. 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 (if any) in an amount equal to the
equity capital of the Bank less any subordinated debt approved as bona fide
capital of the Bank, as of the date of its latest statement of condition
contained in the final prospectus used in connection with the conversion.
Account holders who continue to maintain deposit accounts at the Bank would
be entitled, on a complete liquidation of the Bank after the conversion, to
an interest in the liquidation account prior to any payment to the
stockholders of the Bank. Upon completion of the conversion, the Bank's
surplus will be substantially restricted with respect to payment of
dividends to stockholders due to the liquidation account. The liquidation
account will terminate on the tenth anniversary of the consummation date of
the conversion.
Subsequent to the offering, the Bank may not declare or pay dividends on,
nor 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.
F-28
<PAGE>
You should rely only on the information contained in this prospectus. Neither
Connecticut Bancshares nor Savings Bank of Manchester has authorized anyone to
provide you with different information. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
by this prospectus to any person or in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation in those jurisdictions. Neither the delivery of
this prospectus nor any sale hereunder shall under any circumstances imply that
there has been no change in the affairs of Connecticut Bancshares or Savings
Bank of Manchester since any of the dates as of which information is furnished
in this prospectus or since the date of this prospectus.
[Logo for Connecticut Bancshares]
(Proposed Holding Company for The Savings Bank of Manchester)
13,225,000 Shares of Common Stock
-------
Prospectus
--------
SANDLER O'NEILL & PARTNERS, L.P.
________, 2000
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ___________, 2000, all dealers that buy, sell or trade these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC filing(1).................................................. $45,663
OTS filing fee................................................. 2,000
Connecticut filing fee......................................... 5,000
Connecticut holding company filing fee......................... 2,500
NASD filing fee(1)............................................. 17,000
Stock market listing fee(1).................................... 95,000
Printing, postage and mailing.................................. 825,000
Legal fees and expenses (including underwriter's counsel)..... 900,000
Accounting fees and expenses................................... 375,000
Appraisers' fees and expenses (including business plan)........ 47,500
Marketing fees and selling commissions(2)...................... 2,115,222
Underwriter's expenses (excluding underwriter's counsel)....... 150,000
Conversion agent fees and expenses............................. 60,000
Transfer agent fees and expenses............................... 20,000
Certificate printing........................................... 10,000
Telephone, temporary help and other equipment.................. 40,000
Edgarization expenses.......................................... 25,000
Miscellaneous.................................................. 15,115
----------
TOTAL.......................................................... $4,750,000
==========
</TABLE>
______________________
(1) Unless otherwise noted, based upon the registration and issuance of
16,425,450 shares at $10.00 per share.
(2) Equal to 1.50% of the aggregate dollar amount of stock sold, excluding
shares sold to stock benefit plans, officers, directors and members of
their immediate families, and excluding shares contributed to the
charitable foundation.
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) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
<PAGE>
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.
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 Letters between Connecticut Bankshares, M.H.C., The Savings
Bank of Manchester and Sandler O'Neill & Partners, L.P.
1.2 Form of Agency Agreement between The Savings Bank of Manchester and
Sandler O'Neill & Partners, L.P.*
2.1 Amended Provisional Plan of Conversion for Connecticut Bankshares, M.H.C.
and The Savings Bank of Manchester (including the Amended and Restated
Stock Articles of Incorporation and Bylaws of The Savings Bank of
Manchester)
3.1 Certificate of Incorporation of Connecticut Bancshares, Inc.
3.2 Bylaws of Connecticut Bancshares, Inc.
3.3 Amended and Restated Stock Articles of Incorporation and Bylaws of The
Savings Bank of Manchester
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Connecticut Bancshares, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Draft Opinion of Arthur Andersen LLP re: State Tax Matters
10.1 The Savings Bank of Manchester Savings Plan*
10.2 The Savings Bank of Manchester Longevity Incentive Plan*
10.3 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.4 Form of The Savings Bank of Manchester Employee Stock Ownership Plan Trust
Agreement
10.5 Form of Employment Agreement between The Savings Bank of Manchester and
certain executive officers
10.6 Form of Employment Agreement between Connecticut Bancshares, Inc. and
certain executive officers
10.7 Form of Chairman's Employment Agreement
10.8 Form of Change in Control Agreement between The Savings Bank of Manchester
and certain executive officers
10.9 Form of The Savings Bank of Manchester Directors' Consultation Plan
10.10 Form of The Savings Bank of Manchester Supplemental Executive Retirement
Plan
10.11 Form of The Savings Bank of Manchester Employee Severance Compensation
Plan
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Muldoon, Murphy & Faucette LLP
23.3 Consent of RP Financial LC.
23.4 Subscription Rights Opinion of RP Financial LC.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of RP Financial LC. (P)
99.2 Draft of SBM Charitable Foundation, Inc. Gift Instrument
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
<PAGE>
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.
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 Manchester, State of Connecticut, on
November 12, 1999.
Connecticut Bancshares, Inc.
By: /s/ Richard P. Meduski
-------------------------------------
Richard P. Meduski
President, Chief Executive Officer
and Director
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/ Richard P. Meduski President, Chief Executive Officer November 12, 1999
- ------------------------------ and Director
Richard P. Meduski (principal executive officer)
/s/ Nicholas B. Mason Senior Vice President November 12, 1999
- ------------------------------ and Chief Financial Officer
Nicholas B. Mason (principal accounting
and financial officer)
/s/ Thomas A. Bailey Director November 12, 1999
- ------------------------------
Thomas A. Bailey
/s/ A. Paul Berte Director November 12, 1999
- ------------------------------
A. Paul Berte
/s/ Timothy J. Devanney Director November 12, 1999
- ------------------------------
Timothy J. Devanney
/s/ M. Adler Dobkin Director November 12, 1999
- ------------------------------
M. Adler Dobkin
/s/ Sheila B. Flanagan Director November 12, 1999
- ------------------------------
Sheila B. Flanagan
/s/ John D. LaBelle, Jr. Director November 12, 1999
- ------------------------------
John D. LaBelle, Jr.
Director November __, 1999
- ------------------------------
Michael B. Lynch
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Eric A. Marziali Director November 12, 1999
- ------------------------------
Eric A. Marziali
/s/ Jon L. Norris Director November 12, 1999
- ------------------------------
Jon L. Norris
/s/ William D. O'Neill Director November 12, 1999
- ------------------------------
William D. O'Neill
/s/ Laurence P. Rubinow Director November 12, 1999
- ------------------------------
Laurence P. Rubinow
/s/ John G. Sommers Director November 12, 1999
- ------------------------------
John G. Sommers
Director November ___, 1999
- ------------------------------
Thomas E. Toomey
/s/ Gregory S. Wolff Director November 12, 1999
- ------------------------------
Gregory S. Wolff
</TABLE>
<PAGE>
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
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 Letters between Connecticut Bankshares, M.H.C., The Savings
Bank of Manchester and Sandler O'Neill & Partners, L.P.
1.2 Form of Agency Agreement between The Savings Bank of Manchester and
Sandler O'Neill & Partners, L.P.*
2.1 Amended Provisional Plan of Conversion for Connecticut Bankshares, M.H.C.
and The Savings Bank of Manchester (including the Amended and Restated
Stock Articles of Incorporation and Bylaws of The Savings Bank of
Manchester)
3.1 Certificate of Incorporation of Connecticut Bancshares, Inc.
3.2 Bylaws of Connecticut Bancshares, Inc.
3.3 Amended and Restated Stock Articles of Incorporation and Bylaws of The
Savings Bank of Manchester
(See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Connecticut Bancshares, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Draft Opinion of Arthur Andersen LLP re: State Tax Matters
10.1 The Savings Bank of Manchester Savings Plan*
10.2 The Savings Bank of Manchester Longevity Incentive Plan*
10.3 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.4 Form of The Savings Bank of Manchester Employee Stock Ownership Plan
Trust Agreement
10.5 Form of Employment Agreement between The Savings Bank of Manchester and
certain executive officers
10.6 Form of Employment Agreement between Connecticut Bancshares, Inc. and
certain executive officers
10.7 Form of Chairman's Employment Agreement
10.8 Form of Change in Control Agreement between The Savings Bank of
Manchester and certain executive officers
10.9 Form of The Savings Bank of Manchester Directors' Consultation Plan
10.10 Form of The Savings Bank of Manchester Supplemental Executive Retirement
Plan
10.11 Form of The Savings Bank of Manchester Employee Severance Compensation
Plan
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Muldoon, Murphy & Faucette LLP
23.3 Consent of RP Financial LC.
23.4 Subscription Rights Opinion of RP Financial LC.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of RP Financial LC. (P)
99.2 Draft of SBM Charitable Foundation, Inc. Gift Instrument
- --------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.1
August 31, 1999
Mr. Richard P. Meduski
President
The Savings Bank of Manchester
923 Main Street
Manchester, Connecticut 06040-6092
Dear Mr. Meduski:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
conversion agent to The Savings Bank of Manchester (the "Bank") in connection
with the proposed reorganization of the Bank and its parent company, Connecticut
Bankshares, M.H.C., from the mutual holding company form to stock holding
company 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 Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
<PAGE>
Mr. Richard P. Meduski
August 31, 1999
Page 2
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$60,000. This fee is based upon a total number of unconsolidated accounts of
approximately 120,000. 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)
$10,000 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, up to an aggregate maximum amount of
$200,000 (inclusive of those expenses reimbursed to Sandler O'Neill pursuant to
the terms of the separate engagement letter of even date between Sandler O'Neill
and the Bank regarding Sandler O'Neill's financial advisory services in
connection with the Conversion); 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. Richard P. Meduski
August 31, 1999
Page 3
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 this 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.
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
<PAGE>
Mr. Richard P. Meduski
August 31, 1999
Page 4
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: The Savings Bank of Manchester
923 Main Street
Manchester, CT 06046092
Attention: Mr. Richard P. Meduski
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. 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. Richard P. Meduski
August 31, 1999
Page 5
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
/s/ Thomas P. Duke
By: ________________________________
Thomas P. Duke
Vice President
Accepted and agreed to as of
the date first above written:
The Savings Bank of Manchester
/s/ Richard P. Meduski
By: ____________________________________
Mr. Richard P. Meduski
President
cc: Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette, L.L.P.
<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. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
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
solicitation/offering period.
IV. Special Meeting Services*
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
* To the extent independent third parties are required by any
regulatory agency to perform such services, it is understood and
agreed that Sandler O'Neill will subcontract for such services and
that the Bank will reimburse Sandler O'Neill for such reasonable fees
and expenses incurred as a result of such regulatory requirement.
A-1
<PAGE>
V. 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. Acknowledgment 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-2
<PAGE>
August 31, 1999
Connecticut Bankshares, M.H.C.
923 Main Street
Manchester, CT 06040-6092
The Savings Bank of Manchester
923 Main Street
Manchester, CT 06040-6092
Attention: Mr. Richard P. Meduski
President
----------------------
Dear Mr. Meduski:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to Connecticut Bankshares, M.H.C. (the
"Company") and its subsidiary, The Savings Bank of Manchester (the "Bank"), in
connection with the Company's proposed reorganization from mutual holding
company form to stock form (the "Conversion"), including the offer and sale of
certain shares of the common stock of the proposed new stock 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 Company, 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;
<PAGE>
Mr. Richard P.Meduski
August 31, 1999
Page 2
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;
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 Company, 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 6% 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. Richard P. Meduski
August 31, 1999
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-half percent (1.50%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
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 Charitable Foundation formed by the Bank or the Holding
Company, and (iii) 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 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-half
percent (1.50%).
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.
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 incurred in connection with its
engagement hereunder, regardless of whether the Conversion is consummated,
<PAGE>
Mr. Richard P. Meduski
August 31, 1999
Page 4
including, without limitation, legal fees, advertising, promotional,
syndication, and travel expenses, up to an aggregate maximum amount of $200,000
(inclusive of those expenses reimbursed to Sandler O'Neill pursuant to the terms
of the separate engagement letter of even date between Sandler O'Neill and the
Bank regarding Sandler O'Neill's services as Conversion Agent for the Bank);
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
Company, 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 Company, the Bank or the Holding Company pursuant to this
paragraph without the prior approval of the Bank.
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 Company, 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
<PAGE>
Mr. Richard P. Meduski
August 31, 1999
Page 5
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 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 Company, the Bank and
the Holding Company in connection with the Conversion, the Company, 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
<PAGE>
Mr. Richard P. Meduski
August 31, 1999
Page 6
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.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Company and the Bank agree that (a) except as set
forth in clause (b), the foregoing represents the general intention of the
Company, 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 Company, the Bank, the Holding Company and Sandler
O'Neill with respect to the subject matter hereof shall be (1) the Company's and
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 Company's
and 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 September 30, 2000.
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
<PAGE>
Mr. Richard P. Meduski
August 31, 1999
Page 7
deemed to refer to the Bank or shall have no effect, as the context of the
reference requires.
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
/s/ Thomas P. Duke
By: ________________________________
Thomas P. Duke
Vice President
Accepted and agreed to as of
the date first above written:
Connecticut Bankshares, M.H.C.
/s/ Richard P. Meduski
By: _____________________________________
Mr. Richard P. Meduski
President
The Savings Bank of Manchester
/s/ Richard P. Meduski
By: _____________________________________
Mr. Richard P. Meduski
President
cc: Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette L.L.P.
<PAGE>
EXHIBIT 2.1
AMENDED PROVISIONAL PLAN OF CONVERSION
FOR
CONNECTICUT BANKSHARES, M.H.C.
AND
THE SAVINGS BANK OF MANCHESTER
1. INTRODUCTION.
The Savings Bank of Manchester (the "Bank"), headquartered in Manchester,
Connecticut, is a Connecticut-chartered stock savings bank which operates as a
wholly-owned subsidiary of Connecticut Bankshares, M.H.C. (the "Mutual Holding
Company"), a Connecticut-chartered mutual holding company. The Bank organized
the Mutual Holding Company in July 1996.
This Amended Provisional Plan of Conversion (the "Plan") provides for the
combination, by merger or otherwise, of the Mutual Holding Company with and into
the Bank (pursuant to which the Mutual Holding Company will cease to exist) and
the simultaneous organization of a stock holding company (the "Holding Company")
to issue conversion stock in the offerings, as provided herein, and the issuance
by the Bank of its common stock to the Holding Company in exchange for a portion
of the net proceeds received by the Holding Company from the sale of Conversion
Stock in the offerings. The Boards of Directors of the Mutual Holding Company
and the Bank have carefully considered the alternatives available with respect
to their corporate structures and have determined that a conversion of the
Mutual Holding Company to stock form, as described in this Plan (the
"Conversion"), is in the best interests of the Mutual Holding Company and the
Bank, as well as in the best interests of the Bank's depositors and the
communities served by the Bank. The Conversion will result in the Bank being
wholly-owned by a stock holding company, which is a more common ownership
structure for financial institutions than the mutual holding company structure.
The Conversion also 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 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,
including branching activities and acquisitions of other financial institutions
or financial services companies, and to increase its ability to render services
to the communities it serves.
The Boards of Directors of the Mutual Holding Company and the Bank
currently contemplate that all of the stock of the Bank shall be held by the
Holding Company, organized under the laws of the State of Delaware, and that the
Holding Company will issue and sell its stock pursuant to this Plan. The use of
the Holding Company, if so utilized, would provide greater organizational and
operating flexibility. Shares of common stock of the Bank will be sold to the
Holding Company and the Holding Company will offer the Conversion Stock upon
<PAGE>
the terms and conditions set forth herein in a Subscription Offering to the
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 the 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 employees and certain
other benefits to the Directors, officers and employees of the Bank as will be
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 communities 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 sold in the Conversion.
For these reasons, the Boards of Directors of the Mutual Holding Company
and the Bank, on August 30, 1999, unanimously adopted and, on October 6, 1999
and October 26, 1999, unanimously amended this Plan.
The terms of 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
Bank, prior to conversion, shall receive, after conversion, without payment, a
withdrawable account or accounts in the 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"). The stock to be issued in the Conversion, however, will not be insured
by the FDIC or any other insurer. The Bank, upon combination with the Mutual
Holding Company, will succeed to all of the presently existing rights,
interests, duties and obligations of the Mutual Holding Company 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 Mutual Holding Company's and the
Bank's Boards of Directors by a unanimous vote, must also be approved at a
special meeting of the Corporators called to consider the Plan by the
affirmative vote of (1) a majority of the total voting power of the Corporators
eligible to vote, which total voting power shall not be less than
2
<PAGE>
twenty-five (25) Corporators, and (2) a majority of Independent Corporators who
shall constitute not less than sixty percent (60%) of the total voting power of
the Corporators. Corporators are "independent" if they are not employees,
officers, directors, trustees or significant borrowers of the Mutual Holding
Company or the Bank, and if they do not have any significant commercial
relationships with the Mutual Holding Company or the Bank. Subsequent to the
submission of this Plan to the Corporators for their consideration, the Plan
must be approved by the Banking Commissioner of the State of Connecticut (the
"Commissioner") and reviewed by the FDIC.
2. DEFINITIONS.
As used in this Plan, the following terms have the meanings indicated
below:
Acting in Concert. The term "Acting in Concert" includes 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 arrangement, whether written or otherwise. 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 acting in concert
with that other party, except that any Tax-Qualified Employee Stock Benefit Plan
will not be deemed to be acting in concert with its trustee or a person who
serves in a similar capacity solely for the purpose of determining whether stock
held by the trustee and stock held by the plan will be aggregated.
Affiliate. An "Affiliate" of, or a person "affiliated" with a specified
---------
person, means a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
person specified. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether through ownership of voting securities, by contract, or
otherwise.
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: (1) any corporation or organization (other than the Mutual
Holding Company, the Holding Company, the Bank or a majority-owned subsidiary of
the Mutual Holding Company, Holding Company or the Bank) of which such person is
an officer or partner or is, directly or indirectly, the beneficial owner of ten
percent or more of any class of equity securities; (2) 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 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 trustee or in a similar fiduciary capacity, and that for purposes of
aggregating total shares that may be held by Officers and Directors the term
"Associate" does not include any Tax-Qualified Employee Stock Benefit Plan; and
(3) any
3
<PAGE>
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 Mutual
Holding Company, the Holding Company, the Bank, or any of its parents or
subsidiaries.
Bank. The term "Bank" means The Savings Bank of Manchester.
----
Bank Personnel. The term "Bank Personnel" means directors, officers and
--------------
employees of the Bank.
Broker-Dealer. The term "Broker-Dealer" means any person engaged in the
-------------
business of effecting transactions in securities for the account of others or
for his own account, other than those persons specifically excluded from the
definition of such term by Section 36b-3(5) of the Connecticut General Statutes.
Commissioner. The term "Commissioner" means the Banking Commissioner of
------------
the State of Connecticut.
Common Stock. The term "Common Stock" means any and all authorized common
------------
stock of the Holding Company outstanding subsequent to the Conversion.
Conversion. The term "Conversion" means (i) the combination of the Mutual
----------
Holding Company with and into the Bank pursuant to the MHC Combination, pursuant
to which the Mutual Holding Company will cease to exist and each share of the
Bank's common stock outstanding immediately prior to the effective time thereof
shall automatically be canceled, (ii) the issuance of Conversion Stock by the
Holding Company in the offerings as provided herein and (iii) the issuance to
the Holding Company of the Bank's common stock to be outstanding upon
consummation of the Conversion in exchange for a portion of the net proceeds
received by the Holding Company from the sale of the Conversion Stock, all of
which shall be in accordance with the Conversion Regulations and shall otherwise
conform to the requirements of a Connecticut capital stock savings bank and the
issuance of the Bank's common stock in accordance with this Plan.
Conversion Regulations. The term "Conversion Regulations" means Sections
----------------------
36-142m-1 et. seq. of the Regulations of Connecticut State Agencies and, if
--------
applicable, the mutual-to-stock conversion regulations of the FDIC, but only to
the extent such FDIC regulations do not conflict with Sections 36-142m-1 et.
---
seq. of the Regulations of Connecticut State Agencies.
- ----
Conversion Stock or Shares. The terms "Conversion Stock" or "Shares" mean
--------------------------
the common stock sold by the Holding Company or, if the holding company
structure is not utilized, the Bank in the Conversion.
Corporators. The term "Corporators" means the corporators of the Mutual
-----------
Holding Company as determined by the Bylaws of the Mutual Holding Company.
4
<PAGE>
Deposit Account. The term "Deposit Account" means a deposit account
---------------
maintained at the Bank but does not include escrow accounts established pursuant
to Section 49-2a of the Connecticut General Statutes.
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.
Directors. The term "Directors" refers to the directors of the Mutual
---------
Holding Company, the Bank or the Holding Company, as indicated by the context.
Eligible Account Holder. The term "Eligible Account Holder" means any
-----------------------
person holding a Qualifying Deposit in the Bank.
Eligibility Record Date. The term "Eligibility Record Date" means July 31,
-----------------------
1998, the record date set by the MHC and 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 Boards of Directors of
the Mutual Holding Company and the Bank within which the aggregate amount of
Conversion 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 of 1986, as amended, 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 in the Conversion unless the Holding Company form of
organization is not utilized.
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 offices.
5
<PAGE>
MHC Combination. The term "MHC Combination" means the combination, by
---------------
merger or otherwise, of the Mutual Holding Company with the Bank, resulting in
the Bank as the surviving entity.
Mutual Holding Company. The term "Mutual Holding Company" means
----------------------
Connecticut Bankshares, M.H.C.
Officer. The term "Officer" means the chairman of the board, president,
-------
vice president, secretary, treasurer or principal financial officer, comptroller
or principal accounting officer, and any other person performing similar
functions of the Mutual Holding Company, the Bank or the Holding Company, as
indicated by the context.
Order Form. The term "Order Form" means any form together with an attached
----------
cover letter, sent by the Bank and the Holding Company to any 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 Direct Community
Offerings.
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 company, a government or political subdivision, a
syndicate or a group acting in concert.
Plan. The term "Plan" means this Plan of Conversion as adopted by the
----
Boards of Directors of the Mutual Holding Company and the Bank and approved by
the Commissioner, and any amendments thereto.
Prospectus. The term "Prospectus" means the offering circular or
----------
prospectus by which the common stock of the Holding Company is being offered for
sale.
Purchase Price. The term "Purchase Price" means the price per share of the
--------------
Conversion Stock, as offered for sale in the Conversion.
Qualifying Deposit. The term "Qualifying Deposit" means a Deposit Account
------------------
of $50 or more in the Bank at the close of business as of the Eligibility Record
Date. 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.
6
<PAGE>
Subscription Offering. The term "Subscription Offering" refers to the
---------------------
offering of Conversion Stock, through nontransferable subscription rights issued
to Eligible Account Holders, the Tax-Qualified Employee Stock Benefit Plan,
Directors, Officers and employees of the Bank.
Syndicated Community Offering. The term "Syndicated Offering" means the
-----------------------------
offering of Conversion Stock not subscribed for in the Subscription and the
Direct Community Offerings, if any, to certain members of the general public
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.
3. PROCEDURE FOR CONVERSION.
The Boards of Directors of the Mutual Holding Company and the Bank have
adopted the Plan subject to its approval by the Corporators. The effective date
of the adoption of the Plan by the Mutual Holding Company's and Bank's Boards of
Directors will be the date on which the Plan is approved by the Corporators.
Upon the effectiveness of the adoption of the Plan by the Boards of Directors of
the Mutual Holding Company and 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. A copy of the Application will
also be submitted to the FDIC for review. 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.
No later than 15 days from the date of the filing of the Plan with the
Commissioner as part of the Application, the Bank shall mail by first class mail
a notice to each Eligible Account Holder indicating that: (i) the Directors have
approved the Plan; (ii) if the Plan is approved by the Commissioner, each
Eligible Account Holder shall have nontransferable subscription rights to
subscribe for shares of the Conversion Stock; and (iii) subsequent to the
consummation of the Conversion, the holders of the capital stock of the Bank
shall have exclusive voting rights in the Bank. (If the holding company
structure is utilized, the Holding Company shall have exclusive voting rights in
the Bank.) The Bank shall not include with such notice a postage pre-paid
expression of interest card required by Section 36-142m-6(a)(4) of the
Conversion Regulations; provided, however, that the Commissioner grants a
written waiver of such requirement. The Bank will follow all other notification
procedures as required by the Commissioner.
The Commissioner will review the Application. The Commissioner shall
approve the Application if the Commissioner determines that: (i) the Mutual
Holding Company and the Bank
7
<PAGE>
have complied with applicable provisions of law; (ii) the Conversion would not
result in the reduction of the Bank's amount of equity capital, less any
subordinated debt recognized as bona fide capital; (iii) the Conversion would
not result in a taxable reorganization of the Bank under the Internal Revenue
Code of 1986, as amended, or any subsequent corresponding internal revenue code
of the United States, as from time to time amended; and (iv) the Plan is fair to
depositors of the Bank. Upon approval, the Commissioner shall issue a
certificate of approval of the Plan. The Bank shall not commence business upon
consummation of the Conversion unless its insurable deposits are insured by the
FDIC or its successor agency.
The Mutual Holding Company shall provide all Corporators with the Plan
pursuant to informational material or a proxy statement at least ten days prior
to the Special Meeting. At the Special Meeting the Plan must be approved by (1)
a majority of the total voting power of the Corporators eligible to vote, which
such total voting power shall not be less than twenty-five (25) Corporators, and
(2) a majority of Independent Corporators who shall constitute not less than
sixty percent (60%) of the total voting power of the eligible Corporators.
Corporators of the Mutual Holding Company are "independent" if they are not
employees, officers, directors, trustees or significant borrowers of the Mutual
Holding Company or the Bank, and if they do not have any significant commercial
relationships with the Mutual Holding Company or the Bank. Following the vote,
the Mutual Holding Company shall file with the Commissioner a certificate of the
Secretary of the Mutual Holding Company certifying that the Special Meeting has
been held and that the Plan has been duly approved by the Corporators in
accordance with the voting requirements stated herein.
The Mutual Holding Company, as the sole stockholder of the Bank, must also
approve the Plan in accordance with the Bank's Bylaws.
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, any Tax-
Qualified Employee Stock Benefit Plan, Directors, Officers and employees of the
Mutual Holding Company and the Bank, as set forth in Section 5 of this Plan
after such Corporator approval and after approval of the Plan by the
Commissioner. 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 Mutual Holding Company shall convert into a stock institution and shall
simultaneously combine or merge with and into the Bank, with the Bank being the
surviving entity, pursuant to the MHC Combination. As a result of the MHC
Combination, the shares of the Bank's common stock currently held by the Mutual
Holding Company shall be extinguished
8
<PAGE>
and Eligible Account Holders and will be granted interests in the liquidation
account to be established by the Bank pursuant to Section 13 hereof.
The Boards of Directors of the Mutual Holding Company and the Bank intend
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. The initial Directors of the Holding Company shall also be
Directors of the Bank.
If the Holding Company is utilized, upon Conversion the Bank will issue its
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 Boards of Directors of the Mutual Holding Company and the Bank also
intend 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.
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 Mutual Holding Company and
the Bank believe that the Conversion 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, (iii) to establish new branch
locations, and (iv) to acquire other financial institutions or financial
services companies.
The Boards of Directors of the Mutual Holding Company and 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 Boards of Directors determine not to complete the Conversion utilizing a
holding company form of organization, the 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, including filing any necessary documents
with the Commissioner 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 and the
SEC.
9
<PAGE>
3A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.
As part of the Conversion, the Mutual Holding Company, 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 of
1986, as amended (the "Foundation"), and to donate to the Foundation from
authorized but unissued shares of Common Stock, an amount up to 8% of the number
of shares of Conversion 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 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 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,
less certain expenses. 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 Directors of the Holding Company or the Bank. The board
of directors of the Foundation will be responsible for establishing the policies
of the Foundation with respect to grants or donations, consistent with the
stated purposes of the Foundation.
4. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.
The total number of shares of Conversion Stock which will be offered for
sale in the Conversion will be determined by the Boards of Directors of the
Bank and the Mutual Holding Company, and 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
Boards of Directors may elect to increase or decrease the number of shares of
Conversion Stock to be offered for sale in the Conversion depending upon market
and financial conditions, with the approval of the Commissioner and, if
required, any other applicable bank regulatory authority. In particular, the
total number of shares may be increased by up to 15% of the number of shares
offered in the Conversion if the Estimated Price Range is increased subsequent
to the commencement of the Subscription and Direct Community Offerings to
reflect changes in market and financial conditions and the Aggregate Purchase
Price is not more than 15% above the maximum of the Estimated Price Range.
10
<PAGE>
An Independent Appraiser shall be employed by the Mutual Holding Company
and the Bank to provide them with an independent valuation of the estimated pro
forma market value of the Conversion Stock to be sold in the Conversion as
required by the Conversion Regulations. The Directors of the Mutual Holding
Company and 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 Mutual Holding Company and the Bank, contain the factors upon
which the valuation was made and conform to procedures adopted by the
Commissioner and any other applicable bank regulatory authority. 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 offered for sale 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 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 and will not require the approval of
the Commissioner. Any such resolicitation shall be effected in such manner and
within such time as the Mutual Holding Company and the Bank shall establish,
with the approval of the Commissioner and, if required, any other bank
regulatory authority. 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 resolicitation 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 offered for sale 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 offered for sale in the Conversion. The Aggregate
Purchase Price of the Conversion Stock to be sold by the Holding Company (or the
Bank if the holding company structure is not utilized) shall be adjusted to
reflect any required changes in the pro forma market value of the Bank and the
Mutual Holding Company. If, as a result of such adjustment, the Aggregate
Purchase Price is more than 15% above the maximum of the Estimated Price Range,
the Mutual Holding Company and 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 offered for sale 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,
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN, AND OFFICERS, DIRECTORS AND
EMPLOYEES.
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 up to a
maximum of $250,000 worth of Conversion Stock, so long as the share equivalent
of such dollar amount does not exceed one-half of one percent (0.50%) of the
total number of shares of Conversion Stock offered for sale in the Conversion.
(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 offered for sale in the
Conversion, 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 Directors, or Officers of the Mutual Holding Company or 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.
B. CATEGORY NO. 2: TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN
(a) The Tax-Qualified Employee Stock Benefit Plan shall receive, without
payment, as a second priority, after the satisfaction of the subscriptions of
Eligible Account Holders, non-transferable subscription rights to purchase up to
5% of the shares of Conversion Stock offered for sale in the Conversion. If,
after the satisfaction of subscriptions of 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 for sale in the Conversion is
purchased by Eligible Account Holders, then the Tax-Qualified Employee Stock
Benefit Plan may purchase shares in the open market following
12
<PAGE>
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 Director or Officer of the Mutual Holding Company, 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.
(b) The Tax-Qualified Employee Stock Benefit Plan may purchase shares of
Common Stock in the open market after the effective date of the Conversion to
enable it to acquire, together with any shares of Conversion Stock acquired in
the Conversion, up to 8% of the outstanding shares of Common Stock.
C. CATEGORY NO. 3: DIRECTORS, OFFICERS AND EMPLOYEES
(a) Directors, Officers and employees of the Mutual Holding Company and
the Bank, who are not Eligible Account Holders, shall receive, as third priority
and without payment, nontransferable subscription rights to purchase up to a
maximum of $250,000 worth of Conversion Stock, so long as the share equivalent
of such dollar amount does not exceed one-half of one percent (0.50%) of the
total number of shares of Conversion Stock offered for sale in the Conversion.
(b) Subscription rights received pursuant to Section 5C shall be
subordinated to all rights to purchase Conversion Stock received by Eligible
Account Holders and any Tax-Qualified Employee Stock Benefit Plans.
6. DIRECT COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND PUBLIC
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 as to the purchase of Conversion Stock given first to
natural persons residing in the Bank's Local Community and then to the public at
large. The Direct Community Offering, if any, may commence simultaneously with
the Subscription Offering, or may commence during or after the commencement of
the Subscription Offering, as the Boards of Directors of the Mutual Holding
Company and the Bank so determine. The right to subscribe for shares of
Conversion Stock in the Direct Community Offering is subject to the right of the
Mutual Holding Company, the Bank and Holding Company to accept or reject such
subscriptions in whole or in part. Conversion 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 $250,000 of Conversion
Stock subject to the maximum purchase limitation specified in Section 7(a) and
the minimum purchase limitation specified in Section
13
<PAGE>
7(b); provided, however, that the amount permitted to be purchased in the Direct
Community Offering may be increased to 5% of the total offering of shares
without the further approval of the Corporators or resolicitation of
subscribers, unless required by the Commissioner and/or the FDIC. If the maximum
purchase limit is so increased, 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 Holding Company and the Bank may use the
services of a syndicate of registered broker-dealers to sell such unsold shares
on a best efforts basis in a Syndicated Community Offering. The syndicate of
registered broker-dealers may be managed by one of the syndicate members who
will act as agent of the Holding Company and the Bank to assist the Holding
Company and the Bank in the sale of the Conversion Stock. Neither the syndicate
manager nor any other syndicate member shall have any obligation to take or
purchase any of the shares of Conversion Stock in the Syndicated Community
Offering. Purchases by Persons and their Associates in this phase of the
offering are limited to $250,000 of Conversion Stock subject to the maximum
purchase limitation specified in Section 7(a) and the minimum purchase
limitation specified in Section 7(b); provided, however, that the amount
permitted to be purchased in the Syndicated Community Offering may be increased
to 5% of the total offering of shares without the further approval of the
Corporators or resolicitation of subscribers, unless required by the
Commissioner and/or the FDIC. If the maximum purchase limit is so increased,
orders accepted in the Syndicated 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.
Any shares of Conversion Stock not sold in the Subscription Offering, the
Direct Community Offering or the Syndicated Community Offering may be offered
for sale through an underwritten firm commitment public offering. Any such
public offering shall be conducted in accordance with applicable law and
regulations, including Section 36-142m-9 of the Conversion Regulations.
7. LIMITATIONS ON PURCHASES.
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Section 5, 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 1.0% of the Conversion Stock sold (the "Maximum Overall Purchase
Limitation"), except for the Tax-Qualified Employee Stock Benefit Plan which may
subscribe for up to 5% of the Conversion Stock offered for sale in the
14
<PAGE>
Conversion; provided, however, that Directors and Officers of the Mutual Holding
Company, 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. The Maximum Overall Purchase Limitation may be increased consistent
with the Conversion Regulations in the sole discretion of the Holding Company,
the Mutual 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 Conversion by Directors, Officers, and their
Associates, of the Mutual Holding Company, the Bank and the Holding Company, in
the aggregate shall not exceed thirty percent (30%) of the total number of
Shares sold. Each Director and Officer will be subject to the same purchase
limitations as other Eligible Account Holders.
(d) For purposes of this Section 7, the Directors and Officers of the
Mutual Holding Company, the Bank and the Holding Company shall not be deemed to
be Associates or a group affiliated with each other or otherwise Acting in
Concert solely as a result of their being Directors or Officers of the Mutual
Holding Company, the Bank or the Holding Company.
(e) Depending upon market or financial conditions, the Board of Directors
of the Bank, the Board of Directors of the Mutual Holding Company and the Board
of Directors of the Holding Company, with the approval of the Commissioner and ,
if required, any other applicable bank regulatory authority, and without further
approval of the Corporators, unless such further approval is required by the
Commissioner and/or any other applicable bank regulatory authority, may increase
the purchase limitations in this Plan, provided that the maximum purchase
limitations may not be increased in the Conversion to a percentage in excess of
5% of the Conversion Stock offered for sale. If the Bank, the Mutual Holding
Company or the Holding Company, as the case may be, increases the maximum
purchase limitations, the Bank, the Mutual Holding Company or the Holding
Company, as the case may be, is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the Bank, the Mutual Holding Company or the Holding Company, as the case may be,
resolicit certain other large subscribers. Requests to purchase additional
shares of the Conversion Stock in the event that the purchase limitation is so
increased will be granted by the Boards of Directors of the Bank, the Mutual
Holding Company and the Holding Company in their sole discretion.
15
<PAGE>
8. MANNER OF EXERCISING SUBSCRIPTION RIGHTS; ORDER FORMS.
(a) Promptly after the Commissioner has declared the Prospectus referred
to in paragraph (b) of this Section 8 effective, Order Forms for the exercise of
the subscription rights provided for in this Plan will be sent to all Eligible
Account Holders, the Tax-Qualified Employee Benefit Plans, Officers, Directors
and employees of the Mutual Holding Company and the Bank at their last known
address appearing in the records of the Mutual Holding Company and 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 Mutual
Holding Company, 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.
(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 including the maximum
and minimum number of Shares that may be purchased;
(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,
Tax-Qualified Employee Stock Benefit Plans, Directors, Officers and employees of
the Mutual Holding Company and the Bank 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;
(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
16
<PAGE>
Shares are to be sent and the alternative methods of payment for Conversion
Stock which will be permitted;
(vi) Specifically designated blank spaces for indicating the number of
Shares of Conversion Stock which each person wishes to purchase and 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;
(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; and
(xi) An explanation of the manner of required payment and a statement
that payment may be made by withdrawal from a certificate of deposit without
penalty.
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.
17
<PAGE>
(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 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
Mutual Holding Company and 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
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 from 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, bank draft, money order 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 paid for subscriptions in the Subscription Offering for its
own account until completion or termination of the Conversion; and
18
<PAGE>
(iv) Wire transfers as payment for Shares ordered for purchase will not
be permitted or accepted as proper payment.
(e) Orders for Conversion 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 SUBSCRIPTION 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, but in no event beyond forty-five (45) days
following the date on which Order Forms are first mailed to Eligible Account
Holders.
(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 subscription 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 Mutual Holding Company and 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 Shares subscribed
for by such date as it may specify, and all interpretations by the Mutual
Holding Company and the Bank of terms and conditions of this Plan and of the
Order Forms will be final.
19
<PAGE>
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 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 both of the following apply: (a) less than 100 persons eligible to
subscribe for Shares under the Plan reside in such state, and (b) the granting
of subscription rights or the offer or sale of Common Stock to such persons
would require the Holding Company or its employees under the securities laws of
such state to register as a broker, dealer or agent or to register or otherwise
qualify the Common Stock for sale in such state. 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 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 Bank will, at the time of Conversion, establish a "Liquidation
Account" in an amount equal to the amount of equity capital of the Bank, less
any subordinated debt approved as bona fide capital of the Bank, as of the
latest practicable date prior to Conversion. 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 equity capital of the Bank.
(b) The Liquidation Account shall be maintained, for a period of ten (10)
years after the effective date of the Conversion, by the Bank for the benefit of
Eligible Account Holders who continue to maintain Deposit Accounts at the Bank.
Each 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."
(c) Each initial Subaccount Balance in the Liquidation Account held by an
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 the denominator of which is the total amount of all Qualifying Deposits of
Eligible 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.
20
<PAGE>
(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 the lesser of (i) the deposit
balance in such savings account at the close of business on any other annual
fiscal year closing date subsequent to the Eligibility Record Date, or (ii) the
amount of the Qualifying Deposit as of the Eligibility Record Date, then the
Subaccount Balance for such Deposit Account shall be adjusted by reducing such
Subaccount Balance in an amount proportionate to the reduction in 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 deposit account is closed, its
related Subaccount Balance shall be reduced to zero upon such closing.
(e) In the event of a complete liquidation of the Bank after the Conversion
(and only in such event), each 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 common stock of the
Bank. No merger, consolidation, purchase of bulk assets with assumption of
Deposit Accounts and other liabilities, or similar transactions in which the
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 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.
15. RESTRICTION ON TRANSFER OF CONVERSION STOCK OF OFFICERS AND DIRECTORS.
(a) All Conversion Stock purchased by Officers and Directors of the Mutual
Holding Company, the Holding Company and the Bank and their Associates either
directly from the Holding Company or 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 of the Officer or
Director unless such sale or exchange is approved by 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:
21
<PAGE>
(i) Each certificate representing such Shares shall bear a legend
prominently stamped on its face giving notice of such restriction;
(ii) Instructions will be given to the transfer agent for the Bank or the
Holding Company, as the case may be, 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; and
(iii) Any 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 AND DIRECTORS.
No purchases of outstanding shares of Common Stock by Directors, Officers
and their Associates of the Holding Company and the Bank may be made during the
three-year period following the Conversion, except through a broker or dealer
registered with the SEC or the State of Connecticut Department of Banking,
except with the prior written approval of the Commissioner. This restriction
does not apply, however, to: (a) negotiated transactions involving more than
one percent of the outstanding Common Stock; (b) the purchase of Common Stock
made pursuant to an employee stock option plan or employee stock purchase plan
which meets the requirements of Section 423 of the Internal Revenue Code; or (c)
the purchase of Common Stock pursuant to a non-tax-qualified employee stock
benefit plan which may be attributable to individual Officers and Directors of
the Bank or Holding Company.
17. AMENDMENT AND TERMINATION OF THE PLAN.
This Plan may be substantively amended by the Boards of Directors of the
Mutual Holding Company and the Bank in their sole discretion at any time with
the concurrence of the Commissioner and, if necessary, any other applicable bank
regulatory authority, or as a result of comments from regulatory authorities.
Such amendment may be prior or subsequent to the approval of the Corporators
and, if subsequent to the approval of the Corporators, without their further
approval unless required by the Commissioner and/or any other applicable bank
regulatory authority. This Plan may be terminated by the Boards of Directors of
the Mutual Holding Company and the Bank at any time.
By adoption of this Plan, the Corporators authorize the Boards of Directors
of the Mutual Holding Company and the Bank to amend or terminate the Plan under
the circumstances set forth in this Section.
22
<PAGE>
18. TIME PERIOD FOR COMPLETION OF CONVERSION.
The Conversion shall be completed within 24 months from the date this Plan
is approved by the Boards of Directors of the Mutual Holding Company and the
Bank.
19. EXPENSES OF CONVERSION.
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
Securities Exchange Act of 1934, as amended, concurrently with or promptly
following the Conversion. The Holding Company shall not deregister such
securities for a period of three years thereafter.
21. MARKET FOR CONVERSION STOCK.
The Bank and Holding Company shall use their best efforts to (i) encourage
and assist a market maker to establish and maintain a market for the Conversion
Stock, and (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 insured by the FDIC or any other federal
or state government agency or authority.
23. NO LOANS TO PURCHASE STOCK.
The Mutual Holding Company and 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.
The current Conversion Regulations provide that for a period of three years
following completion of the Conversion (unless this Plan provides for a longer
period), no Person, acting singly or with an Associate or group of Persons
Acting in Concert, shall directly, or indirectly, offer to acquire or acquire
the beneficial ownership of more than ten percent (10%) of any class of an
equity security of the Holding Company without the prior approval of the
Commissioner. This Section shall not apply to the acquisition of ownership 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
twenty-five percent (25%) of any class of any equity security of the Holding
Company. Where any person directly or indirectly, acquires beneficial ownership
of more than ten percent (10%) of any class of any equity security of the
Holding
23
<PAGE>
Company within such three-year period without the prior approval of the
Commissioner, stock of the Holding Company beneficially owned by such person in
excess of ten percent (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. The restrictions on
acquisition provided for by this Section shall apply for a period of five years
following the consummation of the Conversion.
25. STOCK ARTICLES OF INCORPORATION AND BYLAWS.
As part of the Conversion, Amended and Restated Stock Articles of
Incorporation and Bylaws in the forms attached to this Plan will be adopted by
the Bank. By approving the Plan, the Corporators will thereby approve the
Amended and Restated Stock Articles of Incorporation and Bylaws of the Bank.
Prior to completion of the Conversion, the proposed Amended and Restated
Articles of Incorporation 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 Amended and Restated Articles
of Incorporation and Bylaws of the Bank shall be the date of filing of the
Amended and Restated Stock Articles of Incorporation and such other documents as
required by the Conversion Regulations with the Secretary of State of the State
of Connecticut, including any required certificate of authority as issued by the
Commissioner, which shall be the date of consummation of the Conversion.
26. CONDITIONS TO CONVERSION.
The Conversion pursuant to this Plan is expressly conditioned upon the
following:
(a) Prior receipt by the Mutual Holding Company or the Bank of either
rulings of the Internal Revenue Service and the Connecticut 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.
27. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Boards of Directors of the Mutual
Holding Company and the Bank shall be final, subject to the authority of the
Commissioner and any other applicable bank regulatory authority.
24
<PAGE>
ANNEX A
PROVISIONAL PLAN OF MERGER
Plan of Merger, dated as of _______________, 2000 between Connecticut
Bankshares, M.H.C. (the "Mutual Holding Company"), a Connecticut-chartered
mutual holding company, and The Savings Bank of Manchester (the "Bank" or the
"Surviving Corporation"), a Connecticut-chartered savings bank.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted an Amended
Provisional Plan of Conversion (the "Plan" or "Plan of Conversion"), for the
Mutual Holding Company and the Bank pursuant to which the Bank organized
Connecticut Bancshares, Inc. (the "Company"), and upon consummation of the
following transactions, or in any other manner consistent with the Plan and
applicable regulations, will become a wholly owned subsidiary of the Company:
(1) the Mutual Holding Company, which currently owns 100% of the outstanding
shares of common stock of the Bank, will convert from mutual form to a
Connecticut interim stock savings institution and simultaneously merge into the
Bank, with the Bank being the surviving entity; (2) the outstanding shares of
Bank common stock will be canceled; (3) the offer and sale of shares of the
Company's common stock; and (4) the issuance to the Company of the newly
authorized shares of the Bank's common stock in exchange for a portion of the
proceeds received from the sale of the Company's common stock; and
WHEREAS, the Mutual Holding Company, which owns 100% of the outstanding
common stock of the Bank, no par value per share ("Institution Common Stock"),
will convert to a Connecticut-chartered interim stock savings bank pursuant to
the Plan of Conversion and merge with and into the Bank pursuant to this Plan of
Merger (the "Mutual Holding Company Merger"), pursuant to which, among other
things, all interests of the corporators in the Mutual Holding Company and all
shares of Institution Common Stock held by the Mutual Holding Company will be
canceled; and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger.
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. Effective Date. The Mutual Holding Company Merger shall become
effective on the date specified in the agreement of merger filed with the
Connecticut Secretary of State (the "Effective Date").
2. The Mutual Holding Company Merger and Effect Thereof. Subject to the
terms and conditions set forth herein and the prior approval of the State of
Connecticut Department of Banking and the non-objection of the Federal Deposit
Insurance Corporation of the Conversion, as defined in the Plan of Conversion,
and the expiration of all applicable waiting periods, the Mutual Holding Company
shall convert from the mutual form to a Connecticut interim stock savings bank
and simultaneously merge with and into the Bank, which shall be the Surviving
Corporation. Upon consummation of the Mutual Holding Company Merger, the
Surviving Corporation shall be considered the same business and corporate entity
as each of the Constituent Corporations and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Corporations
shall vest in the Surviving Corporation and the Surviving Corporation shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Constituent Corporations and shall have
succeeded to all of each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Corporation. In addition,
any reference to either of the Constituent Corporations in any contract, will or
document, whether executed or taking effect before or after the Effective Date,
shall be considered a reference to the Surviving Corporation if not inconsistent
with the other provisions of the contract, will or document; and any pending
action or other judicial proceeding to which
<PAGE>
either of the Constituent Corporations is a party shall not be deemed to have
abated or to have been discontinued by reason of the Mutual Holding Company
Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the Mutual Holding Company Merger had not occurred or the Surviving
Corporation may be substituted as a party to such action or proceeding, and any
judgment, order or decree may be rendered for or against it that might have been
rendered for or against either of the Constituent Corporations if the Mutual
Holding Company Merger had not occurred.
3. Cancellation of Institution Common Stock held by the Mutual Holding
Company and Member Interests; Liquidation Account. On the Effective Date: (i)
each share of Institution Common Stock issued and outstanding immediately prior
to the Effective Date and held by the Mutual Holding Company shall, by virtue of
the Mutual Holding Company Merger and without any action on the part of the
holder thereof, be canceled, (ii) the interests in the Mutual Holding Company of
any person, firm or entity who or which qualified as a corporator of the Mutual
Holding Company in accordance with its mutual certificate of incorporation and
bylaws and the laws of Connecticut prior to the Mutual Holding Company's
conversion from mutual to stock form (the "Corporators") shall, by virtue of the
Mutual Holding Company Merger and without any action on the part of the holder
thereof, be canceled, and (iii) the Bank shall establish a liquidation account
on behalf of each depositor member of the Mutual Holding Company, as defined in
the Plan of Conversion, in accordance with Section 13 of the Plan of Conversion.
4. Dissenting Shares. No Corporator of the Mutual Holding Company and,
subject to the laws of the State of Connecticut or any successor thereto, no
holder of shares of Institution Common Stock shall have any dissenter or
appraisal rights in connection with the Mutual Holding Company Merger.
5. Name of Surviving Corporation. The name of the Surviving Corporation
shall be "The Savings Bank of Manchester."
6. Directors of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Amended and Restated Articles of
Incorporation and Bylaws of the Surviving Corporation and applicable law, the
number of directors of the Surviving Corporation shall be fifteen. The names of
those persons who, upon and after the Effective Date, shall be directors of the
Surviving Corporation are set forth below. Each such director shall serve for
the term which expires at the annual meeting of stockholders of the Surviving
Corporation in the year set forth after his respective name, and until a
successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
- ----------------------- ------------
<S> <C>
Thomas A. Bailey 2001
Michael B. Lynch 2001
Richard P. Meduski 2001
John G. Sommers 2001
Thomas E. Toomey 2001
Timothy J. Devanney 2002
M. Adler Dobkin 2002
Sheila B. Flanagan 2002
Eric A. Marziali 2002
William D. O'Neill 2002
A. Paul Berte 2003
John D. LaBelle, Jr. 2003
Jon L. Norris 2003
Laurence P. Rubinow 2003
Gregory S. Wolff 2003
</TABLE>
The address of each such director is c/o 923 Main Street, Manchester,
Connecticut 06040.
2
<PAGE>
7. Officers of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Amended and Restated Articles
Incorporation and Bylaws of the Surviving Corporation and applicable law, the
officers of the Bank immediately prior to the Effective Date shall be the
officers of the Surviving Corporation.
8. Offices. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 923 Main Street, Manchester,
Connecticut and the location of the other deposit-taking offices of the
Surviving Corporation shall remain at the location they existed immediately
prior to the Effective Date, except for the addition of deposit-taking offices
authorized or the deletion of deposit-taking offices closed subsequent to the
date hereof and the Effective Date.
9. Articles of Incorporation and Bylaws. On and after the Effective
Date, the Articles of Incorporation of the Bank as in effect immediately prior
to the Effective Date shall be replaced with the Amended and Restated Articles
of Incorporation of the Surviving Corporation.
On and after the Effective Date, the Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and applicable
law.
10. Stockholder and Corporator Approvals. The affirmative votes of the
holders of the Bank's common stock set forth in Section 3 of the Plan of
Conversion and the Corporators set forth in Section 3 of the Plan of Conversion
shall be required to approve the Plan of Conversion, of which this Plan of
Merger is a part, on behalf of the Bank and the Mutual Holding Company,
respectively.
11. Abandonment of Plan. This Plan of Merger may be abandoned by either
the Mutual Holding Company or the Bank at any time before the Effective Date in
the manner set forth in Section 17 of the Plan of Conversion.
12. Amendments. This Plan of Merger may be amended in the manner set
forth in Section 17 of the Plan of Conversion by a subsequent writing signed by
the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
13. Successors. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Bank.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
3
<PAGE>
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
CONNECTICUT BANKSHARES, M.H.C.
Attest:
____________________________ By: _____________________________
Carole L. Yungk Richard P. Meduski
Corporate Secretary President and Chief Executive Officer
THE SAVINGS BANK OF MANCHESTER
Attest:
____________________________ By: _____________________________
Carole L. Yungk Richard P. Meduski
Corporate Secretary President and Treasurer
4
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
THE SAVINGS BANK OF MANCHESTER
(A Reorganized Savings Bank)
ARTICLE I
Name
----
The name of the capital stock savings bank incorporated hereby (the "Bank")
shall be "The Savings Bank of Manchester." The organizer of the Bank is The
Savings Bank of Manchester, a Connecticut-chartered mutual savings bank (the
"Mutual Bank"), 923 Main Street, Manchester, Connecticut.
ARTICLE II
Location
--------
The main office of the Bank shall be located in the Town of Manchester,
Connecticut.
ARTICLE III
Duration
--------
The Bank shall have perpetual existence.
ARTICLE IV
Purpose and Powers
------------------
The purpose of the Bank is to pursue any or all of the lawful objectives of
a capital stock savings bank chartered pursuant to the laws of the State of
Connecticut, and to exercise all of the express, implied and incidental powers
conferred by such laws and by all amendments or supplements to such laws,
subject to all lawful and applicable rules, regulations and orders of the
Banking Commissioner of the State of Connecticut (the "Commissioner"), the
Federal Deposit Insurance Corporation, or any other state or federal agency
having the authority to supervise or regulate the Bank and the conduct of its
business. Without limiting the foregoing, the Bank shall have the power to take
deposits, to make loans of every type and description (whether with or without
security), and generally to engage in any and all activities which constitute
the business of banking.
ARTICLE V
Capital Stock
-------------
5.1 Authorized Stock. The total number of shares of all classes of capital
----------------
stock which the Bank shall have authority to issue is 11,000, consisting of;
(a) 10,000 shares of common stock, without par value ("Common Stock");
and
(b) 1,000 shares of preferred stock, without par value ("Preferred
Stock").
The Bank shall not commence business without minimum equity capital of at
least $10 million.
1
<PAGE>
5.2 Common Stock.
------------
(a) Except as otherwise provided by law, all capital stock voting power
shall be vested exclusively in the Common Stock. A holder of Common Stock shall
be entitled to one vote for each share of Common Stock owned of record by such
holder on the capital stock records of the Bank.
(b) Subject to any superior rights or preferences of holders of Preferred
Stock at the time outstanding, holders of Common Stock shall be entitled to such
dividends as may be declared by the Board of Directors out of funds lawfully
available therefor. Upon any liquidation, dissolution or winding up of the
affairs of the Bank, whether voluntary or involuntary, holders of Common Stock
shall be entitled to receive the remaining assets of the Bank after the holders
of Preferred Stock have been paid in full any sums to which they may be entitled
in preference to the holders of Common Stock.
5.3 Preferred Stock. Shares of Preferred Stock may be issued from time to
---------------
time in one or more series as may from time to time be determined by the Board
of Directors, each of such series to be distinctly designated. All shares of any
one series of Preferred Stock shall be identical. Shares of Preferred Stock
shall not entitle the holder or holders thereof to vote, except when
specifically required or permitted to vote as a class by the provisions of
Connecticut law. All other preferences and relative, participating, optional and
other special rights of each of such series, and the qualifications, limitations
or restrictions thereof, if any, may differ from those of any and all other
series at any time outstanding; and the Board of Directors of the Bank is hereby
expressly granted authority to fix, by resolution or resolutions adopted prior
to the issuance of any shares of a particular series of Preferred Stock, the
designations, preferences and relative, optional and other special rights, and
the qualifications, limitations and restrictions, of such series including, but
without limiting the generality of the foregoing, the following:
(a) The distinctive designation of and the number of shares of Preferred
Stock which shall constitute such series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time to
time by like action of the Board of Directors;
(b) The rate and times at which, and the terms and conditions on which,
dividends, if any, on Preferred Stock of such series shall be paid, the extent
of the preference or relation, if any, of such dividends to the dividends
payable on any other class or classes or series of the same or other classes of
capital stock and whether (and the dates from which) such dividends shall be
cumulative or noncumulative;
(c) The right, if any, of the holders of Preferred Stock of such series to
convert the shares thereof into or exchange the same for, shares of any other
class or classes or of any series of the same or any other class or classes of
capital stock of the Bank or any other corporation and the terms and conditions
of such conversion or exchange;
(d) Whether or not Preferred Stock of such series shall be subject to
redemption, and the redemption price or prices and the time or times at which,
and the terms and conditions on which, the shares of such series may be
redeemed;
(e) The rights, if any, of the holders of Preferred Stock of such series
upon the voluntary or involuntary liquidation, merger, consolidation,
distribution or sale of assets, dissolution or winding up of the Bank (subject,
however, to any lawful order or directive issued by the Commissioner); and
(f) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Preferred Stock of such series.
2
<PAGE>
ARTICLE VI
Subscription and Pre-emptive Rights
-----------------------------------
The Bank shall grant (a) in accordance with and to the extent required by
the provisions of Section 36a-196(a) of the Connecticut General Statutes,
subscription rights to its eligible deposit account holders, and (b) in
accordance with and to the extent required by the provisions of Section 36a-
196(c) of the Connecticut General Statutes, pre-emptive rights to the holders of
shares of common stock or shares of securities convertible into common stock.
Except as set forth in this Article VI, no shareholder of the Bank shall, by
reason of his holding a share or shares of the capital stock of the Bank of any
class or series of a class, now or hereafter authorized, have any pre-emptive or
preferential right to purchase or subscribe to any shares of any class of
capital stock of the Bank now or hereafter to be authorized or issued, nor
purchase or subscribe to any notes, debentures, bonds or other securities of the
Bank (whether or not convertible into or carrying rights, options or warrants to
purchase shares of any class of capital stock) now or hereafter to be authorized
or issued, whether or not the issuance of such shares or other securities would
adversely affect any rights or privileges of such shareholder by virtue of his
holding a share or shares of any capital stock of the Bank (or any direct or
indirect interest of such shareholder in the asset, properties, business or
affairs of the Bank), excepting only such pre-emptive or preferential rights,
warrants or options as the Board of Directors, in its discretion, may grant from
time to time.
ARTICLE VII
Directors
---------
7.1 Board of Directors. The business and affairs of the Bank shall be
------------------
managed under the direction of its Board of Directors. The number of directors
of the Bank constituting the initial Board of Directors shall be fifteen and
shall thereafter be fixed from time to time at such number as the Board of
Directors may by resolution determine in accordance with the Bylaws of the Bank.
The Directors shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
reasonably possible, with the directors in each class to hold office until their
successors, if any, are elected and qualified. Each member of the Board of
Directors in the first class of directors shall hold office until the annual
meeting of shareholders in 1997, each member of the Board of Directors in the
second class of directors shall hold office until the annual meeting of
shareholders in 1998 and each member of the Board of Directors in the third
class of directors shall hold office until the annual meeting of the
shareholders in 1999. At each annual meeting of the shareholders of the Bank,
the successors, if any, to the class of directors whose terms expire at that
meeting shall be elected to hold office for terms expiring at the later of the
annual meeting of shareholders held in the third year following the year of
their election or the election and qualification of the successors, if any, to
such class of directors.
7.2 Initial Board. The name, address and principal occupation of each
-------------
prospective initial director of the Bank are set forth below:
<TABLE>
<CAPTION>
Name Address Principal Occupation
- --------------------------- ------------------------- ------------------------------
<S> <C> <C>
First Class
A. Paul Berte 57 Tuck Road Attorney
Manchester, CT 06040
John D. LaBelle, Jr. 146 Porter Street Attorney
Manchester, CT 06040
Robert B. McCann 66 Crossroads Lane Exec. VP, Sec. & Treas.
Glastonbury, CT 06033 Allied Printing Services, Inc.
Jon L. Norris 18 Lookout Mountain Drive Insurance Agent
Manchester, CT 06040
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name Address Principal Occupation
- ----------------------- ---------------------- ---------------------------------
<S> <C> <C>
First Class (cont'd.)
- -----------------------
Laurence P. Rubinow 239 Cedar Ridge Drive Attorney
Glastonbury, CT 06040
Second Class
- -----------------------
Thomas A. Bailey 24 Wyneding Hill Road Retired Attorney; Chairman
Manchester, CT 06040 of the Board of the Bank
Raymond F. Damato 24 Homestead Street Owner - Damato Enterprises
Manchester, CT 06040
Michael B. Lynch 71 Masters Way President - Lynch Motors, Inc.
Manchester, CT 06040
Richard P. Meduski 48 McDivitt Drive President & Treasurer of the Bank
Manchester, CT 06040
John G. Sommers 61 Rushford Drive President
Manchester, CT 06040 Allied Printing Services, Inc.
Thomas E. Toomey 33 Hebron Road President
Bolton, CT 06043 Toomey-DeLong, Inc.
Third Class
- -----------------------
John A. DeQuattro 124 Boulder Road President & Treasurer
Manchester, CT 06040 J.D. Real Estate Company
M. Adler Dobkin 153 Shallow Brook Lane Vice President
Manchester, CT 06040 Rayco Products, Inc.
Sheila B. Flanagan 102 Butternut Road Attorney
Manchester, CT 06040
Walter S. Fuss 800 Spring Street Retired President
Manchester, CT 06040 Fuss & ONeill, Inc.
</TABLE>
7.3 Nominations to Board of Directors. Nominations for the election of
---------------------------------
directors shall be made in accordance with the terms of the Bank's Bylaws.
7.4 Vacancy on Board of Directors. Newly created directorships resulting
-----------------------------
from any increase in the number of directors or any vacancy on the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal or other cause shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director. Any director
elected in accordance with preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor, if any, shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
7.5 Compensation. The Board of Directors of the Bank is hereby
------------
specifically authorized to make provision for compensation to its members
(exclusive of members serving as employees of the Bank) for their services as
directors and to fix the basis and conditions upon which such compensation shall
be paid.
4
<PAGE>
ARTICLE VIII
Indemnification and Limitation of Liability
-------------------------------------------
8.1 The Bank shall indemnify its directors, officers, employees, agents,
and all other persons eligible for indemnification by the Bank, to the fullest
extent permitted or required by Connecticut law, and as provided by the Bylaws
of the Bank.
8.2 No director of the Bank shall be personally liable to the Bank or its
stockholders for monetary damages for breach of duty as a director in any amount
in excess of the compensation received by the director for serving the Bank in
that capacity during the year such violation occurred, unless such breach
(1) involves a knowing and culpable violation of law by the director,
(2) enables the director or an associate of such director (as defined in
subdivision (3) of Section 33-374d of the Connecticut General Statutes), to
receive an improper personal economic gain, (3) shows a lack of good faith and a
conscious disregard for the duty of the director to the Bank under circumstances
in which the director was aware that his conduct or omission created an
unjustifiable risk of serious injury to the Bank, (4) constitutes a sustained
and unexcused pattern of inattention that amounted to an abdication of the
director's duty to the Bank, or (5) creates liability under Section 36a-58 of
the Connecticut General Statutes. Any repeat or modification of this Section 8.2
by the stockholders of the Bank shall be prospective only and shall not
adversely affect any limitation on the personal liability of a director of the
Bank existing at the time of such repeal or modification.
ARTICLE IX
Liquidation Account
-------------------
9.1 The Bank shall establish and maintain a liquidation account for the
benefit of its deposit account holders as of July 31, 1998 ("Eligible Account
Holders"). In the event of a complete liquidation of the Bank it shall comply
with applicable rules and regulations with respect to the amount and the
priorities on liquidation of each of the Bank's Eligible Account Holder's
inchoate interests in the liquidation account to the extent it is still in
existence; provided, however, that an Eligible Account Holder's inchoate
interest in the liquidation account shall not entitle such Eligible Account
Holder to any voting rights at meetings of the Bank's shareholders. Such
account shall terminate on the tenth anniversary of the effective date of the
conversion (as defined in Article X herein).
ARTICLE X
Certain Provisions Applicable for Five Years
--------------------------------------------
10.1 Notwithstanding anything contained in the Bank's Certificate of
Incorporation or Bylaws to the contrary, for a period of five years from the
date of the conversion, the following shall apply:
Beneficial Ownership Limitation. No person shall directly or indirectly
-------------------------------
offer to acquire or acquire the beneficial ownership of (1) more than five
percent (5%) of any class of equity security of the Bank without the prior
written approval of the Board of Directors of the Bank, or (2) more than
ten percent (10%) of any class of any equity security of the Bank without
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 shareholders
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 one or more tax-qualified employee
stock benefit plans provided the plan or plans do not have beneficial
ownership, in the aggregate, of more than 25% of any class.
In the event shares are acquired in violation of this Article X, all shares
beneficially owned by any person in excess of five percent (5%) or ten
percent (10%), as the case may be, 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
5
<PAGE>
voting shares in connection with any matter submitted to the shareholders
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 shareholders for a vote.
For purposes of this Article X, 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.
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.
5. The term "conversion" means (i) the combination of the Mutual Holding
Company with and into the Bank pursuant to the MHC Combination,
pursuant to which the Mutual Holding Company will cease to exist and
each share of the Bank's common stock outstanding immediately prior to
the effective time thereof shall automatically be cancelled, (ii) the
issuance of Conversion Stock by the Holding Company in the offering as
provided herein, and (iii) the issuance to the Holding Company of the
Bank's common stock to be outstanding upon consummation of the
Conversion in exchange for a portion of the net proceeds received by
the Holding Company from the sale of the Conversion Stock, all of
which shall be in accordance with the Conversion Regulations and shall
otherwise conform to the requirements of a Connecticut capital stock
savings bank and the issuance of the Bank's common stock in accordance
with this Plan.
6
<PAGE>
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation
are executed as of this ____ day of __________ 2000.
ATTEST: THE SAVINGS BANK OF MANCHESTER
_________________________ By: ___________________________________
Carole L. Yungk Richard P. Meduski
Secretary President and Treasurer
7
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
THE SAVINGS BANK OF MANCHESTER
(A Reorganized Savings Bank)
ARTICLE I
OFFICES
1. Principal Office. The principal office of The Savings Bank of
----------------
Manchester (the "Bank") shall be located in the Town of Manchester, Connecticut.
2. Additional Offices. The Bank may have such additional offices, within
------------------
the State of Connecticut, as the Board of Directors may from time to time
designate or the business of the Bank may require, subject however, to the
approval of the Banking Commissioner of the State of Connecticut ( the
"Commissioner") and of the Federal Deposit Insurance Corporation (the "FDIC").
ARTICLE II
MEETINGS OF SHAREHOLDERS
1. Place of Meetings. All meetings of the shareholders shall be held
-----------------
either at the principal office or place of business or the Bank, or such other
place as from time to time may be designated by the Board of Directors.
2. Annual Meetings. The annual meetings of shareholders shall be held on
---------------
such day (other than a legal holiday) in each calendar year and at such time and
place as may be designated by the Board of Directors, for the election of
Directors and for the transaction of such other business as may properly come
before such meeting. To be properly brought before an annual meeting, business
must be (a) specific in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a shareholder. In addition, any
business to be brought before an annual meeting by a shareholder must be
reasonably related to the business of the Bank. For business to be properly
brought before an annual meeting by a shareholder, a shareholder must have given
timely notice thereof in writing to the Secretary of the Bank. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive office of the Bank not less than 30 days prior to the
meeting; provided, however, that in the event that less than 20 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the fifth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting: (a)
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; (b)
the name and address, as they appear on the Bank's books, of the shareholder
proposing such business;(c) the class and number of shares of the Bank which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this section. The chairman of an
annual meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this section, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
3. Special Meetings. Special meetings of the shareholders may be called
----------------
at any time by the Board of Directors, the Chairman of the Board of Directors,
or the President and shall be called by the President or the Secretary upon the
written request of at least six members of the Board of Directors then in
office. Each such request shall state
1
<PAGE>
the purposes for which the requested meeting is called. Business to be
transacted at any special meeting shall be limited to the purposes stated in the
notice of such meeting.
4. Notice of Annual or Special Meeting. A notice setting forth the day,
-----------------------------------
hour and place of each annual or special meeting of shareholders shall be
mailed, postage prepaid, to each shareholder of record entitled to vote, at his
last known post office address as the same appears on the stock records of the
Bank, or such notice shall be left with each such shareholder at his residence
or usual place of business, not less than seven nor more than 50 days before
such annual or special meeting. In the case of a special meeting the notice
shall also state the purpose or purposes thereof.
5. Waiver of Notice. Notice of any shareholders' meeting may be waived in
----------------
writing by any shareholder either before or after the stated therein for
convening of the meeting and, if any person present in person or by proxy at a
shareholders' meeting does not protest, prior to or at the commencement of the
meeting, the lack of proper notice, such person shall be deemed to have waived
notice of such meeting.
6. Quorum. The holders of a majority of the issued and outstanding stock
------
entitled to vote, present either in person or by proxy, shall constitute a
quorum for the transaction of business at any meeting of the shareholders.
7. Adjournment of Shareholders' Meeting. If a quorum is not present at
------------------------------------
any meeting of the shareholders, the holders of a majority of the voting power
of the shares entitled to vote who are present, in person or by proxy, may
adjourn the meeting to such future time as shall be agreed upon by them and
announced at the meeting, and no such adjournment need be given to the
shareholders not present or represented at the meeting unless the adjournment is
for more than 30 days or if, after the adjournment, a new record date is fixed
for the adjourned meeting; in either of the latter two events, a notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting.
8. Proxies. At all meetings of the shareholders, any shareholder entitled
-------
to vote may vote either in person or by written proxy signed by such shareholder
or by his duly authorized attorney-in-fact or other legal representative.
9. Number of Votes of Each Shareholder. Each outstanding share of common
-----------------------------------
stock, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders unless, and except to the
extent that, voting rights of shares of any class are increased, limited or
denied in the Bank's Amended and Restated Articles of Incorporation, or as may
otherwise be required by law.
10. Consent of Shareholders in Lieu of Meeting. Subject to applicable
------------------------------------------
provisions of the Amended and Restated Articles of Incorporation of the Bank,
and except as otherwise provided therein, any action required to be or which may
be taken at any annual or special meeting of the shareholders of the Bank may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders
(or their duly authorized attorneys) of all of the validly issued and
outstanding shares of stock which would be entitled to vote upon such action at
such meeting.
ARTICLE III
DIRECTORS
1. Number and Election. The property, business and affairs of the Bank
-------------------
shall be managed by a Board of Directors consisting of at least nine members but
no more than twenty-five members, with the precise number of Directors to be
fixed, changed and reestablished from time to time at such number as the Board
of Directors may by resolution determine. The initial Board of Directors shall
consist of those persons named in the Amended and Restated Articles of
Incorporation. Thereafter, Directors shall be elected by the shareholders at the
annual meeting or at any special meeting called for the election of directors.
It shall not be a qualification of office that the directors be shareholders of
the Bank, but it shall be a qualification of office that the directors be
residents of Connecticut. Each
2
<PAGE>
Director shall hold office for the term for which he is elected and until his
successor, if any, has been elected and qualified except that a Director shall
cease to be in office upon his death, resignation, retirement, disqualification,
removal, or court order decreeing that he is no longer a Director in office.
2. Classification. The Board of Directors shall be classified, with
--------------
respect to the time for which they severally hold office, into three classes as
nearly equal in number as reasonably possible, with the Directors in each class
to hold office until their successors, if any, are elected and qualified. When
the number of Directors is changed, the Board of Directors shall determine the
class or classes to which the increased or decreased number of Directors shall
be apportioned; provided that no change in the number of Directors shall affect
the term of any Director then in office.
3. Term of Office. The term of office of Directors named in the Amended
--------------
and Restated Articles of Incorporation of the Bank shall be as follows: Each
member of the Board of Directors in the first class of Directors shall hold
office until the annual meeting of shareholders in 1997, each member of the
Board of Directors in the second class of Directors shall hold office until the
annual meeting of shareholders in 1998 and each member of the Board of Directors
in the third class of Directors shall hold office until the annual meeting of
shareholders in 1999. At each annual meeting of the shareholders of the Bank,
the successors, if any, to the class of Directors, whose terms expire at the
meeting shall be elected to hold office for terms expiring at the later of the
annual meeting of shareholders held in the third year following the year of
their election or the election and qualification of the successors, if any, to
such class of Directors.
4. Nominees. Nominations for the election of directors may be made by the
--------
Board of Directors or a Nominating Committee thereof.
No person shall be eligible for election or appointment to the Board
of Directors if such person (i) has, within the previous 10 years, been the
subject of supervisory action by a financial regulatory agency that resulted in
a cease and desist order or an agreement or other written statement subject to
public disclosure under 12 U.S.C. 1818(u), or any successor provision, (ii) has
been convicted of a crime involving dishonesty or breach of trust which is
punishable by imprisonment for a term exceeding one year under state or federal
law, or (iii) is currently charged in any information, indictment, or other
complaint with the commission of or participation in such a crime. No person
shall be eligible for election to the board of directors if such person is the
nominee or representative of a person or group that includes a person who is
ineligible for election to the board of directors under this Section 4. The
Board of Directors shall have the power to construe and apply the provisions of
this Section 4 and to make all determinations necessary or desirable to
implement such provisions, including but not limited to determinations as to
whether a person is a nominee or representative of a person or a group and
whether a person is included in a group.
5. Vacancies. Any vacancy in the Board of Directors occurring by reason
---------
of death, resignation, retirement, disqualification, removal or other cause,
including an increase in the number of directorships, shall be filled in
accordance with Section 7.4 of the Amended and Restated Articles of
Incorporation.
6. Powers of Directors. The Board of Directors shall have the general
-------------------
management and control of the property, business and affairs of the Bank and may
exercise all the powers that may be exercised or performed by the Bank under
laws of the State of Connecticut, the Amended and Restated Articles of
Incorporation, and these Bylaws. The Board of Directors shall have the power to
establish the corporate policies and direct the management of the business and
affairs of the Bank and to do or cause to be done whatever may be necessary or
desirable in its discretion and to loan, invest or otherwise put to use the
funds of the Bank to enable the Bank to carry out the purposes for which it was
organized in accordance with the provisions of the laws of the State of
Connecticut. The Board of Directors shall appoint the principal officers of the
Bank and may remove any officer at any time with or without cause. The Board of
Directors may authorize or direct the officers to borrow money, and may
authorize or direct the officers or any designated special agent to make
contracts, to purchase and sell property and to execute and/or deliver
conveyances, releases, negotiable instruments and other documents and
instruments in the named and on behalf of the bank. Rates of interest to be
paid by the Bank on deposit accounts shall be established by the Board of
Directors from time to time,
3
<PAGE>
subject to limitations prescribed by law. The Board of Directors may establish
rules and regulations for the conduct of its meetings which are not inconsistent
with law or with these Bylaws. Minutes shall be kept of all proceedings at any
meetings of the Board of Directors. The Board of Directors shall have the powers
set forth by the laws of the State of Connecticut from time to time, and the
powers and duties as provided in other sections of these Bylaws.
7. Place of Meeting. The Directors may hold their meetings at such place
----------------
or places as the Board may from time to time determine.
8. Regular Meetings. Regular meetings of the Directors shall be held
----------------
monthly at such time and place as may be determined by the Board of Directors,
and at such other times as the Board may determine. The Annual Meeting of the
Board shall be held on the same day as the Annual Meeting of the Bank.
9. Other Meetings. Other meetings of the Directors may be held on such
--------------
dates, at such times, and at such places as the Chairman of the Board, the
President or a majority of the Directors may deem advisable, notice thereof to
be given or mailed to each director at least three (3) days prior to such
meeting.
10. Waiver of Notice. Notice of any Directors' meeting may be waived in
----------------
writing by all the Directors and, if any Director present at a Directors'
meeting does not protest prior to or at the commencement of the meeting the lack
of proper notice, he shall be deemed to have waived notice of such meeting.
11. Directors' Participation and Consents. Any resolution, order,
-------------------------------------
directive, authorization, ratification or other actions in writing concerning
actions taken or to be taken by the Bank, which resolution, order, directive,
authorization, ratification or other action is signed by all the members of the
Board of Directors, severally or collectively, shall have the same force and
effect as if such actions were authorized at a meeting of the Board of Directors
duly called and held for that purpose, and such resolution, together with the
Directors' written approval thereof, shall be recorded by the Secretary in the
minute book of the Bank. The members of the Board, or of any committee
designated by the Board of Directors, may participate in a meeting of the Board
or of such committee by means of conference telephone or similar communications
equipment affording all persons participating in the meeting the ability to hear
each other (provided the Chairman of the Board or the committee chairman, as the
case may be, deems such means to be necessary), and participation in the meeting
by such equipment shall constitute presence in person at such meeting.
12. Quorum. The holders of a majority of the directorships entitled to
------
vote shall constitute a quorum for the transaction of business at all meetings
of the Board of Directors. The acts of a majority of the Directors present at a
meeting at which a quorum is present at the time of the act shall be the acts
of the Board of Directors.
13. Compensation of Directors. The Board of Directors shall have authority
-------------------------
to fix fees of Directors, including a reasonable allowance for expenses actually
incurred in connection with their duties.
14. Removal of Directors. Any Director or the entire Board of Directors
--------------------
may be removed at any time, with or without any assignment of cause, by the
affirmative vote of the holders of at least fifty-one per cent of the
outstanding shares entitled to vote for the election of Directors.
15. Resignation. Any Director may resign at any time by sending a written
-----------
notice of such resignation of the main office of the Bank addressed to the
Chairman of the Board, the President or the Secretary. Unless the resigning
Director otherwise specifies in the notice of resignation, such resignation
shall take effect upon receipt by the Chairman of the Board, the President or
the Secretary.
16. Limitation on Service by Directors. Any Member of the Board of
----------------------------------
Directors shall retire as a Director and shall be ineligible to remain a
Director after the date of the next Annual Meeting following his attaining the
age of 70 years.
4
<PAGE>
17. Committees. The Board of Directors shall have the power to ordain and
----------
establish rules and regulations essential to the performance of its duty of
caring for and managing the property and affairs of the Bank. It shall appoint
an Executive Committee from among the Directors, a Loan Committee, a Nominating
Committee, and an Audit and Examination Committee, and may appoint such other
committees as it may consider the interest of the Bank to require, and may
delegate those duties which are specifically assigned to the Board by statute.
A quorum to transact business for all committees, with the exception of the
Executive Committee, shall consist of a majority of the voting members.
When a quorum of the appointed members of the Executive Committee are not
present at a meeting of such committee, the Chairman of the Board may appoint,
from among the Directors, such alternate members to serve with voting
privileges, as necessary to constitute a quorum.
When a quorum of the appointed members of the Loan Committee are not
present at a meeting of such committee, the Chairman of the Loan Committee may
appoint, from among the Directors, such alternate members to serve with voting
privileges, as necessary to constitute a quorum.
Executive Committee
- -------------------
The Executive Committee shall consist of a minimum of five (5) members of
the Board of Directors, and in addition, in the discretion of the Board, in
rotation, a member of the Board of Directors, who shall serve with voting
privileges. A quorum to transact business shall consist of at least three (3)
Executive Committee members.
The Executive Committee shall: (i) perform all of the functions of the
Board between meetings of the Board; (ii) supervise the investment policies of
the Bank in conjunction with the officers; (iii) recommend to the Board policy
to be followed with respect to mortgage and commercial loans; (iv) pass upon
such mortgage and commercial loans as shall be referred to it by the Committee;
(v) pass upon rates of interest to be paid by the Bank on deposit accounts; (vi)
cause to be prepared annually a budget for the operations of the Bank, and shall
submit the same to the Board for adoption; (vii) exercise, in the discretion of
the Committee, such powers of the Board of Directors as are necessary to
determine urgent and emergency matters which require determination prior to a
regular meeting of the Board, but which are not of sufficient import to
necessitate the calling of a special meeting of the Board; (viii) designate or
define the duties of all officers which are not specifically designated or
defined in the Bylaws or by the Board of Directors; and (ix) meet at such times
as it shall determine, and shall keep a record of its proceedings.
All actions taken by the Committee shall be reported to the next regular
meeting of the Board of Directors for approval.
Loan Committee
- --------------
The Loan Committee shall consist of a minimum of five (5) members of the
Board of Directors, and in addition, in the discretion of the Board, in
rotation, a member of the Board of Directors, who shall serve with voting
privileges.
The Loan Committee shall: (i) approve and recommend all loan policies to
the Executive Committee and the Board of Directors; (ii) review and pass on all
loan requests within its authority and recommend action by the Executive
Committee on any loans which exceed its lending authority as defined in the loan
policies; and (iii) meet as necessary, but at least quarterly.
Nominating Committee
- --------------------
The Nominating Committee shall consist of at least three (3) members of the
Board of Directors.
5
<PAGE>
The Nominating Committee shall: (i) recommend to the shareholders at their
Annual Meeting, nominees for election as Directors, Directors Emeriti, and
Honorary Directors; (ii) recommend to the Board of Directors, at their Annual
Meeting, nominees for appointment as officers and nominees for appointment as
Advisory Board and Committee members; and (iii) meet as often as necessary, but
at least annually.
Audit and Examination Committee
- -------------------------------
The Audit and Examination Committee shall consist of a minimum of five (5)
members of the Board of Directors.
The Audit and Examination Committee shall: (i) monitor compliance with
Board policies and applicable laws and regulations; (ii) subject to Board
approval, select, direct, and determine the compensation and qualifications of
the Internal Auditor; (iii) recommend for Board approval an appropriate external
firm to at least annually examine the Bank's books and to render an opinion as
to the conduct of the financial affairs of the Bank and to assess the operating
features of the Bank with a view of possible desirable changes or modifications;
(iv) meet directly with the state and Federal bank examiners relative to their
periodic auditing of the Bank's books and operating procedures; (v) monitor
management's efforts to correct any deficiencies discovered in any internal and
external audit; (vi) review, approve, and alter, as appropriate, the Bank's
audit program procedures; (vii) perform such other duties as requested by the
Board of Directors or the Executive Committee, and (viii) meet as frequently as
necessary, but at least quarterly.
18. Advisory Boards. The Board of Directors may appoint Advisory Boards
---------------
for areas where branch Bank offices located outside of the township of
Manchester, whose function and duty it shall be to advise and counsel with the
Board of Directors on all matters having to do with the branches in question.
The compensation, composition, and functions of each such Advisory Board shall
be determined by the Board of Directors. Advisory Board members shall be
appointed for terms of one (1) year.
19. Emeritus Directors and Honorary Directors. The Board of Directors may
-----------------------------------------
annually, at its Annual Meeting, choose by ballot Emeritus Directors who shall
act only in an advisory capacity. Emeritus Directors shall be entitled to attend
and participate in all regular monthly meetings of the Board of Directors, but
shall not be entitled to vote. Only those persons serving as Emeritus Directors
as of January 31, 1991 shall be eligible for continuing election to such
position. The Board of Directors may annually choose by ballot at its Annual
Meeting one or more Honorary Directors. Honorary Directors may be invited to
attend meetings of the Board of Directors and may participate in those meetings
to which they are invited, but shall not vote. Honorary Directors shall be
chosen from those Directors who have retired because of age or any other reason.
Honorary Directors shall serve without compensation.
ARTICLE IV
OFFICERS
1. Principal and Other Officers. The officers shall consist of the
----------------------------
Chairman of the Board, the President, a First Executive Vice President, one or
more Executive Vice Presidents, one or more Vice Presidents, a Secretary, a
Chief Financial Officer, a Comptroller, a Treasurer (hereinafter referred to as
"principal officers"), and such other officers, assistant officers and agents as
may be deemed necessary and appointed by the Board of Directors, the Executive
Committee, the President, the First Executive Vice President or as may be chosen
in such other manner as may be prescribed or permitted by these Bylaws, as
amended from time to time. Any two or more offices may be held by the same
person; provided that the same individual shall not simultaneously occupy the
offices of both President and Secretary.
2. General Authority and Duties. All officers and agents of the Bank
----------------------------
shall have such authority and perform such duties in the management of the Bank
as may be provided in these Bylaws or as may be determined by resolution of the
Board of Directors not inconsistent with these Bylaws.
6
<PAGE>
3. Election, Term of Office, and Qualifications. The principal officers
--------------------------------------------
shall be elected annually by the Board of Directors at its annual organization
meeting or as soon thereafter as conveniently possible or at such other times as
the Board of Directors deems necessary. Each officer shall hold office until his
successor, if any, is chosen and qualified, or until his death, his resignation,
his retirement or his removal, whichever event shall first occur. Each officer
shall hold office at the discretion of the Board of Directors and election or
appointment of an officer or agent shall not of itself create any contractual
rights.
4. Removal. Any officer or agent may be removed by a two-thirds vote of
-------
the Board of Directors. Any officer or agent may also be removed by the
Executive Committee, the President, the First Executive Vice President, or any
other principal officer having authority to designate or appoint the officer or
agent, with or without cause.
5. Resignation. Any officer or agent may resign at any time by giving
-----------
written notice to the Board of Directors or to the Chairman of the Board, the
President, or the Secretary. The resignation shall take effect at the time
specified in the notice, and, unless specified in it, acceptance or the
resignation shall not be necessary to make it effective.
6. Vacancies. Any vacancy in any office occurring by reason of death,
---------
resignation, removal, or any other cause may be filled for the unexpired portion
of the term in the manner prescribed in these Bylaws for election or appointment
to the office.
7. The Chairman of the Board. The Chairman of the Board of Directors
-------------------------
shall be the senior officer of the Bank. The Chairman shall be one of the
members of the Executive Committee, and shall preside at all meetings of the
Bank, of the Board of Directors, and, of the Executive Committee.
The Chairman shall be an ex-officio member, without vote, of all other
committees of the Board. In the absence of a majority of the Executive
Committee members, the Chairman shall act for the Committee, but his actions
shall be subject to ratification and confirmation by the Executive Committee at
its next meeting.
The Chairman's duties shall include the evaluation of the Bank's
performance in relation to established guidelines, and the providing of broad
direction in accordance with policies established by the Board of Directors and
the Executive Committee.
He shall perform all duties incident to the office of Chairman and such
other duties as may be prescribed by the Board of Directors or the Executive
Committee, from time to time.
8. The President. The President shall have the active management of, and
-------------
superintendence over, the business, property, and affairs of the Bank, subject
to the authority of the Board of Directors and the Executive Committee. He shall
perform such duties and have such powers as may from time to time be prescribed
by statute, the Board of Directors, or the Executive Committee. In the absence
of the Chairman of the Board of Directors, he shall preside at 11 meetings of
the Corporation, the Board of Directors and the Executive Committee. In the
absence of, or the inability to act, of the Chairman and the President, the
Director designated by the Board of Directors or the Executive Committee shall
preside at all meetings of the Corporation, the Board of Directors, and the
Executive Committee.
9. The First Executive Vice President. The First Executive Vice President
----------------------------------
shall assist the President generally in the management and operation of the
Bank, and perform such specified duties as may be assigned to him from time to
time by the Board of Directors, the Executive Committee, or the President. In
the absence or inability to act of the President, the First Executive Vice
President shall have the active management and the superintendence over the
business, property, and affairs of the Bank, subject to the authority of the
Board of Directors and the Executive Committee.
7
<PAGE>
10. The Executive Vice President. Each Executive Vice President (if one or
----------------------------
more Executive Vice Presidents be elected or appointed) shall have such powers
and perform such duties as the Board of Directors or the Executive Committee may
prescribe or as the President or the First Executive Vice President may delegate
to him.
11. The Vice Presidents. Each Vice President (if one or more Vice
-------------------
Presidents be elected or appointed) shall assist the President and the First
Executive Vice President generally in the management and operation of the Bank,
and shall perform such duties as are from time to time assigned to him by the
Board of Directors, the Executive Committee, the President or the First
Executive Vice President.
12. The Treasurer. The Treasurer shall, subject to the supervision and
-------------
control of the Board of Directors, have such powers and perform such duties as
are allocated to his office by statute and shall perform other duties as from
time to time be assigned to him by the Board of Directors, the Executive
Committee, the President, or the First Executive Vice President.
13. The Secretary. The Secretary shall keep or cause to be kept in books
-------------
provided for that purpose the minutes of the meetings of the shareholders and of
the Board of Directors; shall see that all notices are duly given in accordance
with the provisions of these Bylaws and as required by law; shall be custodian
of the records and of the seal of the Bank and shall see that the seal is
affixed to all documents, the execution of which on behalf of the Bank under its
seal is required; and, in general, shall perform all duties incident to the
office of Secretary and such other duties as may be assigned to him by the Board
of Directors, the Executive Committee, the President or the First Executive Vice
President.
14. The Chief Financial Officer. The Chief Financial Officer shall be
---------------------------
responsible for the financial records of the Bank, and for the preparation of
reports to the Board of Directors and the Executive Committee, together with
such other internal reports as shall be required by the Board of Directors, the
Executive Committee, the President or the First Executive Vice President.
15. The Comptroller. The Comptroller shall be responsible for the
---------------
preparation of, and the timely filing of, all reports required by supervisory
authorities, and for such reports as may from time to time be required by
statute and other cognizant authorities. He shall perform such other duties as
may be required by law, or as may be assigned to him by the Board of Directors,
the Executive Committee, the President or the First Executive Vice President.
16. Auditor. The auditor shall be appointed by the Board of Directors and
-------
shall serve at the pleasure of the Board. He shall make such examinations of the
accounts, records, and transaction of the Bank as may be required by statute, by
the Board of Directors, or by the Audit and Examination Committee. He shall be
free to examine any department, function, operation, or records of the Bank
without previous officer consultations. He shall maintain a record of the dates
of completed audits, and shall make at least quarterly reports to the Board or
the Audit and Examination Committee thereof, which shall include such
suggestions and recommendations as he may consider advisable.
17. Other Officers. Other Officers shall have such powers and shall
--------------
perform such duties as may be assigned to them from time to time by the Board of
Directors, the Chairman of the Board of Directors, the Executive Committee, the
President or the First Executive Vice President of the Bank.
18. Salaries. The salaries of all officers and employees shall be fixed,
--------
from time to time, by the Board of Directors. No officer shall be prevented
from receiving his salary by reason of the fact that he is also a Director of
the Bank.
8
<PAGE>
ARTICLE V
INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
1. Direct Actions. The Bank shall indemnify each person who was or is a
--------------
party or is threatened to be made a party to any threatened, pending or complete
action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the Bank, by reason of
the fact that he or she is or was a director, officer, employee or agent of the
Bank, or is or was serving at the request of the Bank as a trustee, director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, other than an employee benefit plan or trust, or is
or was a director, officer or employee of the Bank serving at the request of the
Bank as a fiduciary of an employee benefit plan or trust maintained for the
benefit of employees of the Bank or employees of any such other corporation,
partnership, joint venture, trust or other enterprise, against judgments, fines,
penalties, amounts paid in settlement and expenses, including attorney's fees,
actually and reasonably incurred by him or her, in connection with such suit,
action or proceeding, or any appeal therefrom, to the full extent permitted by
Connecticut 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
Bank to provide broader indemnification rights than such law permitted the Bank
to provide prior to such amendment).
2. Derivative Actions. The Bank shall indemnify each person who was or is
------------------
a party, or was threatened to be made a party or any action, suit or proceeding,
by or in the right of the Bank, to procure a judgment in its favor by reason of
the fact that he or she (a) is or was a director, officer, employee, or agent of
the Bank, or (b) is or was serving at the request of the Bank (i) as a trustee,
director, officer or employee of another corporation, partnership, joint
venture, trust, or other enterprise, or (ii) as an agent of such other
corporation, partnership, joint venture, trust, or other enterprise other than
an employee benefit plan or trust, or (iii) is or was a trustee, director,
officer or employee of the Bank serving as a fiduciary of any employee benefit
plan or trust maintained for the benefit of employees of the Bank or employees
or any such other corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, actually and reasonably
incurred by him of her in connection with such action, suit or proceeding, or
any appeal therefrom, to the full extent permitted by Connecticut 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 Bank to provide broader
indemnification rights that such law permitted the Bank to provide prior to such
amendment).
3. Advances. Expenses that may be indemnifiable under this Article and
--------
that are incurred in defending an action, suit or proceeding may be paid by the
Bank in advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in accordance with the provisions of
Connecticut 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
Bank to provide broader indemnification rights that such law permitted the Bank
to provide prior to such amendment), upon agreement by or on behalf of the
director, trustee, officer, employee or agent to repay such amount if he is
later found not entitled to be indemnified by the Bank.
4. Nonexclusivity. The foregoing rights of indemnification shall in no
--------------
way be exclusive or any other rights of indemnification to which any person may
be entitled and shall inure to the benefit of the heirs, executors and
administrators of such person. Any such right of indemnification shall be
consistent with the statutes of Connecticut.
9
<PAGE>
ARTICLE VI
CONFLICTS OF INTEREST
No contract or transaction between the Bank and one or more of its
Directors or officers, or between the Bank and any other corporation,
partnership, association, or other organization of which one or more or its
Directors, officers, partners, or members are Directors or officers of the Bank,
or in which one or more of the Banks' Directors or officers have a financial or
other interest shall be void or voidable solely by reason thereof, or solely
because the Director or officer is present at or participates in the meeting or
the Board of Directors of the Bank or a committee thereof which authorized the
contract or transaction, if:
(1) Any duality of interest or potential conflict of interest on the part
of any Director or officer of the Bank is disclosed to the other members of the
Board or committee either through an annual questionnaire or at a meeting at
which a matter involving such duality of interest or potential conflict of
interest is considered or acted upon; and
(2) Any Director having a duality or interest or potential conflict of
interest on any matter refrains from voting or using his personal influence on
the matter. The minutes shall reflect that a disclosure was made and the
abstention from voting.
The foregoing requirements shall not be construed as preventing a Director
from briefly stating his position in the matter, nor from answering pertinent
questions of other members of the Board or committee. Each Director and officer
of the Bank shall be advised of this policy upon entering on the duties of his
office and shall answer an annual questionnaire.
ARTICLE VII
ISSUE AND TRANSFER OF CAPITAL STOCK
1. Certificates. Certificates of capital stock and other documentary
------------
evidences of equity securities shall be in the form authorized or adopted by the
Board of Directors or the Executive Committee and shall be consecutively
numbered. Each certificate shall set forth upon its face as at the time of
issue: the name of the Bank, a statement that the Bank is organized under the
laws of the State of Connecticut, the name of the person to whom issued, the
number, class and designation of series, if any, of shares or units represented
thereby and the par value of each share; and each certificate shall be signed by
the President or First Executive Vice President, and by the Secretary or the
Treasurer, and shall be seated with the seal of the Bank or a facsimile thereof,
provided that the certificate shall also contain such other recitals as may from
time to time be required by law. The signatures of any officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Bank itself or an employee
of the Bank. In case any officer who has signed or whose facsimile signature has
been placed upon a 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 date of its issue.
Whenever the Bank shall be authorized to issue more than one class of stock
or more than one series of any class or stock, the certificates representing
shares of any such class or series shall set forth thereon the statements
prescribed by the law of Connecticut. Any restrictions on the transfer or
registration of transfer of any shares of stock of any class or service shall be
noted conspicuously on the certificate representing such shares.
2. Transfer. The capital stock or other equity securities of the Bank
--------
shall be transferred only upon the books of the Bank either by the shareholder
in person or by powers of attorney executed by him for that purpose upon the
surrender for cancellation of the old stock certificate. Prior to due
presentment for registration of transfer of a certificate, the Bank may treat
the registered owner of such certificate as the person exclusively entitled to
vote, receive
10
<PAGE>
notifications and distributions, and otherwise to exercise all the rights and
powers of the shares represented by such certificate.
3. Lost Certificates. The Bank may issue a new certificate of stock in
-----------------
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Board of Directors may require the owner of any
lost, stolen or destroyed certificate, or his legal representative, to give the
Bank a bond sufficient to indemnify the Bank against any claim that may be made
against it on account of the alleged loss, theft, or destruction or any such
certificate or the issuance of any such new certificate.
4. Fixing Record Date. The Board of Directors by resolution shall fix a
------------------
date as the record date for any determination of shareholders, such date in any
case to be not more than 70 days and, in case of a meeting of shareholders, not
less than 10 days prior to the date on which the particular action requiring
determination of shareholders is to be taken. When a record date has been
determined for shareholders entitled to vote in any meeting as provided in this
section, such record date shall apply to any adjournment thereof.
5. Registered Shareholders. The Bank shall be entitled to recognize the
-----------------------
exclusive right of a person registered on its books as the owner of shares to
receive dividends and to vote as such owner, and the Bank shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by statute.
6. List of Shareholders. The corporate officer having responsibility for
--------------------
the share transfer book for shares of the Bank shall make, or cause to be made,
for at least one business day before each meeting of shareholders, a complete
list of the shareholders entitled to vote at such meeting arranged in
alphabetical order, with the address of, and the number and class of shares held
by, each. Such list shall, for a period of at least one business day prior to
such meeting, be kept on file at the main office of the Bank and shall be
subject to inspection by any shareholder during usual business hours for any
proper purposes in the interest of the shareholder as such or during usual
business hours for any proper purpose in the interest of the shareholder as such
or the Bank and not for speculative or trading purposes or for any purpose
inimical to the interest of the Bank or of its shareholders. Such list shall
also be produced and kept open at the time and place of each meeting of
shareholders and shall be subject for any such proper purpose to such inspection
during the whole time of the meeting. The original share transfer books shall be
prima facie evidence as to who are the shareholders entitled to inspect such
list. Except as otherwise required by law applicable to savings banks,
shareholders shall be entitled to inspect a list of shareholders of the Bank
only as provided in this Section 6.
7. Inspection of Records. Any shareholder of record upon written demand
---------------------
setting the purpose thereof, shall have the right to examine, in person, or by
agent or attorney, at any reasonable time or times, for any proper purpose,
these Bylaws and minutes of meetings of shareholders and to make copies and
extracts thereof.
ARTICLE VIII
SEAL
The seal of the Bank shall consist of the imprint of two concentric circles
between which shall be inscribed the name of the Bank. The year of incorporation
or an emblem may appear in the center.
ARTICLE IX
SPECIAL CORPORATE ACTS
1. Execution of Negotiable Instruments. All checks, drafts, notes, bonds,
-----------------------------------
bills of exchange, and orders for the payment of money shall be signed by such
officer or officers of the Bank as the Board of Directors shall
11
<PAGE>
determine from time to time. The Board of Directors may authorize the use of
facsimile signatures of any officer or employee in lieu of manual signatures.
2. Execution of Deeds, Contracts, etc. Subject always to the specific
-----------------------------------
directions of the Board of Directors of the Executive Committee, all deeds and
mortgages made by the Bank and all other written contracts, agreements and
undertakings to which the Bank shall be a party shall be executed in its name by
the Chairman of the Board of Directors, the President or such other officer as
may be designated by the Chairman of the Board of Directors or the President,
and, when requested, the Secretary or an Assistant Secretary shall attest to
such signatures and affix the corporate seal to the instruments.
3. Endorsement of Stock Certificates. Subject always to the specific
---------------------------------
directions of the Board of Directors or the Executive Committee, any share or
shares of stock issued by any corporation and owned by the Bank (including
reacquired shares of stock of the Bank) may, for sale of transfer, be endorsed
in the name of the Bank by the Chairman of the Board of Directors, the President
or such other officer as may be designated by the Chairman of the Board of
Directors or the President, and his signature shall be attested to by the
Secretary or an Assistant Secretary who shall affix the corporate seal.
4. Voting of Shares Owned by Bank. Subject always to the specific
------------------------------
directions of the Board of Directors or the Executive Committee, any share or
shares of stock issued by any other corporation and owned or controlled by the
Bank may be voted at any shareholders' meeting of the other corporation by the
President or First Executive Vice President of the Bank, or in their absence by
such other officer as may be designated by the President or First Executive Vice
President. Whenever, in the judgment of the President or the First Executive
Vice President, or in their absence, of any such other officer as may be
designated by the President or First Executive Vice President, it is desirable
of the Bank to execute a proxy or give shareholders' consent in respect to any
share or shares of stock issued by any other corporation and owned or controlled
by the Bank, the proxy or consent shall be executed in the name of the Bank by
the President or First Executive Vice President or such other as may be
designated by the President or the name of the Bank by the President or First
Executive Vice President or such other officer as may be designated by the
President or First Executive Vice President without necessity or any
authorization by the Board of Directors. Any person or persons designated in
the manner above stated as the proxy or proxies of the Bank shall have full
right, power and authority to vote the share or shares of stock issued by the
other corporation.
ARTICLE X
AMENDMENTS
1 . By the Board of Directors. The Board of Directors shall have the power
-------------------------
to make, amend and repeal the Bylaws, in whole or in part, by the affirmative
vote of a majority of the Directors then in office cast at any regular or
special meeting of the Board, provided that notice of the intention or proposal
to make, amend or repeal the Bylaws previously shall have been given to each
member of the Board, or without any such notice, by the affirmative vote of all
of the Directors then in office.
2. By the Shareholders. The shareholders shall have the power to make,
-------------------
amend and repeal these Bylaws, in whole or in part, by the affirmative vote of
the holders of a majority of the capital stock of the Bank outstanding and
entitled to vote in the election of Directors of the Bank. Any such vote of
shareholders making, amending or repealing the Bylaws may be had at any annual
or special meeting of the shareholders, provided that notice of the intention or
proposal to make, amend or repeal the Bylaws at such meeting previously shall
have been given to the shareholders entitled to vote thereon. Action of the
shareholders in making, amending or repealing the Bylaws shall prevail over any
contrary or inconsistent action previously taken by the Board of Directors in
making, amending or repealing the Bylaws; provided, however, that any
proceedings had or action taken pursuant to the Bylaws made, amended or repealed
by action of the Board of Directors prior to contrary or inconsistent action by
the shareholders shall be valid in all respects.
89815.1
12
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CONNECTICUT BANCSHARES, INC.
FIRST: The name of the Corporation is Connecticut Bancshares, 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 forty-six million (46,000,000)
consisting of:
1. One million (1,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Forty-five million (45,000,000) 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 stockholders entitled to vote
on any matter, beneficially owns in
<PAGE>
excess of 10% of the then-outstanding shares of Common Stock
(the 10% "Limit"), be entitled, or permitted to any vote in
respect of the shares held in excess of the 10% 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 10% 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 10% 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 "10% 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 10% Limit (or holds of record
Common Stock beneficially owned by any person in excess of
the 10% 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 10% 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 10% Limit,
notwithstanding any such finding.
D. 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 stockholders entitled to vote
on any matter, beneficially owns in excess of 5% of the
then-outstanding shares of Common Stock (the "5% Limit"), be
entitled or permitted to any vote in respect of the shares
held in excess of the 5% Limit, unless such person
beneficially owns, holds or controls such shares in the
ordinary course of business and not with the purpose nor
with the effect of changing or influencing the control of
the Corporation. The number of votes
5
<PAGE>
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 5% 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 5% Limit.
2. The following definitions shall apply to this Section D 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 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
6
<PAGE>
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 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
7
<PAGE>
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 "5% Limit" shall mean 5% 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 5% Limit (or holds of record
Common Stock beneficially owned by any person in excess of
the 5% 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 5% Limit; and (ii) any other
factual matter relating to the applicability or effect of
this section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section D, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the
Corporation entitling the
8
<PAGE>
holders thereof to cast a majority of the votes (after
giving effect, if required, to the provisions of this
Section D) 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 D 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 D remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the 5% 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.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
9
<PAGE>
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:
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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.
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% of the voting power of all
of the then-outstanding shares of capital stock of the Corporation
10
<PAGE>
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% 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:
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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, 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
11
<PAGE>
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:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
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<PAGE>
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):
(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
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<PAGE>
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 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
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<PAGE>
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 purpose of
acquiring, holding or disposing of securities or any other
entity.
15
<PAGE>
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 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 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
16
<PAGE>
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 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.
17
<PAGE>
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% 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.
18
<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
19
<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.
20
<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% 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, Sections C or D 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
---- ---------------
Joseph P. Daly Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
21
<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 18th day of October,
1999.
/s/ Joseph P. Daly
--------------------------------------
Joseph P. Daly
Incorporator
22
<PAGE>
EXHIBIT 3.2
CONNECTICUT BANCSHARES, 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 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
<PAGE>
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
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
2
<PAGE>
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 or she should so determine, 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 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
3
<PAGE>
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.
(d) No person shall be eligible for election or appointment to the Board of
Directors if such person (i) has, within the previous 10 years, been the subject
of supervisory action by a financial regulatory agency that resulted in a cease
and desist order or an agreement or other written statement subject to public
disclosure under 12 U.S.C. 1818(u), or any successor provision, (ii) has been
convicted of a crime involving dishonesty or breach of trust which is punishable
by imprisonment for a term exceeding one year under state or federal law, or
(iii) is currently charged in any information, indictment, or other complaint
with the commission of or participation in such a crime. No person shall be
eligible for election to the board of directors if such person is the nominee or
representative of a person or group that includes a person who is ineligible for
election to the board of directors under this Section 6(d). The Board of
Directors shall have the power to construe and apply the provisions of this
Section 6(d) and to make all determinations necessary or desirable to implement
such provisions, including but not limited to determinations as to whether a
person is a nominee or representative of a person or a group and whether a
person is included in a group.
Section 7. Proxies and Voting.
--------- ------------------
(a) 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.
(b) 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.
4
<PAGE>
(c) 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.
(d) Notwithstanding any other provision of these Bylaws, in no event shall
any person, group or company that would not be eligible for election to the
Board of Directors or to have his or its representative or nominee eligible for
election to the Board of Directors under Section 6(d) be entitled or permitted
to vote his or its shares with respect to any amendment, modification or repeal
of Section 6(d) or this Section 7(d).
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. 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 fifteen
(15). The Board of Directors shall annually elect a Chairman of the Board from
among its members who shall, when present, preside at its meetings.
5
<PAGE>
The retirement age for Directors shall be seventy (70) years of age and no
Director may serve beyond the date of the next Annual Meeting following his or
her attainment of seventy (70) years of age.
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
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
6
<PAGE>
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.
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;
7
<PAGE>
(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.
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.
8
<PAGE>
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.
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, a President and
Chief Executive Officer, 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.
9
<PAGE>
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 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
10
<PAGE>
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.
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
11
<PAGE>
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.
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
12
<PAGE>
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. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened.
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 18, 1999, the date of incorporation
of Connecticut Bancshares, Inc.
14
<PAGE>
EXHIBIT 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
CONNECTICUT BANCSHARES, 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
CONNECTICUT BANCSHARES, 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 or
her 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, Connecticut Bancshares, 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 and Chief Secretary
Executive Officer
<PAGE>
CONNECTICUT BANCSHARES, 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 "10% Limit") be entitled or
permitted to any vote in respect of shares held in excess of the 10% Limit.
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 5%
of the outstanding shares of common stock (the "5% Limit") be entitled or
permitted to any vote in respect of shares held in excess of the 5% Limit,
unless such beneficial owner owns, controls or holds such shares of common stock
in the ordinary course of business and not with the purpose nor with the effect
of changing or influencing control of the Corporation.
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 PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15
<PAGE>
Exhibit 5.0
November 12, 1999
Board of Directors
Connecticut Bancshares, Inc.
923 Main Street
Manchester, Connecticut 06040
Re: The issuance of up to 16,425,450 shares of
Connecticut Bancshares, Inc. Common Stock
Lady and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Connecticut Bankshares, M.H.C., a
Connecticut-chartered mutual holding company that owns all of the outstanding
common stock of The Savings Bank of Manchester, a Connecticut-chartered stock
savings bank (the "Bank"), into a stock form of organization (the "Conversion"),
and the related subscription offering, direct community offering and syndicated
community offering (the "Offerings") by Connecticut Bancshares, Inc. (the
"Company"), a Delaware corporation and the proposed holding company for the
Bank, of up to 13,225,000 shares of its common stock, par value $.01 per share
("Common Stock") (15,208,750 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 1,058,000 shares of
Common Stock to SBM Charitable Foundation, Inc. (the "Foundation"), a privately-
owned charitable foundation formed by the Company (1,216,700 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 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 loan to the ESOP trust (the "Loan"); (b) the
ESOP serves a valid corporate purpose for the Company; (c) the Loan will be made
at an interest rate and on other terms that are fair to the Company; (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 trust to the Company as a result of the Loan; and (e) 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
<PAGE>
Board of Directors
Connecticut Bancshares, Inc.
November 12, 1999
Page 2
of the other shares of Common Stock sold in the Offerings and the receipt by the
Company of the proceeds thereof.
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 18, 1999 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, to be filed with the Securities and Exchange Commission on November
12, 1999 (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.
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 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
<PAGE>
Board of Directors
Connecticut Bancshares, Inc.
November 12, 1999
Page 3
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,
/s/ MULDOON, MURPHY & FAUCETTE LLP
----------------------------------
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE LLP]
FORM OF FEDERAL TAX OPINION
__________, 1999
Boards of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
923 Main Street
Manchester, Connecticut 06040
Dear Board Members:
You have requested our opinion regarding certain federal income tax
consequences of the conversion of Connecticut Bankshares, M.H.C. (the "Mutual
Holding Company") from the mutual holding company structure to the stock holding
company form, as effectuated pursuant to the integrated transactions described
below. Our opinion is based upon the existing provisions of the Internal
Revenue Code of 1986, as amended (the Code) and regulations thereunder (the
"Treasury Regulations"), and upon current Internal Revenue Service ("IRS")
published rulings and existing court decisions, any of which could be changed at
any time. Any such changes may be retroactive and could significantly modify the
statements and opinions expressed herein. Similarly, any change in the facts and
assumptions stated below, upon which this opinion is based, could modify the
conclusions. This opinion is as of the date hereof, and we disclaim any
obligation to advise you of any change in any matter considered herein after the
date hereof.
We, of course, opine only as to the matters we expressly set forth, and no
opinions should be inferred as to any other matters or as to the tax treatment
of the transactions that we do not specifically address. We express no opinion
as to other federal laws and regulations, or as to laws and regulations of other
jurisdictions, or as to factual or legal matters other than as set forth herein.
We have made such other investigations as we have deemed relevant or
necessary for the purpose of this opinion. In our examination, we have assumed
the authenticity of original documents, the accuracy of copies and the
genuineness of signatures. We have further assumed the absence of adverse facts
not apparent from the face of the instruments and documents we examined and have
relied upon the accuracy of the factual matters set forth in the Plan of
Conversion and Reorganization (the "Plan") and the Registration Statement on
Form S-1 filed by Connecticut Bancshares, Inc. (the "Company") with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, and the application (the "Application") filed with the Connecticut
Department of Banking (the "Department").
<PAGE>
Boards of Directors
The Savings Bank of Manchester
Connecticut Bancshares, M.H.C.
Connecticut Bancshares, Inc.
________________,1999
Page 2
We specifically express no opinion concerning tax matters relating to the
Plan under state and local tax laws and under Federal income tax laws except on
the basis of the documents and assumptions described above. We note that in
December 1994, the IRS issued Revenue Procedure 94-76 which states that the IRS
will not issue private letter rulings with respect to a transaction in which one
corporation owns stock in a second corporation, the first corporation is not the
80 percent distributee of the second corporation and the two corporations are
merged. The IRS has assumed this "no rule" position to study whether such
downstream mergers circumvent the purpose behind the repeal of General Utilities
-----------------
& Operating Co. v. Helvering, 296 U.S. 200 (1935). If the IRS were to conclude
- ----------------------------
that such mergers circumvent the repeal of General Utilities, the IRS could
-----------------
issue regulations which could have the effect of taxing to the merging
corporation, as of the effective time of the merger, the fair market value of
the assets of such corporation over its basis in such assets. Accordingly, the
issuance of such regulations could significantly modify the opinions expressed
herein.
For purposes of this opinion, we are relying on the opinion of RP
Financial, the appraiser of the Company, to the effect that the subscription
rights distributed to Eligible Account Holders have no value. In addition, we
have relied upon the representations provided to us by the Mutual Holding
Company and The Savings Bank of Manchester (the "Bank") as described in the
Affidavit of the President of the Mutual Holding Company and the Bank,
incorporated herein by reference.
The Proposed Transactions
Based solely upon our review of the documents described above, and in
reliance upon such documents, we understand that the relevant facts are as
follows. In 1996, the Bank reorganized into the mutual holding company form of
organization and became a wholly-owned subsidiary of the Mutual Holding Company.
No shares of the Bank's common stock were issued to shareholders other than the
Mutual Holding Company.
Subsequently, on August 30, 1999 the Mutual Holding Company adopted the
Plan of Conversion (the "Plan") providing for the conversion of the Mutual
Holding Company into the capital stock form of organization (as converted, the
"Holding Company"). The Plan was amended on October 6, 1999 and October 26,
1999.
At the present time, two transactions referred to as the "MHC Merger" and
the "Bank Merger" are being undertaken. Pursuant to the Plan, the conversion
("Conversion") will be effected in the following steps, each of which will be
completed contemporaneously:
<PAGE>
Boards of Directors
The Savings Bank of Manchester
Connecticut Bancshares, M.H.C.
Connecticut Bancshares, Inc
_____________,1999
Page 3
(i) The Bank will establish the Company as a first-tier Delaware chartered
stock holding company subsidiary.
(ii) The Company will charter an interim Connecticut-chartered savings bank
("Interim Savings Bank")
(iii) The Mutual Holding Company will convert to an interim Connecticut-
chartered bank and merge with and into the Bank (the "MHC Merger"). Each
member of the Mutual Holding Company will receive an interest in a
liquidation account established at the Bank in accordance with Connecticut
law in exchange for such person's interest in the Mutual Holding Company.
Shares of Bank Common Stock held by the Mutual Holding Company will be
canceled.
(iv) Contemporaneously with the MHC Merger, Interim Savings Bank will merge
with and into the Bank with the Bank as the surviving entity (the "Bank
Merger").
(v) Contemporaneously with the Bank Merger, the Company will sell Company
common stock ("Common Stock") in the Offering.
As a result of the MHC Merger and the Bank Merger, the Company will be a
publicly held corporation, will register the Company Common Stock under Section
12(g) of the Securities Exchange Act of 1934, as amended, and will become
subject to the rules and regulations thereunder and file periodic reports and
proxy statements with the SEC. The Bank will become a wholly owned subsidiary of
the Company and will continue to carry on its business and activities as
conducted immediately prior to the Conversion.
The stockholders of the Company will be those persons who purchase shares
of Common Stock in the Offering. Nontransferable rights to subscribe for the
Common Stock have been granted, in order of priority, to depositors of the Bank
who have account balances of $50.00 or more as of the close of business on July
31, 1998 ("Eligible Account Holders"), the Bank's tax qualified employee plans
("Employee Plans"), and directors, officers and employees of the Bank who do not
have a higher priority. Subscription rights are nontransferable. The Company
may also offer shares of Common Stock not subscribed for in the subscription
offering, if any, for sale in a community offering to certain members of the
general public.
<PAGE>
Boards of Directors
The Savings Bank of Manchester
Connecticut Bancshares, M.H.C.
Connecticut Bancshares, Inc
____________,1999
Page 4
Opinions
Based on the foregoing description of the MHC Merger and the Bank Merger,
and subject to the qualifications and limitations set forth in this letter, we
are of the opinion that:
1. The MHC Merger qualifies as a tax-free reorganization within the
meaning of Section 368(a) (1) (A) of the Code. (Section 368(a) (1) (A) of the
Code.)
2. The exchange of the members equity interests in the Mutual Holding
Company for interests in a liquidation account established at the Bank in the
MHC Merger will satisfy the continuity of interest requirement of Section 1.368-
1(b) of the Income Tax Regulations (cf. Rev. Rul. 69-3, 1969-1 C.B. 103, and
Rev. Rul. 69-646, 1969-2 C.B. 54)
3. The Mutual Holding Company will not recognize any gain or loss on the
transfer of its assets to the Bank in exchange for an interest in a liquidation
account established in the Bank for the benefit of the Mutual Holding Company's
members who remain depositors of the Bank. (Section 361 of the Code.)
4. No gain or loss will be recognized by the Bank upon the receipt of the
assets of the Mutual Holding Company in the MHC Merger in exchange for the
transfer to the members of the Mutual Holding Company of an interest in the
liquidation account. (Section 1032(a) of the Code.)
5. The basis of the assets of Mutual Holding Company to be received by
the Bank will be the same as the basis of such assets in the hands of the Mutual
Holding Company immediately prior to the transfer. (Section 362(b) of the Code.)
6. The holding period of the assets of the Mutual Holding Company to be
received by the Bank will include the holding period of those assets in the
hands of the Mutual Holding Company. (Section 1223(2) of the Code.)
7. Mutual Holding Company members will recognize no gain or loss upon the
receipt of an interest in the liquidation account in the Bank for their
membership interest in the Mutual Holding Company. (Section 354(a) of the Code.)
<PAGE>
Boards of Directors
The Savings Bank of Manchester
Connecticut Bancshares, M.H.C.
Connecticut Bancshares, Inc
_______________,1999
Page 5
In addition, we are of the opinion that, based on the foregoing:
8. The Bank Merger qualifies as a reorganization within the meaning of
Section 368(a) (1) (A) of the Code, pursuant to Section 368(a)(2)(E) of the
Code. For these purposes, each of the Bank, the Company and Interim Savings Bank
are a party to the reorganization within the meaning of Section 368(b) of the
Code.
9. Interests in the liquidation account established at the Bank, and the
shares of Bank Common stock held by the Mutual Holding Company prior to
consummation of the MHC Merger, will be disregarded for the purpose of
determining that an amount of stock in the Bank which constitutes "control" of
such corporation was acquired by the Company in exchange for shares of common
stock of the Company pursuant to the Bank Merger. (Code Section 368 (c))
10. Interim Savings Bank will not recognize any gain or loss on the
transfer of its assets to Bank in exchange for Bank Common Stock and the
assumption by Bank of the liabilities, if any, of Interim Savings Bank. (Section
361(a) and 357(a) of the Code.)
11. Bank will not recognize any gain or loss on the receipt of the assets
of Interim Savings Bank in exchange for Bank Common Stock. (Section 1032(a) of
the Code.)
12. Bank's basis in the assets received from Interim Savings Bank in the
proposed transaction will, in each case, be the same as the basis of such assets
in the hands of Interim Savings Bank immediately prior to the transaction.
(Section 362(b) of the Code.)
13. Bank's holding period for the assets received from Interim Savings
Bank in the proposed transaction will, in each instance, include the period
during which such assets were held by Interim Savings Bank. (Section 1223(2) of
the Code.)
14. The Company will not recognize any gain or loss upon its receipt of
Bank Common Stock in exchange for Interim Savings Bank stock. (Section 354(a) of
the Code.)
15. No gain or loss will be recognized by Eligible Account Holders upon
distribution to them of subscription rights to purchase shares of Common Stock,
provided that the amount to be paid for the Common Stock is equal to the fair
market value of the Common Stock.
We hereby consent to the filing of the opinion as an exhibit to the
Application filed with the Department and to the Company's Registration
Statement on Form S-l as filed with the SEC.
<PAGE>
Boards of Directors
The Savings Bank of Manchester
Connecticut Bancshares, M.H.C.
Connecticut Bancshares, Inc
______________,1999
Page 6
We also consent to the references to our firm in the Prospectus contained in the
Application and S-l under the captions "The Conversion--Tax Aspects" and "Legal
Opinions."
Very truly yours,
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.2
Arthur Andersen LLP Letterhead
Preliminary and Tentative
****DRAFT ****
Exhibit 8.2
---Form of State Income Tax Opinion---
November ___, 1999
Boards of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
923 Main Street
Manchester, CT 06040
Dear Board Members:
You have requested from Arthur Andersen LLP an opinion regarding the Connecticut
Corporation Business Tax and Delaware Corporate Income Tax consequences to
Connecticut Bankshares, M.H.C. ("Mutual Holding Company"), The Savings Bank of
Manchester ("Bank"), an interim Connecticut-chartered savings bank ("Interim
Savings Bank"), a newly formed stock holding company ("Holding Company"); and
the Personal Income Tax Consequences to the "Eligible Account Holders" (as
defined below) of Bank resulting from the proposed conversion and reorganization
of the existing mutual holding company structure to a stock holding company
structure, as effectuated pursuant to the proposed transactions described below.
In preparing this opinion, we have relied upon certain facts presented in the
Plan of Conversion dated _______, 1999 as well as the facts and representations
shown below, under "Statement of Facts" and "Representations". We have also
relied on the facts and representations made to Muldoon, Murphy & Faucette LLP,
Bank's legal counsel, and their "Federal Income Tax Opinion," dated _______,
1999, summarized, in part, below. We have assumed that these facts and
representations are complete and accurate and have not independently audited or
otherwise verified any of the facts or representations. If any fact or
representation contained herein or to Bank's legal counsel is not true, correct,
and complete in all material respects, our opinion could change.
Our opinions are based on our interpretation of existing state tax law under the
Connecticut General Statutes and Delaware Tax Law, and related Income Tax
Regulations, Judicial Decisions, and Administrative Releases thereunder as of
the date of this letter. Any changes to these authorities may be retroactive and
could significantly modify our opinions expressed. Furthermore, any change in
applicable federal income tax law that effects the opinion expressed by Muldoon,
Murphy & Faucette LLP could change our opinion. We have no responsibility to
update this opinion for any such changes occurring after the date of this
opinion letter.
The opinions expressed herein are not binding on the Connecticut Department of
Revenue Services or the Delaware Division of Revenue and there can be no
assurance that these tax administrative bodies will not take a position contrary
to any of the opinions expressed herein.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 2
November ___,1999
The opinion expressed herein is rendered only with respect to the opinion
requested and no opinion is expressed with respect to any other legal, federal,
state or local tax aspect of the Plan of Conversion. Our opinion is expressed
under the heading "STATE INCOME TAX OPINION". This opinion is as of the date
of this letter and we have no responsibility to update this opinion for events,
transactions, circumstances or changes in any of the facts or representations
occurring after this date.
Statement of Facts/1/
Conversion
Bank, headquartered in Manchester, Connecticut is a Connecticut-chartered stock
savings bank, which operates as a wholly owned subsidiary of Mutual Holding
Company, a Connecticut-chartered mutual holding company. In July, 1996, Bank
reorganized into the mutual holding company form of organization and as a result
became a wholly owned subsidiary of Mutual Holding Company.
Subsequently, on August 30, 1999, Mutual Holding Company adopted a Plan of
Conversion (which was amended October 6, 1999 and October 26, 1999) providing
for the conversion of Mutual Holding Company into the capital stock form of
organization.
Two integrated transactions referred to as the "MHC Merger" and the "Bank
Merger" are being undertaken to effectuate the Conversion. As a result of the
MHC Merger and the Bank Merger, Bank will become a wholly owned subsidiary of
Holding Company. Holding Company will issue prioritized non-transferable
subscription rights to certain persons, without payment, to purchase Holding
Company common stock ("Conversion Stock"). Holding Company may also offer
Conversion Stock shares not subscribed for, if any, for sale to the general
public.
The Conversion will be effected in the following steps, each of which will be
completed contemporaneously:
(i) Bank will establish a first-tier Delaware chartered stock holding company
subsidiary, Connecticut Bancshares, Inc. ("Holding Company");
(ii) Holding Company will charter an interim Connecticut-chartered savings bank
("Interim Savings Bank");
_________________________
/1/ Capitalized terms used herein are defined in the Plan of Conversion, unless
otherwise defined.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 3
November ____,1999
(iii) Mutual Holding Company will convert to an interim Connecticut-chartered
bank and merge with and into Bank and shares of Bank common stock held by
Mutual Holding Company will be canceled ("the MHC Merger"); Each member
of Mutual Holding Company will receive an interest in a Liquidation
Account established at Bank in exchange for such member's interest in
Mutual Holding Company;
(iv) Contemporaneously with the MHC Merger, Interim Savings Bank will merge
with and into Bank, with Bank being the surviving entity ("the Bank
Merger");
(v) Contemporaneously with the Bank Merger, Holding Company will sell Holding
Company common stock ("Conversion Stock").
Capitalization
The Holding Company will authorize ________ million shares of Conversion Stock
(i.e., common stock), with a par value of $_____ per share. It is estimated that
the Holding Company will initially issue between _____ and ______ of its
authorized shares of common stock.
Priority of Subscription Rights and Conversion Stock
The Plan of Conversion provides for the issuance of non-transferable
subscription rights, without payment, to purchase the Conversion Stock of
Holding Company to the following in order of priority:
1. Eligible Account Holders: Each Eligible Account Holder (depositors whose
- ----------------------------
Deposit Account in Bank total $50 or more as of the close of business on July
----
31, 1998) receives non-transferable subscription rights to purchase up to a
- --------
maximum $______ worth of Conversion Stock, so long as the share equivalent of
such dollar amount does not exceed ___% of the total number of shares of
Conversion Stock offered for sale in the Conversion.
2. Tax-Qualified Employee Stock Benefit Plan: The Tax-Qualified Employee Stock
- ---------------------------------------------
Benefit Plan receives non-transferable subscription rights to purchase up to
___% of the shares of Conversion Stock offered for sale in the Conversion.
3. Directors, Officers and Employees: Directors, officers and employees of
- -------------------------------------
Bank, who do not have a higher priority, receive non-transferable subscription
rights to purchase shares of common stock in an amount equal to $______ of
Conversion Stock offered for sale in the
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 4
November ____,1999
Conversion, so long as the share equivalent of such dollar amount does not
exceed ___% of the total number of shares of Conversion Stock offered for sale
in the Conversion.
Holding Company will offer its shares of common stock unsubscribed for in the
above Subscription Offering (Categories 1-3) for sale to the general public
through a Direct Community Offering or, if necessary, in a Syndicated Community
Offering or public offering, with preference given to natural persons residing
in the Bank's Local Community.
Independent Appraisals of Subscription Rights and Conversion Stock
An independent appraisal of the subscription rights, issued on ______, 1999 by
RP Financial , opines that the subscription rights have no value. An
Independent Appraiser will provide an independent valuation of the estimated
pro-forma market value of the Conversion Stock to be issued in the Conversion
which will be used as the basis for determining the Conversion Stock price.
Representations
In the preparation of this opinion, Arthur Andersen LLP has relied on the
following representations, and has not verified the accuracy of them.
a) Mutual Holding Company is a Connecticut-chartered mutual holding company;
Bank is a Connecticut-chartered stock savings bank; and Holding Company is a
stock holding company, registered as a savings and loan holding company,
organized under the laws of the state of Delaware; none of which maintain a
physical presence or conduct business in Delaware.
b) Mutual Holding Company, Bank and Holding Company are corporations within the
meaning of Sec. 7701(a)(3) of the Internal Revenue Code.
c) Mutual Holding Company and Bank have elected to be included in a Connecticut
Combined Corporation Business Tax Return.
d) The Combined Connecticut Corporation Tax Group currently does not have a net
operating loss for Connecticut Corporation Business Tax purposes, and has no
such losses available for carryover to future tax years.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 5
November ____,1999
e) Bank is not insolvent and is not under the jurisdiction of a bankruptcy or
similar court in any Title 11 or similar case within the meaning of Sec.
368(a)(3)(A) of the Internal Revenue Code, receivership, foreclosure, or
similar proceeding in a federal or state court.
f) Upon the completion of the Conversion, Holding Company will own and hold
100% of the issued and outstanding capital stock (i.e., common stock) of
Bank and no other shares of capital stock of Bank will be issued and/or
outstanding. At the time of the Conversion, 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 Bank will be issued and/or
outstanding.
g) Upon the completion of the Conversion, there will be no rights, warrants,
contracts, agreements, commitments or understandings with respect to the
capital stock of Bank, nor will there be any securities outstanding which
are convertible into the capital stock of Bank.
h) Immediately after the Conversion, the assets and liabilities of Bank will be
identical to the assets and liabilities of Bank immediately prior to the
Conversion.
i) After the Conversion, Bank will continue the business of Bank in the same
manner as prior to the Conversion.
j) Holding Company and Bank have no current plan or intention to redeem or
otherwise acquire any of the common stock issued in the Conversion
transaction.
k) Holding Company has no plan or intention to sell, liquidate or otherwise
dispose of the stock of Bank other than in the ordinary course of business.
l) Bank has no plan or intention and Holding Company has no plan or intention
to cause Bank to sell its assets other than in the ordinary course of
business.
m) There is no plan or intention for Bank to be liquidated or merged with
another corporation following this proposed transaction.
_____
n) As determined by an independent appraisal, non-transferable subscription
rights used to purchase shares of common stock in Holding Company have no
value.
o) The exercise price of the subscription rights received by Bank's Eligible
Account Holders and other holders of subscription rights to purchase Holding
Company common stock will
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 6
November ____,1999
be equal to the fair market value of the stock of Holding Company at the
time of the completion of the Conversion as determined by an independent
appraisal.
p) None of the shares of the common stock to be purchased by depositor-
employees of Bank in the Conversion will be issued or acquired at a
discount. However, shares may be given to certain employees as compensation
by means of Tax-Qualified Employee Stock Benefit Plans. Compensation will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
q) Holding Company shareholders will pay the expenses of the Conversion solely
applicable to them, if any. Mutual Holding Company, Bank, and Holding
Company will each pay expenses of the transaction attributable to them and
will not pay any expenses solely attributable to Holding Company
shareholders.
r) No cash or property will be given to Eligible Account Holders or others in
lieu of nontransferable subscription rights.
_____
s) Bank's legal counsel, Muldoon, Murphy & Faucette LLP, opines that for
federal income tax purposes the Conversion will constitute a tax-free
reorganization and no gain or loss will be recognized by Mutual Holding
Company, Bank, Interim Savings Bank, and Holding Company.
t) Bank's legal counsel, Muldoon, Murphy & Faucette LLP, opines that for
federal income tax purposes, no gain or loss will be recognized by Eligible
Account Holders of Bank upon the distribution to them of nontransferable
subscription rights to purchase shares of common stock in Holding Company,
provided that the amount to be paid for Conversion Stock (i.e., common
stock) is equal to the fair market value of the Conversion Stock.
Federal Income Tax Opinion
In preparation of this opinion, Arthur Andersen LLP has relied on the federal
income tax opinion issued by, Muldoon, Murphy & Faucette LLP with respect to the
recognition of gain or loss to the parties of the Conversion. Muldoon, Murphy
& Faucette LLP has issued the following opinions, dated ______, 1999, with
respect to the federal income taxability:
MHC Merger:
- -----------
. The MHC Merger qualifies as a tax-free organization within the meaning of
Sec. 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended ("IRC").
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 7
November ____,1999
. Mutual Holding Company will not recognize any gain or loss on the transfer of
its assets to Bank in exchange for an interest in a Liquidation Account
established in Bank for the benefit of Mutual Holding Company's members who
remain depositors of Bank (IRC Sec. 361).
. Bank will not recognize gain or loss upon the receipt of the assets of Mutual
Holding Company in the MHC Merger in exchange for the transfer to the members
of Mutual Holding Company of an interest in the Liquidation Account (IRC
Sec. 1032(a)).
. Mutual Holding Company members will not recognize gain or loss upon the
receipt of an interest in the Liquidation Account in Bank for their
membership interest in Mutual Holding Company (IRC Sec. 354(a)).
Bank Merger:
- ------------
. The Bank Merger qualifies as a tax-free reorganization within the meaning of
IRC Sec. 368(a)(1)(A), pursuant to IRC Sec. 368(a)(2)(E).
. Interim Savings Bank will not recognize gain or loss on the transfer of its
assets to Bank in exchange for Bank common stock and the assumption by Bank
of liabilities, if any, of Interim Savings Bank (IRC Sec. 361(a) and
Sec. 357(a)).
. Bank will not recognize any gain or loss on the receipt of the assets of
Interim Savings Bank in exchange for Bank common stock (IRC Sec. 1032(a)).
. Holding Company will not recognize gain or loss up its receipt of Bank common
stock in exchange for Interim Savings Bank stock (IRC Sec. 354(a)).
Issuance of Subscription Rights:
- --------------------------------
. Eligible Account Holders will not recognize gain or loss upon distribution to
them of subscription rights to purchase shares of Conversion Stock, provided
that the amount paid for the Conversion Stock is equal to the fair market
value of the Conversion Stock.
STATE INCOME TAX OPINION
Connecticut Corporation Business Tax:
- -------------------------------------
Based solely on the Statement of Facts, Representations, and State Tax
Discussion (re: Connecticut Corporation Business Tax) as set forth in this
opinion letter and the federal income tax
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 8
November ____,1999
opinion of Muldoon, Murphy & Faucette LLP that for federal income tax purposes
no gain or loss will be recognized in the proposed Conversion by Mutual Holding
Company, Bank, Interim Savings Bank and Holding Company, it is the opinion of
Arthur Andersen LLP that it is more likely than not that:
. Mutual Holding Company, Bank, Interim Savings Bank and Holding Company will
not recognize gain or loss for Connecticut Corporation Business Tax purposes.
Delaware Corporate Income Tax:
- ------------------------------
Based solely on the Statement of Facts, Representations, and State Tax
Discussion (re: Delaware Corporate Income Tax) as set forth in this opinion
letter and the federal income tax opinion of Muldoon, Murphy and Faucette LLP,
it is the opinion of Arthur Andersen LLP that for Delaware Corporate Income Tax
purposes it is more likely than not that:
. Mutual Holding Company, Bank and Interim Savings Bank will not be subject to
Delaware corporate income taxation.
. Holding Company will not be subject to Delaware corporate income tax if it
only maintains a "statutory corporate office" in Delaware and does not
maintain any physical presence in Delaware or conduct any business within
Delaware.
Connecticut Personal Income Tax:
- ---------------------------------
Based solely on the Statement of Facts, Representations, and State Tax
Discussion (re: Connecticut Personnel Income Tax) set forth in this opinion
letter and the federal income tax opinion of Muldoon, Murphy & Faucette LLP, it
is the opinion of Arthur Andersen LLP that for Connecticut Personal Income Tax
purposes it is more likely than not that:
. Mutual Holding Company members will not recognize gain or loss upon the
receipt of an interest in the Liquidation Account in Bank for their
membership interest in Mutual Holding Company.
. Eligible Account Holders will not recognize gain or loss upon distribution to
them of subscription rights to purchase shares of Conversion Stock, provided
that the amount paid for the Conversion Stock is equal to the fair market
value of the Conversion Stock.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 9
November ____,1999
State Tax Discussion
Connecticut Corporation Business Tax:
- -------------------------------------
Connecticut Corporation Business Tax is imposed on every mutual savings bank,
savings and loan association, and every other company carrying on, or having the
right to carry on, business in Connecticut, including a dissolved corporation
which continues to conduct business. Conn. Gen. Stat. Sec. 12-214(a)(1). Certain
entities are specifically excluded from the tax but neither Mutual Holding
Company, Bank or Holding Company are exempt from Corporation Business Tax under
the exceptions listed in Conn. Gen. Stat. Sec. 12-214(a)(2) and Conn. Agencies
Regs. Sec. 12-214-2.
Every corporation, unless otherwise exempt, must separately compute its tax
liability under two corporation business tax bases, a net income base and an
minimum tax on capital base, and pay the larger of the two. Corporations,
including "financial service companies," are subject to the net income portion
of the corporation business tax under Conn. Gen. Stat. Sec. 12-214(a)(1) while
"financial service companies" are exempt from the minimum tax on capital
(effective for income years beginning on or after January 1, 1999) under Conn.
Gen. Stat. Secs. 12-218b(6) and 12-219(c). Mutual Holding Company, Bank and
Holding Company come within the definition of "financial services company" and
are therefore exempt from the minimum tax on capital.
In general, the starting point for determining Connecticut taxable income is
federal taxable income before the federal net operating loss deduction and
special deductions. Specifically, the computation of Connecticut taxable income
begins with federal gross income less items deductible for federal tax purposes
(i.e., gross income and items deductible under the Internal Revenue Code of
1986, or any subsequent internal revenue code of the United States, as from time
to time amended, effective and in force on the last day of the income year), to
which are added or subtracted certain income and deduction items. Conn. Gen.
Stat. Secs. 12-213(a)(9)(A), 12-213(a)(10), 12-213(a)(23) and 12-217.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 10
November ____,1999
Differences between federal and Connecticut tax law that result in an increase
--------
in Connecticut taxable income relative to federal taxable income (before net
operating loss and special deductions) include:
. Interest or exempt interest dividends as defined in IRC Sec. 852(b)(5).
Conn. Gen. Stat. Sec. 12-213(a)(9)(A).
. Federally exempt interest including interest paid on federal, state and local
securities including Connecticut and its political subdivisions. Conn. Gen.
Stats. Secs. 12-213(a)(9)(A) and 12-217(a)(2).
. Losses from prior years which were excluded in calculating federal taxable
income. Conn. Gen. Stats. Secs. 12-213(a)(9)(A) and 12-217(a)(2).
. State taxes imposed on or measured by the income or profits of a corporation
which are paid or accrued in the income year. Conn. Gen. Stat. Sec. 12-
217(a)(1)(A)(i).
. Income attributable to the recovery of a bad debt deducted in any prior year,
unless the bad debt has already been charged to a reserve account pursuant to
a provision of the Internal Revenue Code. Conn. Agencies Regs. Sec. 12-242-3.
. Federal taxes on income or profits if allowed as a deduction for federal
income tax purposes. Conn. Gen. Stat. Sec. 12-217(a)(2)(B).
. Interest expenses and costs and intangible expenses and costs directly or
indirectly connected with one or more related members of the corporation.
1998 Conn. Acts 110 Sec. 20.
Differences between federal and Connecticut tax law that result in a decrease in
--------
Connecticut taxable income relative to federal taxable income (before net
operating loss and special deductions) include:
. Any amount for federal income tax purposes that is treated as a dividend
received under IRC Sec. 78. Conn. Gen. Stat. Sec. 12-213(a)(9)(B).
. Any amount for federal income tax purposes that is treated as a dividend
received from a passive investment company. Conn. Gen. Stat. Sec. 12-
213(a)(9)(C).
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 11
November ____,1999
. All dividends (other than certain REIT dividends) not otherwise deducted from
federal taxable income (subject to certain percentage limitations) less
expenses related to such dividends. Conn. Gen. Stats. Secs. 12-217(a)(1)(D),
12-217(a)(3), and 12-217(a)(2)(A).
. Value of any capital gain realized from the sale of certain open space land.
Conn. Gen. Stat. Sec.12-217(a)(1)(E).
. Connecticut net operating loss deduction. Conn. Gen. Stat. Sec. 12-
217(a)(4)(A).
. Net Capital loss deductions. Conn. Gen. Stat. Sec. 12-217(a)(4)(B).
In establishing a starting point for the calculation of Connecticut taxable net
income, Connecticut begins with federal taxable income and makes no provisions
for adjustments with respect to the proposed Conversion. Therefore, no
Connecticut taxable income is recognized.
Delaware Corporate Income Tax:
- ------------------------------
Neither Mutual Holding Company, Bank nor Interim Savings Bank is incorporated,
conducting business, or have a physical presence in the State of Delaware.
Accordingly, no Delaware corporate income tax will arise to Mutual Holding
Company, Bank or Interim Savings Bank as a result of the Conversion.
Holding Company will be incorporated and organized under the laws of the State
of Delaware and own all of Bank's capital stock to be issued. Holding Company
will not maintain any physical presence in or conduct any business in the State
of Delaware. Delaware Tax Law, Title 30, Sec. 1902(b)(6) exempts an entity from
Delaware corporation income tax if the corporation maintains a "statutory
corporate office" in Delaware but is not doing business in Delaware. Thus, if
Holding Company has no physical presence in Delaware and derives no income from
Delaware activities, it is exempt from Delaware corporate income taxation.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 12
November ____,1999
Connecticut Personal Income Tax:
- --------------------------------
Individuals are subject to personal income taxation based upon their Connecticut
adjusted gross income. The starting point of Connecticut adjusted gross income
is federal adjusted gross income. Conn. Gen. Stat. Secs. 12-701(a)(8) and (19).
Certain modifications are made to federal adjusted gross income to derive
Connecticut adjusted gross income. Conn. Gen. Stat. Secs. 12-701(a)(20) and
Conn. Agencies Regs. Secs. 12-701(a)(20)-1, -2, and -3.
Modifications that increase Connecticut adjusted gross income relative to
--------
federal adjusted gross income include:
. Interest on state and municipal obligations exclusive of obligations issued
by Connecticut or its subdivisions, to the extent not includable in federal
gross income. Conn. Gen. Stat. Sec. 12-701(a)(20)(A)(i).
. Exempt-interest dividends, as defined in IRC Sec. 852(b)(5), exclusive of
those derived from obligations issued by Connecticut or its subdivisions or
derived from obligations that Connecticut is prohibited by federal law from
taxing. Conn. Gen. Stat. Sec. 12-701(a)(20)(A)(ii).
. Interest and dividends from federal obligations exempt from federal income
tax but not state income tax. Conn. Gen. Stat. Sec. 12-701(a)(20)(A)(iii).
. With respect to a natural person who is a shareholder of an S corporation,
the individual's applicable percentage apportioned pro-rata share of such
corporation's non-separately stated items of loss. Conn. Gen. Stat. Sec. 12-
701(a)(20)(B)(v).
. Certain lump sum distributions. Conn. Gen. Stat. Sec. 12-701(a)(20)(A)(iv).
. Losses from the sale or other dispositions of obligations issued by
Connecticut or its subsdivisions. Conn. Gen. Stat. Sec. 12-701(20)(a)(A)(v).
. Income taxes imposed by Connecticut, to the extent deductible in determining
federal adjusted gross income. Conn. Gen. Stat. Sec. 12-701(a)(20)(A)(vi).
. Interest on indebtedness incurred or continued to purchase or carry
obligations or securities the interest on which is exempt from Connecticut
taxation. Conn. Gen. Stat. Sec. 12-701(a)(20)(A)(vii).
. Expenses paid for the production, collection, conservation and maintenance of
income and property which is exempt from Connecticut taxation and amortizable
bond premium on bonds that are exempt from Connecticut income taxation. Conn.
Gen. Stat. Sec. 12-701(a)(20)(A)(viii).
. Beneficiary's share of Connecticut fiduciary adjustment. Conn. Gen. Stat.
Sec. 12-701(a)(10).
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 13
November ____,1999
Modifications that decrease Connecticut adjusted gross income relative to
--------
federal adjusted gross income include:
. Income with respect to which taxation by any state is prohibited by federal
law such as interest of United States government obligations. Conn. Gen.
Stat. Sec. 12-701(a)(20)(B)(i).
. Certain exempt dividends paid by a regulated investment company. Conn. Gen.
Stat. Sec. 12-701(a)(20)(B)(ii).
. The amount of any refund or credit for overpayment of income taxes imposed by
Connecticut of any other state of the United States or political subdivision
thereof or the District of Columbia or any province of Canada, to the extent
properly includable in gross income for federal purposes. Conn. Gen. Stat.
Sec. 12-701(a)(20)(B)(iii).
. Railroad retirement benefits to the extent properly includable in federal
gross income. Conn. Gen. Stat. Sec. 12-701(a)(20)(B)(iv).
. With respect to a natural person who is a shareholder of an S corporation,
the individual's applicable percentage apportioned pro-rata share of such
corporation's non-separately stated items of income. Conn. Gen. Stat. Sec.
12-701(a)(20)(B)(v).
. Interest income derived from federally taxable Connecticut obligations.
Conn. Gen. Stat. Sec. 12-701(a)(20)(B)(vi).
. Gain from the sale or exchange of Connecticut government obligations, to the
extent includable in determining federal net gain or loss. Conn. Gen. Stat.
Sec. 12-701(a)(20)(B)(vii).
. Interest incurred to buy or carry any obligation or securities, interest
income on which is exempt from federal income tax but subject to Connecticut
income tax. Conn. Gen. Stat. Sec. 12-(a)(20)(B)(viii).
. Ordinary and necessary expenses paid or incurred during the taxable year for
the production or collection of income that is exempt from federal income tax
but subject to Connecticut tax or the management, conservation or maintenance
of property held for the production of such income and the amortizable bond
premium on any bond the interest which is subject to Connecticut taxation.
Conn. Gen. Stat. Sec. 12-701(a)(20)(B)(ix).
. Certain amounts of Social Security benefits. Conn. Gen. Stat. Sec. 12-
701(a)(20)(B)(x).
. Amount rebated to taxpayers for property tax paid on a primary residence or
motor vehicle. Conn. Gen. Stat. Sec. 12-701(a)(20)(B)(xi).
. Distributions from a Connecticut administered qualified state tuition program
as defined in IRC Sec. 529(b), to the extent includable in federal income.
Conn. Gen. Stat. Sec. 12-701(a)(20)(B)(xii).
. Beneficiary's share of Connecticut fiduciary adjustment. Conn. Gen. Stat.
Sec. 12-701(a)(10).
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 14
November ____,1999
In establishing a starting point for the calculation of Connecticut taxable
income, Connecticut begins with federal adjusted gross income and makes no
provisions for modifications with respect to the proposed Conversion. Therefore,
no Connecticut taxable income is recognized.
<PAGE>
Board of Directors
The Savings Bank of Manchester
Connecticut Bankshares, M.H.C.
Connecticut Bancshares, Inc.
Page 15
November ____,1999
*****
We hereby consent to the filing of the opinion as an exhibit to the application
("Application") filed with the Connecticut Department of Banking and to
Connecticut Bancshares, Inc.'s Registration Statement on Form S-1 as filed with
the Security and Exchange Commission. We also consent to reference to our firm
in the Prospectus contained in the Application and Form S-1 under the caption
"The Conversion - Tax Aspects."
Very truly yours,
ARTHUR ANDERSEN LLP
<PAGE>
[CONNECTICUT BANCSHARES, INC. LETTERHEAD]
EXHIBIT 10.3
______________,2000
The Savings Bank of Manchester
923 Main Street
Manchester, CT 06040
Dear Mr. _____________:
This letter confirms Connecticut Bancshares, Inc.'s commitment to fund a
leveraged ESOP in an amount sufficient to purchase 8% of the shares issued in
the conversion of Connecticut Bankshares, M.H.C. to a stock holding company (the
"Conversion"). The commitment is subject to the following terms and conditions:
1. Lender: Connecticut Bancshares, Inc. (the "Company").
------
2. Borrower: The Savings Bank of Manchester Employee Stock Ownership
--------
Plan.
3. Trustee: ______________
-------
4. Security: Unallocated shares of stock of the Company held in The
--------
Savings Bank of Manchester Employee Stock Ownership Plan Trust.
5. Maturity: Up to 15 years from takedown.
--------
6. Amortization: Equal quarterly principal and interest payments.
------------
7. Pricing:
-------
a. Lowest "prime rate" as published in the Wall Street Journal on
the date of the loan transaction.
<PAGE>
8. Interest Payments:
-----------------
a. Annual on a 365 day basis.
9. Prepayment: Voluntary prepayments are permitted at any time.
----------
10. 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 The Savings Bank of Manchester or 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
The Savings Bank of Manchester
By: _________________________________ Date: _____________________
<PAGE>
PROMISSORY NOTE
---------------
$_________________ _______,2000
PRINCIPAL
FOR VALUE RECEIVED, the undersigned, THE SAVINGS BANK OF MANCHESTER
EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("Borrower"), hereby promises to pay to the
order of CONNECTICUT BANCSHARES, INC. ("Lender")________________________ dollars
($___________) payable in accordance with the Loan Agreement made and entered
into between the Borrower and the Lender of even date herewith ("Loan
Agreement") pursuant to which this Promissory Note is issued.
The Principal Amount of this Promissory Note shall be payable in accordance
with the schedule attached hereto ("Schedule I").
This Promissory Note shall bear interest at the rate per annum set for or
established under the Loan Agreement, such interest to be payable in accordance
with Schedule I.
Anything herein to the contrary notwithstanding, the obligation of the
Borrower to make payments of interest shall be subject to the limitation that
payments of interest shall not be required to be made to the Lender to the
extent that the Lender's receipt thereof would not be permissible under the law
or laws applicable to the Lender limiting rates on interest which may be charged
or collected by the Lender. Any such payments on interest which are not made as
a result of the limitation referred to in the preceding sentence shall be made
by the Borrower to the Lender on the earliest interest payment date or dates on
which the receipt thereof would be permissible under the laws applicable to the
Lender limiting rates of interest which may be charges or collected by the
Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory Note are to be
made at the principal office of the Lender or such other place as the holder
hereof shall designate to the Borrower in writing, in lawful money of the United
States of America in immediately available funds.
Failure to make any payments of principal on this Promissory Note when due,
or failure to make any payment of interest on this Promissory Note not later
than five (5) Business Days after the date when due, shall constitute a default
hereunder, whereupon the principal amount of accrued interest on this Promissory
Note shall immediately become due and payable in accordance with the terms of
the Loan Agreement.
<PAGE>
This Promissory Note is secured by a Pledge Agreement between the Borrower
and the Lender of even date herewith and is entitled to the benefits thereof.
THE SAVINGS BANK OF MANCHESTER
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
____________________________________
__________________, as Trustee
2
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Loan Agreement") is made and entered in as of the __
day of___________, 2000, by and between THE SAVINGS BANK OF MANCHESTER EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Borrower"), a trust forming part of The Savings
Bank of Manchester Employee Stock Ownership Plan ("ESOP"); and Connecticut
Bancshares, Inc. ("Lender"), a corporation organized and existing under the
laws of the State of Delaware.
W I T N E S S E T H
WHEREAS, the Borrower is authorized to purchase shares of common stock of
Connecticut Bancshares, Inc. ("Common Stock"), either directly from Connecticut
Bancshares, Inc. or in open market purchases in an amount not to exceed
____________ shares of Common Stock.
WHEREAS, the Borrower is authorized to borrow funds from the Lender for the
purpose of financing authorized purchases of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower for such
purpose:
NOW, THEREFORE, the parties agree hereto as follows:
ARTICLE I
---------
DEFINITIONS
-----------
The following definitions shall apply for purposes of this Loan Agreement,
except to the extent that a different meaning is plainly indicated by the
context:
Business Day means any day other than a Saturday, Sunday or other day on
------------
which banks are authorized or required to close under federal or local law.
Code means the Internal Revenue Code of 1986 (including the corresponding
----
provisions of any succeeding law).
Default means an event or condition which would constitute an Event of
-------
Default. The determination as to whether an event or condition would constitute
an Event of Default shall be determined without regard to any applicable
requirements of notice or lapse of time.
ERISA means the Employee Retirement Income Security Act of 1974, as amended
-----
(including the corresponding provisions of any succeeding law).
Event of Default means an event or condition described in Article 5.
----------------
Loan means the loan described in section 2.1
----
<PAGE>
Loan Documents means, collectively, the Loan Agreement, the Promissory Note
--------------
and the Pledge Agreement and all other documents now or hereafter executed and
delivered in connection with such documents, including all amendments,
modifications and supplements of or to all such documents.
Pledge Agreement means the agreement described in section 2.8(a).
----------------
Principal Amount means the face amount of the Promissory Note, determined
----------------
as set forth in section 2.1(c).
Promissory Note means the promissory note described in section 2.3.
---------------
Register means the register described in section 2.9.
--------
ARTICLE II
----------
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
-----------------------------------
Section 2.1 The Loan; Principal Amount.
--------------------------
(a) The Lender hereby agrees to lend to the Borrower such amount, and at
such time, as shall be determined under this Section 2.1; provided, however,
that in no event shall the aggregate amount lent under this Loan Agreement from
time to time exceed the greater of (i) $_____________or (ii) the aggregate
amount paid by the Borrower to purchase up to___________ shares of Common Stock.
(b) Subject to the limitations of Section 2.1(a), the Borrower shall
determine the amounts borrowed under this Agreement, and the time at which such
borrowings are effected. Each such determination shall be evidenced in a
writing which shall set forth the amount to be borrowed and the date on which
the Lender shall disburse such amount, and such writing shall be furnished to
the Lender by notice from the Borrower. The Lender shall disburse to the
Borrower the amount specified in each such notice on the date specified therein
or, if later, as promptly as practicable following the Lender's receipt of such
notice; provided, however, that the Lender shall have no obligation to disburse
funds pursuant to this Agreement following the occurrence of a Default or an
Event of Default until such time as such Default or Event of Default shall have
been cured.
(c) For all purposes of this Loan Agreement, the Principal Amount on any
date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to section 2.1(b)
on or before such date; over
2
<PAGE>
(ii) the aggregate amount of any repayments of such amounts made before
such date.
The Lender shall maintain on the Register a record of, and shall record in the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
Section 2.2 Interest.
--------
(a) The Borrower shall pay to the Lender interest on the Principal Amount,
for the period commencing with the first disbursement of funds under this Loan
Agreement and continuing until the Principal Amount shall be paid in full, at
the rate of ______________ (______%) per annum. Interest payable under this
Agreement shall be computed on the basis of a year of 365 days and actual days
elapsed (including the first day but excluding the last) occurring during the
period to which the computation relates.
(b) Accrued interest on the Principal Amount shall be payable by the
Borrower on the dates set forth in Schedule I to the Promissory Note. All
interest on the Principal Amount shall be paid by the Borrower in immediately
available funds.
(c) Anything in the Loan Agreement or the Promissory Note to the contrary
notwithstanding, the obligation of the Borrower to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender.
Such deferred interest shall not bear interest.
Section 2.3 Promissory Note.
---------------
The Loan shall be evidenced by the Promissory Note of the Borrower attached
hereto as an exhibit payable to the order of the lender in the Principal Amount
and otherwise duly completed.
Section 2.4 Payment of Trust Loan.
---------------------
The Principal Amount of the Loan shall be repaid in accordance with
Schedule I to the Promissory Note on the dates specified therein until fully
paid.
3
<PAGE>
Section 2.5 Prepayment.
----------
The Borrower shall be entitled to prepay the Loan in whole or in part, at
any time and from time to time; provided, however, that the Borrower shall give
notice to the Lender of any such prepayment; and provided, further, that any
partial prepayment of the Loan shall be in an amount not less than $1,000. Any
such prepayment shall be: (a) permanent and irrevocable; (b) accompanied by all
accrued interest through the date of such prepayment; (c) made without premium
or penalty; and (d) applied on the inverse order of the maturity of the
installment thereof unless the Lender and the Borrower agree to apply such
prepayments in some other order.
Section 2.6 Method of Payments.
------------------
(a) All payments of principal, interest, other charges (including
indemnities) and other amounts payable by the Borrower hereunder shall be made
in lawful money of the United States, in immediately available funds, to the
Lender at the address specified in or pursuant to this Loan Agreement for
notices to the Lender, on the date on which such payment shall become due. Any
such payment made on such date but after such time shall, if the amount paid
bears interest, and except as expressly provided to the contrary herein, be
deemed to have been made on, and interest shall continue to accrue and be
payable thereon until, the next succeeding Business Day. If any payment of
principal or interest becomes due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, and when paid, such
payment shall include interest to the day on which payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this Loan
Agreement or the Promissory Note, the Borrower shall not be obligated to make
any payment, repayment or prepayment on the Promissory Note if doing so would
cause the ESOP to cease to be an employee stock ownership plan within the
meaning of section 4975(e)(7) of the Code or qualified under section 401(a) of
the Code or cause the Borrower to cease to be a tax exempt trust under section
501(a) of the Code or if such act or failure to act would cause the Borrower to
engage in any "prohibited transaction" as such term is defined in the section
4975(c) of the Code and the regulations promulgated thereunder which is not
exempted by section 4975(c)(2) or (d) of the Code and the regulations
promulgated thereunder or in section 406 of ERISA and the regulations
promulgated thereunder which is not exempted by section 408(b) of ERISA and the
regulations promulgated thereunder; provided, however, that in each case, the
Borrower, may act or refrain from acting pursuant to this section 2.6(b) on the
basis of an opinion of counsel, and any opinion of such counsel. The Borrower
may consult with counsel, and any opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such opinion of
counsel. Nothing contained in this section 2.6(b) shall be construed as
imposing a duty on the Borrower to consult with counsel. Any obligation of the
Borrower to make any payment, repayment or prepayment on the Promissory Note or
refrain from taking any other act hereunder or
4
<PAGE>
under the Promissory Note which is excused pursuant to this section 2.6(b) shall
be considered a binding obligation of the Borrower, or both, as the case may be,
for the purposes of determined whether a Default or Event of Default has
occurred hereunder or under the Promissory Note and nothing in this section
2.6(b) shall be construed as providing a defense to any remedies otherwise
available upon a Default or an Event of Default hereunder (other than the remedy
of specific performance).
Section 2.7 Use of Proceeds of Loan.
-----------------------
The entire proceeds of the Loan shall be used solely for acquiring shares
of Common Stock, and for no other purpose whatsoever.
Section 2.8 Security.
--------
(a) In order to secure the due payment and performance by the Borrower of
all of its obligations under this Loan Agreement, simultaneously with the
execution and delivery of this Loan Agreement by the Borrower, the Borrower
shall:
(i) pledge to the Lender as Collateral (as defined in the Pledge
Agreement), and grant to the Lender a first priority lien on and security
interest in, the Common Stock purchased with the Principal Amount, by the
execution and delivery to the lender of the Pledge Agreement attached
hereto as an exhibit; and
(ii) execute and deliver, or cause to be executed and delivered, such other
agreement, instruments and documents as the Lender may reasonable require
in order to effect the purposes of the Pledge Agreement and this Loan
Agreement.
(b) The Lender shall release from encumbrance under the Pledge Agreement
and transfer to the Borrower, as of the date on which any payment or repayment
of the Principal Amount is made, a number of shares of Common Stock held as
Collateral determined pursuant to the applicable provisions of the ESOP.
Section 2.9 Registration of the Promissory Note.
-----------------------------------
(a) The Lender shall maintain a Register providing for the registration of
the Principal Amount and any stated interest and of transfer and exchange of the
Promissory Note. Transfer of the Promissory Note may be effected only by the
surrender of the old instrument and either the reissuance by the Borrower of the
old instrument to the new holder or the issuance by the Borrower of a new
instrument to the new holder. The old Promissory Note so surrendered shall be
canceled by the Lender and returned to the Borrower after such cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a) shall carry
the same rights to interest (unpaid and to accrue) carried by the Promissory
Note so transferred or exchanged so that there will not be any loss or gain of
interest on the note surrender. Such new Promissory Note shall be subject to
all of the provisions and entitled to all of the benefits of this Agreement.
Prior to due presentment for registration or transfer, the Borrower may deem and
treat the registered holder of any Promissory Note as the holder thereof for
purposes of payment and other purposes. A notation shall be made on each new
Promissory Note of the amount of all payments of principal and interest
theretofore paid.
5
<PAGE>
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
----------------------------------------------
The Borrower hereby represents and warrants to the Lender as follows:
Section 3.1 Power, Authority, Consents.
--------------------------
The Borrower has the power to execute, deliver and perform this Loan
Agreement, the Promissory Note and Pledge Agreements, all of which have been
duly authorized by all necessary and proper corporate or other action.
Section 3.2 Due Execution, Validity, Enforceability.
---------------------------------------
Each of the Loan Documents, including, without limitation, this Loan
Agreement, the Promissory Note and the Pledge Agreement, have been duly executed
and delivered by the Borrower; and each constitutes the valid and legally
binding obligation of the Borrower, enforceable in accordance with its terms.
Section 3.3 Properties, Priority of Liens.
-----------------------------
The liens which have been created and granted by the Pledge Agreement
constitute valid, first liens on the properties and assets covered by the Pledge
Agreement, subject to no prior or equal lien.
Section 3.4 No Defaults, Compliance with Laws.
---------------------------------
The Borrower is not in default in any material respect under any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgement to
which it is an party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it is materially
affected.
Section 3.5 Purchase of Common Stock.
------------------------
Upon consummation of any purchase of Common Stock by the Borrower with the
proceeds of the Loan, the Borrower shall acquire valid, legal and marketable
title to all of the Common Stock so purchased, free and clear of any liens,
other than a pledge to the Lender of the Common Stock so purchased pursuant to
the Pledge Agreement. Neither the execution and delivery of the Loan Documents
nor the performance of any obligation thereunder violates any provisions of law
or conflicts with or results in a breach of or creates (with or without the
giving of notice of lapse of
6
<PAGE>
time, or both) a default under any agreement to which the Borrower is a party or
by which it is bound or any of its properties is affected. No consent of any
federal, state, or local governmental authority, agency, or other regulatory
body, the absence of which could have a materially adverse effect on the
Borrower or the Trustee, is or was required to be obtained in connection with
the execution, delivery, or performance of the Loan Documents and the
transaction contemplated therein or in connection therewith, including without
limitation, with respect to the transfer of the shares of Common Stock purchased
with the proceeds of the Loan pursuant thereto.
Section 3.6 ESOP; Contributions.
-------------------
As of the effective date of the ESOP sponsor's mutual-to-stock conversion,
the ESOP and the Borrower will be duly created, organized and maintained by the
ESOP sponsor in compliance with all applicable laws, regulations and rulings.
The ESOP will qualify as an "employee stock ownership plan" as defined in
section 4975(e)(7) of the Code. The ESOP provides that the ESOP sponsor may
make contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note; provided,
however, that no such contributions shall be required if they would adversely
affect the qualification of the ESOP under section 401(a) of the Code.
Section 3.7 Trustee.
-------
The trustees of the ESOP have been duly appointed by the ESOP sponsor.
Section 3.8 Compliance with Laws; Actions.
-----------------------------
Neither the execution and delivery by the Borrower of this Loan Agreement
or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Borrower is a party of which the Borrower is bound or to
which the Borrower is subject, which violation or event of default would have a
material adverse effect on the Borrower. There is no action or proceeding
pending or threatened against either the ESOP or the Borrower before any court
or administrative agency.
7
<PAGE>
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF THE LENDER
--------------------------------------------
The Lender hereby represents and warrants to the Borrower as follows:
Section 4.1 Power, Authority, Consents.
--------------------------
The Lender has the power to execute, deliver and perform this Loan
Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
Section 4.2 Due Execution, Validity, Enforceability.
---------------------------------------
This Loan Agreement and the Pledge Agreement have been duly executed and
delivered by the Lender, and each constitutes a valid and legally binding
obligation of the Lender, enforceable in accordance with its terms.
ARTICLE V
---------
EVENTS OF DEFAULT
-----------------
Section 5.1 Events of Default under Loan Agreement.
--------------------------------------
Each of the following events shall constitute an "Event of Default"
hereunder:
(a) Failure to make any payment or mandatory prepayment of principal of the
Promissory Note when due, or failure to make any payment of interest on the
Promissory Note not later than five (5) Business Days after the date when due.
(b) Failure by the Borrower to perform or observe any term, condition or
covenant of this Loan Agreement or of any of the other Loan Documents, including
without limitation, the Promissory Note and the Pledge Agreement.
(c) Any representation or warranty made in writing to the Lender in any of
the Loan Documents, or any certificate, statement or report made or delivered in
compliance with this Loan Agreement, shall have been false or misleading in any
material respect when made or delivered.
8
<PAGE>
Section 5.2 Lender's Rights upon Event of Default.
-------------------------------------
If an Event of Default under this Loan Agreement shall occur and be
continuing, the Lender shall have no rights to assets of the Borrower other
than: (a) contributions (other than contributions of Common Stock) that are made
by the ESOP sponsor to enable the Borrower to meet its obligations pursuant to
this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); provided, however, that; (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment schedule of the Loan; and (iii) all rights of the Lender to the
Common Stock purchased with the proceeds of the Loan covered by the Pledge
Agreement following an Event of Default shall be governed by the terms of the
Pledge Agreement.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
Section 6.1 Payments Due to the Lender.
--------------------------
If any amount is payable by the Borrower to the Lender pursuant to any
indemnity obligation contained herein, then the Borrower shall pay, at the time
or times provided therefor, any such amount and shall indemnify the Lender
against and hold it harmless from any loss of damage resulting from or arising
out of the nonpayment or delay in payment of any such amount. If any amounts as
to which the Borrower has so indemnified the Lender hereunder shall be assessed
or levied against the Lender, the Lender may notify the Borrower and make
immediate payment thereof, together with interest or penalties in connection
therewith, and shall thereupon be entitled to and shall receive immediate
reimbursement therefor from the Borrower together with interest on each such
amount as provided in section 2.2(c). Notwithstanding any other provision
contained in this Loan Agreement, the covenants and agreements of the Borrower
contained in this section 6.1 shall survive: (a) payment of the Promissory Note
and (b) termination of this Loan Agreement.
Section 6.2 Payments.
--------
All payments hereunder and under the Promissory Note shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Loan Agreement and the Promissory Note, subject to any
applicable tax withholding requirements. Upon payment in full of the Promissory
Note, the Lender shall mark such Promissory Note "Paid" and return it to the
Borrower.
9
<PAGE>
Section 6.3 Survival.
--------
All agreements, representations and warranties made herein shall survive
the delivery of this Loan Agreement and the Promissory Note.
Section 6.4 Modifications, Consents and Waivers; Entire Agreement.
-----------------------------------------------------
No modification, amendment or waiver of or with respect to any provision of
this Loan Agreement, the Promissory Note, the Pledge Agreement, or any of the
other Loan Documents, nor consent to any departure from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by the party against whom enforcement thereof is sought. Any
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.5 Remedies Cumulative.
-------------------
Each and every right granted to the Lender hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Lender or the holder of the Promissory Note to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor shall
any single or partial exercise of any right preclude any other or future
exercise thereof or the exercise of any other right. The due payment and
performance of the obligations under the Loan Documents shall be without regard
to any counterclaim, right of offset or any other claim whatsoever which the
Borrower may have against the Lender and without regard to any other obligation
of any nature whatsoever which the Lender may have to the Borrower, and no such
counterclaim or offset shall be asserted by the Borrower in any action, suit or
proceeding instituted by the Lender for payment or performance of such
obligations.
Section 6.6 Further Assurances; Compliance with Covenants.
---------------------------------------------
At any time and from time to time, upon the request of the Lender, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Lender may reasonably request in order to fully
effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
10
<PAGE>
Section 6.7 Notices.
-------
Except as otherwise specifically provided for herein, all notice, requests,
reports and other communications pursuant to this Loan Agreement shall be in
writing, either by letter (delivered by hand or commercial messenger service or
sent by registered or certified mail, return receipt requested, except for
routine reports delivered in compliance with Article VI hereof which may be sent
by ordinary first-class mail) or telex or telecopier addressed as follows:
(a) If to the Borrower:
The Savings Bank of Manchester Employee Stock Ownership Plan
c/o_________________, as trustee
(b) If to the Lender:
Connecticut Bancshares, Inc.
923 Main Street
Manchester, CT 06040
Attn: Richard P. Meduski
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or telecopier, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
Section 7.1 Counterparts.
------------
This Loan Agreement may be signed in any number of counterparts which, when
taken together, shall constitute one and the same document.
Section 7.2 Construction; Governing Law.
---------------------------
The headings used in the table of contents and in this Loan Agreement are
for convenience only and shall not be deemed to constitute a part hereof. All
uses herein of any gender or of singular or plural terms shall be deemed to
include uses of the other genders or plural or singular terms, as the context
may require. All references in this Loan Agreement of an Article or section
shall be to an Article or section of this Loan Agreement, unless otherwise
specified. This Loan Agreement, the Promissory Note, the Pledge Agreement and
the other Loan Documents shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Delaware.
11
<PAGE>
Section 7.3 Severability.
------------
Wherever possible, each provision of this Loan Agreement shall be
interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
of provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provisions in this Loan Agreement in and jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement
independent, and compliance by a party with any of them shall not excuse non-
compliance by such party with any other. The Borrower shall not take any action
the effect of which shall constitute a breach or violation of any provision of
this Loan Agreement.
Section 7.4 Binding Effect: No Assignment or Delegation.
-------------------------------------------
This Loan Agreement shall be binding upon and inure to the benefit of the
Borrower and its successors and the Lender and its successors and assigns. The
rights and obligations of the Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of the Lender, and any
purported assignment or delegation without such consent shall be void.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
executed as of the date first written above.
THE SAVINGS BANK OF MANCHESTER
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
____________________________________
_________________, as Trustee
CONNECTICUT BANCSHARES, INC.
By:__________________________
____________________
For the Entire Board of Directors
12
<PAGE>
PLEDGE AGREEMENT
----------------
THIS PLEDGE AGREEMENT ("Pledge Agreement") is made as of the ___ day
of___________, 2000, by and between THE SAVINGS BANK OF MANCHESTER EMPLOYEE
STOCK OWNERSHIP PLAN TRUST ("Pledgor"), and CONNECTICUT BANCSHARES, INC., a
corporation organized and existing under the laws of the State of Delaware
("Pledgee").
W I T N E S S E T H
WHEREAS, this Pledge Agreement is being executed and delivered to the
Pledgee pursuant to the terms of a Loan Agreement ("Loan Agreement"), by and
between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and in the Loan Agreement, the parties hereto do hereby covenant and agree as
follows:
Section 1. Definitions. The following definitions shall apply for
-----------
purposes of this Pledge Agreement, except to the extent that a different meaning
is plainly indicated by the context; all capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Loan
Agreement:
Collateral shall mean the Pledged Shares and, subject to section 5 hereof,
----------
and to the extent permitted by applicable law, all rights with respect thereto,
and all proceeds of such Pledged Shares and rights.
ESOP shall mean The Savings Bank of Manchester Employee Stock Ownership
----
Plan.
Event of Default shall mean an event so defined in the Loan Agreement.
----------------
Liabilities shall mean all the obligations of the Pledgor to the Pledgee,
-----------
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due, under the Loan
Agreement and the Promissory Note.
Pledged Shares shall mean all the Shares of Common Stock of the Pledgee
--------------
purchased by the Pledgor with the proceeds of the loan made by the Pledgee to
the Pledgor pursuant to the Loan Agreement, but excluding any such shares
previously released pursuant to section 4.
Section 2. Pledge. To secure the payment of and performance of all the
------
Liabilities, the Pledgor hereby pledges to the Pledgee, and the grants to the
Pledgee, a security interest in, and lien upon, the Collateral.
Section 3. Representations and Warranties of the Pledgor. The Pledgor
---------------------------------------------
represents, warrants, and covenants to the Pledgee as follows:
<PAGE>
(a) the execution, delivery and performance of this Pledge Agreement and
the pledging of the Collateral hereunder do not and will not conflict with,
result in a violation of, or constitute a default under, any agreement binding
upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by the Pledgor
free and clear of any liens or rights of any other person except the lien
hereunder and under the Loan Agreement in favor of the Pledgee, and the security
interest of the Pledgee in the Pledged Shares and the proceeds thereof is and
will continue to be prior to and senior to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and enforceable
obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the Pledgee,
promptly deliver to the Pledgee such stock powers, proxies, and similar
documents, satisfactory in form and substance to the Pledgee, with respect to
the Collateral as the Pledgee may reasonable request; and
(e) subject to the first sentence of section 4(b), the Pledgor shall not,
so long as any Liabilities are outstanding, sell, assign, exchange, pledge or
otherwise transfer or encumber any of its rights in and to any of the
Collateral.
Section 4. Eligible Collateral.
-------------------
(a) As used herein the term "Eligible Collateral" shall mean the amount of
Collateral which has an aggregate fair market value equal to the amount by which
the Pledgor is in default (without regard to any amounts owing solely as the
result of an acceleration of the Loan Agreement) or such lesser amount of
Collateral as may be required pursuant to section 13 of this Pledge Agreement.
(b) The Pledged Shares shall be released from this Pledge Agreement in a
manner conforming to the requirements of Treasury Regulations Section 54.4975-
7(b)(8), as the same may be from time to time amended or supplemented, and the
applicable provisions of the ESOP. Subject to such Regulations, the Pledgee may
from time to time, after any Default or Event of Default, and without prior
notice to the Pledgor, transfer all or any part of the Eligible Collateral in
the name of the Pledgee or its nominee, without disclosing that such Eligible
Collateral is subject to any rights of the Pledgor and may from time to time,
whether before or after any of the Liabilities shall become due and payable,
without notice to the Pledgor, take all or any of the following actions: (i)
notify the parties obligated on any of the Eligible Collateral to make payment
to the Pledgee of any amounts due or due to become due thereunder, (ii) release
or exchange all or any part of the Eligible Collateral, or compromise or extend
or renew for any period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto, and (iii) take
control of any proceeds of the Eligible Collateral.
2
<PAGE>
Section 5. Delivery.
--------
(a) The Pledgor shall deliver to the Pledgee upon execution of this Pledge
Agreement (i) either (A) certificates for the Pledged Shares, each certificate
duly signed in blank by the Pledgor or accompanied by a stock transfer power
duly signed in blank by the Pledgor and each such certificate accompanied by all
required documentary or stock transfer tax stamps or (B) if the Trustee does not
yet have possession of the Pledged Shares, an assignment by the Pledgor of all
the Pledgor's rights to and interest in the Pledged Shares and (ii) an
irrevocable proxy, in form and substance satisfactory to the Pledgee, signed by
the Pledgor with respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, (i) the Pledgor shall be entitled to exercise any and all voting and
other rights pertaining to the Collateral or any part thereof for any purpose
not inconsistent with the terms of this Pledge Agreement, and (ii) the Pledgor
shall be entitled to receive any and all cash dividends or other distributions
paid in respect of the Collateral.
Section 6. Events of Default.
-----------------
(a) If a Default or Event Default shall be existing, in addition to the
rights it may have under the Loan Agreement, the Promissory Note, and this
Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee may
exercise, with respect to the Eligible Collateral, from time to time, any rights
and remedies available to it under the Uniform Commercial Code as in effect from
time to time in the State of Delaware or otherwise available to it and (ii) the
Pledgee shall have the right, for and in the name, place and stead of the
Pledgor, to execute endorsement, assignments, stock powers and other instruments
of conveyance or transfer with respect to all or any of the Eligible Collateral.
Written notification of intended disposition of any of the Eligible Collateral
shall be given by the Pledgee to the Pledgor at least three (3) Business Days
before such disposition. Subject to section 13 below, any proceeds of any
disposition of Eligible Collateral may be applied by the Pledgee to the payment
of expenses in connection with the Eligible Collateral, including, without
limitation, reasonable attorneys's fees and legal expenses, and any balance of
such proceeds may be applied by the Pledgee toward the payment of such of the
Liabilities as are in Default, and in such order of application, as the Pledgee
may from time to time elect. No action of the Pledgee permitted hereunder shall
impair or affect its rights in and to the Eligible Collateral. All rights and
remedies of the Pledgee expressed hereunder are in addition to all other rights
and remedies possessed by it, including, without limitation, those contained in
the documents referred to in the definition of Liability in section 1 hereof.
(b) In any sale of any of the Eligible Collateral after a Default or an
Event of Default shall have occurred, the Pledgee is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid violation of applicable law
(including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers or further restrict such
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing for their own account
3
<PAGE>
for investment and not with a view to the distribution or resale of such
Eligible Collateral), or in order to obtain such required approval of the sale
or of the purchase by any governmental regulatory authority or official, and the
Pledgor further agrees that such compliance shall not result in such sale's
being considered or deemed not to have been made in a commercially reasonable
manner, nor shall the Pledgee be liable or accountable to the Pledgor for any
discount allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
Section 7. Payment in Full. Upon the payment in full of all outstanding
---------------
Liabilities, this Pledge Agreement shall terminate and the Pledgee shall
forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to the Pledge Agreement.
Section 8. No Waiver. No failure or delay in the part of the Pledgee in
---------
exercising any right or remedy hereunder or under any other document which
confers or grants any rights in the Pledgee in respect of the Liabilities shall
operate as a waiver thereof nor shall any single or partial exercise of any such
rights or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy of the Pledgee.
Section 9. Binding Effect; No Assignment or Delegation. This Pledge
-------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Pledgor, the
Pledgee and their respective successors and assigns, except that the Pledgor may
not assign or transfer it rights hereunder without the prior written consent of
the Pledgee (which consent shall not unreasonably be withheld). Each duty or
obligation of the Pledgor to the Pledgee pursuant to the provisions of this
Pledge Agreement shall be performed in favor of any person or entity designated
by the Pledgee, and any duty or obligation of the Pledgee to the Pledgor may be
performed by any other person or entity designated by the Pledgee.
Section 10. Governing Law. This Pledge Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
agreements to be performed wholly within the State of Delaware.
Section 11. Notices. All notices, requests, instructions or documents
-------
hereunder shall be in writing and delivered personally or sent by United States
mail, registered or certified, return receipt requested, with proper postage
prepaid as follows:
(a) If to the Pledgee:
Connecticut Bancshares, Inc.
923 Main Street
Manchester, CT 06040
Attn: Richard P. Meduski
4
<PAGE>
(b) If to the Pledgor:
The Savings Bank of Manchester Employee Stock Ownership Plan
c/o____________, as trustee
or at such other address as either of the parties may designate by written
notice to the other party. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made, and, if deliver by mail, the sate on which such notice,
request, instruction, or document is deposited in the mail shall be the date of
delivery. Each notice, request, instruction or document shall bear the date on
which it is delivered.
Section 12. Interpretation. Wherever possible each provision of this
--------------
Pledge Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision herein shall be prohibited by
or invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, with out invalidating the remainder of such
provision or the remaining provisions hereof.
Section 13. Construction. All provisions hereof shall be construed so as
------------
to maintain (a) the ESOP as a qualified leveraged employee stock ownership plan
under section 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986 (the
"Code"), (b) the Trust as exempt from taxation under section 501(a) of the Code
and (c) the Trust Loan as an exempt loan under section 54.4975-7(b) of the
Treasury Regulations and as described in Department of Labor Regulation section
2550.408b-3.
5
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been duly executed by the
parties hereto as of the day and year first above written.
THE SAVINGS BANK OF MANCHESTER
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
____________________________________
______________________as Trustee
CONNECTICUT BANCSHARES, INC.
By:__________________________
_________________
For the Entire Board of Directors
6
<PAGE>
EXHIBIT 10.4
FORM OF
TRUST AGREEMENT
BETWEEN
THE SAVINGS BANK OF MANCHESTER
AND
_______________________________________
FOR THE
THE SAVINGS BANK OF MANCHESTER
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <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 9
Section 6 Change of Trustees 10
Section 7 Miscellaneous 11
</TABLE>
<PAGE>
This TRUST AGREEMENT dated___________, 2000, BETWEEN The Savings Bank of
Manchester, a state-chartered financial institution with its principal office at
923 Main Street, Manchester, CT, 06040 (hereinafter called the "Company"),
AND_______________________ (hereinafter called the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective January 1, 2000, the Company approved and adopted an
employee stock ownership plan for the benefit of its employees, The Savings Bank
of Manchester Employee Stock Ownership Plan (hereinafter called the "Plan");
and
WHEREAS, the Company 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 Company and the Trustee agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustee. ________________ shall be trustee of the Trust Fund 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.
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 "The Savings Bank of
----------------------
Manchester 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.
1.4 Name. The name of this trust shall be "The Savings Bank of Manchester
-----
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 Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan, except
-1-
<PAGE>
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 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 Acquisition
Loans, 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
Acquisition Loans 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 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, (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 appointed
in such notice pursuant to 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
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<PAGE>
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 Company except as otherwise agreed by the Company 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 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 at the direction of the Committee, 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,
commingled trust funds, partnership interests, bonds, notes, or other evidences
of indebtedness, and real and personal property as the Trustee 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
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<PAGE>
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 at the direction of the Committee, 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 at the direction of the Committee, 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 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 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
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<PAGE>
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
participant's accounts for which the Trustee has received no written direction
and all unallocated Employer securities will be voted by the Trustee in direct
proportion to any participant directions received and solely in the interest of
the participants and beneficiaries. 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 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
(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
-5-
<PAGE>
such indebtedness shall be released from encumbrance in accordance
with the applicable provisions 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 Company, 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 Administrator, 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 from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
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<PAGE>
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.
2.4 Brokerage. If permitted in writing by the Committee, the Trustee
----------
shall have the power and authority to be exercised in its sole discretion at any
time and from time to time to issue and place orders for the purchase or sale of
securities with qualified brokers and dealers. Such orders may be placed with
such qualified brokers and/or dealers who also provide investment information or
other research or statistical services to the Trustee in its capacity as a
fiduciary or investment manager for other clients.
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 Company. 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.
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<PAGE>
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 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 may 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 as may be agreed between the Employer and such trustee, 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 that may be levied or assessed upon or in respect of
------
the Trust Fund shall be paid from the Trust Fund. The Trustee shall notify the
Committee of any proposed or final assessments of taxes and may assume that any
such taxes are lawfully levied or assessed unless the Committee advises it in
writing to the contrary within fifteen days after receiving the above notice
from the Trustee. In such case, the Trustee, if requested by the Committee in
writing, shall contest the validity of such taxes in any manner deemed
appropriate by the Committee; the Employer may itself contest the validity of
any such taxes, in which case the Committee shall so notify the Trustee and the
Trustee shall have no responsibility or liability respecting such contest. If
either party to this Agreement contests any such proposed levy or assessments,
the other party shall provide such information and cooperation as the party
conducting the contest shall reasonably request.
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
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<PAGE>
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.
4.3 Discharge of Trustee. Ninety days after the filing of any balance
---------------------
sheet under Section 4.2 or any accounting under Section 6, the Trustee shall be
forever released and discharged from any liability or accountability other than
for gross negligence or wilful misconduct on the part of the Trustee to anyone
with respect to the transactions shown or reflected in such balance sheet or
accounting, except with respect to any acts or transactions as to which the
Committee, within such ninety-day period, files written objections with the
Trustee. The written approval of the Committee of any balance sheet or
accounting so filed by the Trustee, or the Committee's failure to file written
objections within ninety days, shall be a settlement of such balance sheet or
accounting as against all persons, and shall forever release and discharge the
Trustee from any liability of accountability to anyone with respect to the
transactions shown or reflected in such balance sheet or accounting other than
liability arising out of the Trustee's gross negligence or wilful misconduct.
If a statement of objections is filed by the Committee and the Committee is
satisfied that its objections should be withdrawn or if the balance sheet or
accounting is adjusted to its satisfaction, the Committee shall indicate its
approval of the balance sheet or accounting in a written statement filed with
the Trustee and the Trustee shall be forever released and discharged from any
liability of accountability to anyone in accordance with the immediately
preceding sentence. If an objection is not settled by the Committee and the
Trustee, the Trustee may start a proceeding for a judicial settlement of the
balance sheet or accounting in any court of competent jurisdictions; the only
parties that need be joined in such a proceeding are the Trustee, the Committee,
the Employer and any other parties whose participation is required by law.
4.4 Right to Judicial Settlement. Nothing in this Agreement shall prevent
-----------------------------
the Trustee from having its account settled by a court of competent jurisdiction
at any time. The only parties that need be joined in any such proceeding are
the Employer, the Committee, the Trustee and any other parties whose
participation is required by law.
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members and Employees. From time to time the Company
---------------------------------------
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 Trustee shall be entitled to
presume that the identities of such individuals and their agents are unchanged
until it receives a certification from the Company notifying it of any changes.
5.2 Instructions to Trustee.
------------------------
(a) The Trustee shall pay benefits and administrative expenses under the
Plan only when it receives (and in accordance with) written instructions of the
Committee indicating the amount of the payment and the name and address of the
recipient in accordance with the terms of the Plan. The Trustee need not
inquire into whether any payment the Committee instructs it to make
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<PAGE>
is consistent with the terms of the Plan or applicable law or otherwise proper.
Any payment made by the Trustee in accordance with such instructions shall be a
complete discharge and acquittance to the Trustee. If the Committee advises the
Trustee that benefits have become payable with respect to a Participant's
interest in the Trust Fund but does not instruct the Trustee as to the manner of
payment, the Trustee shall hold the Participant's interest in the Trust until it
receives written instructions from the Committee as to the manner of payment.
The Trustee shall not pay benefits from the Trust Fund without such
instructions, even though it may be informed from other sources, including,
without limitation, a Participant or Beneficiary, that benefits are payable
under the Plan. The Trustee shall have no responsibility to determine when, to
whom or in what amount benefits and expenses are payable under the Plan.
Further, the Trustee shall have no power, authority or duty to interpret the
Plan or inquire into the decisions or determinations of the Committee, or to
question the instructions given to it by the Committee. If the Committee so
directs, the Trustee shall segregate amounts payable with respect to the
interest in the Plan of any Participant and administer them separately from the
rest of the Trust Fund in accordance with the Committee's instructions.
(b) The Trustee may require the Committee to certify in writing that any
payment of benefits or expenses it instructs the Trustee to make pursuant to
Section 5.2(a) above is: (i) in accordance with the terms of the Plan and/or
(ii) one which the Committee is authorized by the Plan and any other applicable
instruments to direct and/or (iii) made for the exclusive purpose of providing
benefits to Participants and Beneficiaries, or defraying reasonable expenses of
Plan administration and/or (iv) not made to a party in interest (within the
meaning of ERISA Section 3(14)), and/or (v) not a prohibited transaction (within
the meaning of Code Section 4975 and ERISA Section 406). If the Trustee
requests, instructions to pay benefits shall be made by the Committee on forms
prepared by the Trustee to include any or all of the above representations. The
Trustee shall be fully protected in relying on the truth of any such
representation by the Committee and shall have no duty to investigate whether
such representations are correct or to see to the application of any amounts
paid to and received by the recipient.
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 Company 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 Company. Any such removal or resignation shall take
effect within 30 days after notice has been given by the trustee or by the
Company, 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
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<PAGE>
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 Company 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 Company; 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.
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
-11-
<PAGE>
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, and the Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such writing but
may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.
The Trustee shall not be liable for other than its gross negligence or
willful misconduct. Except in the case of gross negligence or wilful misconduct
on the part of the Trustee, the Trustee in its corporate capacity shall not be
liable for claims of any persons in any manner regarding the Plan; such claims
shall be limited to the Trust Fund. Unless the Trustee participates knowingly
in, or knowingly undertakes to conceal, an act or omission of the Committee or
any other fiduciary, knowing such act or omission to be a breach of fiduciary
responsibility, the Trustee shall be under no liability for any loss of any kind
which may result by reason of such act or omission.
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.
7.7 Qualification of Plan and Trust. The Trustee shall be fully protected
--------------------------------
in assuming that the Plan and Trust meet the requirements of Code Section 401
and 501, respectively, and all the
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<PAGE>
applicable provisions of ERISA unless it is advised to the contrary in writing
by the Committee or a governmental agency.
7.8 Party in Interest Information. The Employer shall provide the Trustee
------------------------------
with such information concerning the relationship between any person or
organization and the Plan as the Trustee reasonably requests in order to
determine whether such person or organization is a party in interest with
respect to the Plan within the meaning of ERISA Section 3(14).
7.9 Disputes. If a dispute arises as to the payment of any funds or
---------
delivery of any assets by the Trustee, the Trustee may withhold such payment or
delivery until the dispute is determined by a court of competent jurisdiction or
finally settled in writing by the parties concerned.
7.10 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 shall
at any time act as a co-trustee or as the sole trustee.
7.11 Governing State Law. This Trust Agreement shall be interpreted in
--------------------
accordance with the laws of the Connecticut to the extent those laws may be
applicable under the provisions of ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: THE SAVINGS BANK OF MANCHESTER
____________________ By: __________________________
ATTEST: ______________________________
as TRUSTEE
____________________ By: __________________________
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<PAGE>
EXHIBIT 10.5
FORM OF
THE SAVINGS BANK OF MANCHESTER
EMPLOYMENT AGREEMENT
This AGREEMENT, entered into on ___________, 2000, by and between The
Savings Bank of Manchester (the "Institution" or the "Bank"), a state-chartered
savings institution, with its principal administrative office at 923 Main
Street, Manchester, CT, Connecticut Bancshares, Inc. (the "Holding Company"), a
corporation organized under the laws of the state of Delaware and the holding
company of the Institution, and _________________ ("Executive").
WHEREAS, the Institution wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Institution on a full-time basis in accordance with the terms of this Agreement.
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. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve
as _____________ and ______________ of the Institution. Executive shall render
administrative and management services to the Institution 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 and director
of the Institution. Failure to reelect Executive as _____________ and
_________________ of the Institution, or failure to nominate or reelect
Executive to the Board of Directors of the Institution, without the consent of
Executive, shall constitute a breach of this Agreement.
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 thirty-six (36) full calendar months. The term of this
Agreement shall be extended for one (1) year each year, until such time as the
Board of Directors of the Bank (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 his 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
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performance of his duties hereunder including activities and services related to
the organization, operation and management of the Institution 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
the Board's judgment, will not present any conflict of interest with the
Institution, 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 Institution may be terminated by the Institution or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE INSTITUTION.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Institution in exchange for the duties described in
Section 1. The Institution shall pay Executive as compensation a salary of not
less than $__________ per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any employee benefit plan or
deferred compensation arrangement maintained by the Bank or the Holding Company.
Executive's Base Salary shall be payable in accordance with the Bank's general
payroll practices. 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 a committee designated by the Board, and the Board may increase
Executive's Base Salary at any time. The increased Base Salary shall become the
new "Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Institution shall also provide Executive, at
no cost to Executive, with all such other benefits as are provided uniformly to
permanent full-time employees of the Institution or the Holding Company.
(b) The Institution will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Institution will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plan, medical coverage
or any other employee benefit plan or arrangement made available by the
Institution now or in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
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overall administration of such plans and arrangements. Executive will be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Institution in which Executive is eligible to participate.
Nothing paid to Executive under any such plan or arrangement will be deemed to
be in lieu of other compensation to which Executive is entitled under this
Agreement.
(c) 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 Institution shall pay or reimburse Executive for all reasonable travel
and other expenses incurred by Executive in performing his obligations under
this Agreement, including expenses associated with membership in clubs or
organizations, as mutually agreed to between the Board and Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 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 Institution of Executive's full-time employment hereunder for
any reason other than, Retirement, (as defined in Paragraph (f) of this Section
4), termination governed by Section 5(a) of this Agreement, or Termination for
Cause, as defined in Section 7 of this Agreement; (ii) Executive's resignation
from the Institution's employ, upon any (A) notice to Executive by the
Institution of non-renewal of the term of this Agreement, (B) failure to elect
or reelect or to appoint or reappoint Executive as _____________ and
________________, or failure to nominate or reelect Executive to the Board of
Directors of the Institution, unless Executive consents to any such event, (C) 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 (and any such material change shall be deemed a continuing
breach of this Agreement), (D) a relocation of Executive's principal place of
employment by more than thirty-five (35) miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites available to Executive to which Executive does not consent or for
which Executive is not or will not be provided the economic benefit pursuant to
Section 3(b) hereof, (E) liquidation or dissolution of the Institution or the
Holding Company, or (F) breach of this Agreement by the Institution. 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 a reasonable period of time not to exceed, except in case of
a continuing breach, four calendar 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 Institution 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: (i) the amount of the
remaining payments and benefits that Executive would have earned if he had
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continued his employment with the Institution or Holding Company during the
remaining unexpired term of this Agreement, based on the Executive's Base Salary
and benefits provided at the Date of Termination, as set out in Sections 3(a)
and (b) hereof, as the case may be, and (ii) the amount still due the Executive
under any paragraph of Section 3 for service through the Date of Termination.
Such payments shall be paid monthly during the remaining term of the agreement
following Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Institution or
the Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Institution or the Holding Company continues to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death; (ii) his employment by another employer other than
one of which he is the majority owner; or (iii) the end of the remaining term of
this Agreement. If the Institution or the Holding Company does not offer the
Welfare Plans after the Event of Termination, then the Institution shall provide
Executive with a payment equal to the actuarial value of the provision of such
benefit for the period which runs until the earlier of (i) his death; (ii) his
employment by another employer other than one of which he is the majority owner;
or (iii) the end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis. Such election shall be irrevocable for the year for
which such election is made.
(f) For the purpose of this Section, termination of Executive based on
"Retirement" shall mean termination in accordance with the Holding Company's or
Bank's retirement policy or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Holding Company or the Bank and other plans to which
Executive is a party or a participant.
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5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or the Holding Company 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 Institution 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 Institution, and the Rules and Regulations promulgated by
the Office of Thrift Supervision ("OTS") (or its predecessor agency), with
respect to the Holding Company, as in effect on the date of this Agreement; 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 voting
securities of the Institution or the Holding Company representing 20% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board 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 a Nominating Committee solely composed of members
which are Incumbent Board members, 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 Institution or the Holding Company or similar transaction occurs
or is effectuated in which the Institution or Holding Company is not the
resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately
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following the date a Change in Control has occurred; or (3) Executive's
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in annual compensation or benefits or
relocation of his principal place of employment by more than 50 miles from its
location immediately prior to the Change in Control, unless such termination is
because of his death, or Termination for Cause; provided, however, that such
payments shall be reduced by any payment made under Section 4 of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Institution 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 payments due for the
remaining term of the Agreement or (2) three (3) times Executive's average
annual compensation for the five (5) preceding taxable years. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, pension and profit sharing plan contributions or
benefits (whether or not taxable), severance payments, retirement benefits,
director or committee fees and fringe benefits paid or to be paid to Executive
or paid for Executive's benefit during any such year. At the election of
Executive, which election is to be made prior to or within thirty (30) days of
the Date of Termination on or following a Change in Control, such payment may be
made in a lump sum (without discount for early payment) on or immediately
following the Date of Termination (which may be the date a Change in Control
occurs) or paid in equal monthly installments during the thirty-six (36) months
following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the thirty-six (36)
months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Institution or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Institution will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Institution or Holding Company for Executive and any
of his dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Institution shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
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(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Institution or the Holding Company to such item for a price equal to
the then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Institution or the Holding Company (or for the benefit
of) Executive pursuant to this Agreement or otherwise, the Institution shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
----------------------------
1 - [(FI x (1 - SLI)) + SLI + E + (M + PO)]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 5;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question;
M = highest marginal rate of Medicare tax; and
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PO = adjustment for phase out of or loss of deduction, personal
exemption or other similar items.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Institution is required to withhold such tax, (ii)
the date the tax is required to be paid by Executive, or (iii) at the time of
the Change in Control. It is the intention of the parties that the Institution
provide Executive with a full tax gross-up under the provisions of this Section,
so that on a net after-tax basis, the result to Executive shall be the same as
if the excise tax under Section 4999 (or any successor provisions) of the Code
had not been imposed. The tax gross-up may be adjusted if alternative minimum
tax rules are applicable to Executive.
(i) 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 amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Institution's independent
accountants shall determine the amount (the "Adjustment Amount") the Institution
must pay to the Executive, in order to put the Executive (or the Institution, as
the case may be) in the same position as the Executive (or the Holding Company,
as the case may be) would have been if the amount determined as "P" above had
been equal to the Determinative Excess Parachute Payment. In determining the
Adjustment Amount, the independent accountants 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.
(j) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Institution as described above. The Institution
shall indemnify and hold Executive harmless from any and all losses, costs and
expenses (including without limitation, reasonable attorney's fees, interest,
fines and penalties) which Executive incurs as a result of so reporting such
information. Executive shall promptly notify the Institution in writing whenever
the Executive receives notice of the institution of a judicial or administrative
proceeding, formal or informal, in which the federal tax treatment under Section
4999 of the Code of any amount paid or payable under this Supplemental Agreement
is being reviewed or is in dispute. The Institution shall assume control at its
expense over all legal and accounting matters pertaining to such federal tax
treatment (except to the extent necessary or appropriate for Executive to
resolve any such proceeding with respect to any matter unrelated to amounts paid
or payable pursuant to this contract) and Executive shall cooperate fully with
the Institution in any such proceeding. Executive shall cooperate fully with the
Holding Company in any such proceeding. Executive shall not enter
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into any compromise or settlement or otherwise prejudice any rights the
Institution may have in connection therewith without prior consent to the
Institution.
6. DISABILITY BENEFITS.
In the event of the disability of Executive, the Institution shall continue
to pay Executive the compensation provided by this Agreement during the period
of his disability. In the event Executive is disabled for a continuous period
exceeding 12 calendar months, the Institution may, at its election, terminate
this Agreement; provided, however, the last 6 months of such 12-month period
shall constitute the "elimination period" for benefit determination under the
Institution's Long-Term Disability Plan. As used in this Agreement, the term
"disability" shall mean the complete and permanent inability of Executive to
perform his duties under this Agreement as determined by an independent
physician selected with the approval of the Institution and Executive. If, in
the opinion of said physician, there is a reasonable prognosis of recovery, this
Agreement may not be terminated by the Holding Company pursuant to this
paragraph 6.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, 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 which results in a material loss to the Institution or the
Holding Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. 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 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
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subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution 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);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(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 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, 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.
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 Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
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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 Institution for the
period in which he receives payments under Section 4(b) of this Agreement in any
city, town or county in which the Executive's normal business office is located
and the Institution 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 Institution. The
parties hereto, recognizing that irreparable injury will result to the
Institution, 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 Institution, 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 Institution 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 Institution from pursuing any other remedies
available to the Institution 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 Institution as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. 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 Institution 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 banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Institution. Further, Executive may
disclose information regarding the business activities of the Institution to the
Connecticut Department of Banks, the FDIC and any other applicable government
agency pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Institution 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 Institution 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 Institution from pursuing any other
remedies available to the Institution for such breach or
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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 Institution. 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
Institution are not timely paid or provided by the Institution, 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 ________________,
2000, 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.
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 Institution or any
predecessor of 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.
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 Institution 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
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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. REQUIRED 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) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.
16. 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.
17. 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.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut,
unless otherwise specified herein.
19. 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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20. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
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: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Institution 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, hold
harmless and defend Executive (and his heirs, executors and administrators) to
the fullest extent permitted under Connecticut 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 Institution (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.
22. 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 or the Holding
Company, 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.
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SIGNATURES
IN WITNESS WHEREOF, The Savings Bank of Manchester and Connecticut
Bancshares, Inc. 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 __________________, 2000.
ATTEST: THE SAVINGS BANK OF MANCHESTER
_____________________________ BY: ____________________________________
Secretary For the Board of Directors
[SEAL]
ATTEST: CONNECTICUT BANCSHARES, INC.
(Guarantor)
_____________________________ BY: ____________________________________
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
_____________________________ ________________________________________
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EXHIBIT 10.6
FORM OF CONNECTICUT BANCSHARES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT, entered into on ___________________, 2000, by and between
Connecticut Bancshares, Inc. (the "Holding Company"), a corporation organized
under the laws of Delaware, with its principal administrative office at 923 Main
Street, Manchester, CT 06040 and ______________ ("Executive"). Any reference to
the "Bank" herein shall mean The Savings Bank of Manchester or any successor
thereto.
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis in accordance with the terms of this
Agreement.
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. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve
as ___________ and __________________ of the Holding Company. 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 and director
of any subsidiary of the Holding Company. Failure to reelect Executive as
_____________ and ____________________ of the Holding Company, failure to
reelect Executive as ______________ and _________________ of the Bank, or
failure to nominate or reelect Executive to the Board of Directors of the
Holding Company or the Bank, any without the consent of Executive, shall
constitute a breach of this Agreement.
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 thirty-six (36) full calendar months from said date. The term of
this Agreement shall be extended for one (1) year each year, 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 his 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
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his duties hereunder including activities and services related to the
organization, operation and management of the Holding Company and 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 the Board's judgment, will not present any conflict of
interest with the Holding Company, 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.
3. CONSIDERATION PROVIDED BY THE HOLDING COMPANY.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive as
compensation a salary of not less than $_____________ per year ("Base Salary").
Base Salary shall include any amounts of compensation deferred by Executive
under any employee benefit plan or deferred compensation arrangement maintained
by the Bank or the Holding Company. Executive's Base Salary shall be payable in
accordance with the Holding Company's general payroll practices. 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 a
committee designated by the Board, and the Board may increase Executive's Base
Salary at any time. The increased Base Salary shall become the new "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 cost to
Executive with all such other benefits as are provided uniformly to permanent
full-time employees of the Holding Company and the Bank.
(b) The Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a 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 adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing provisions
of this paragraph (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, employee stock ownership plans, health-and-
accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Holding Company now or 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
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of such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company in which Executive is eligible to participate. Nothing paid to Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation and benefits provided for by paragraph (b) of
this Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement, including expenses associated with membership
in clubs or organizations, as mutually agreed to between the Board and
Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 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, Retirement, (as defined in paragraph (f) of this Section 4),
termination governed by Section 5(a) of this Agreement, or Termination for
Cause, as defined in Section 7 of this Agreement; (ii) Executive's resignation
from the Holding Company's employ, upon any (A) notice to Executive by the
Holding Company of non-renewal of the term of this Agreement, (B) failure to
elect or reelect or to appoint or reappoint Executive as [Title] of the Holding
Company, failure to elect or reelect or to appoint or reappoint Executive as
[Title] of the Bank, or, failure to nominate or reelect Executive to the Board
of Directors of the Holding Company or Bank, unless Executive consents to any
such event, (C) 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 (and any such material change shall be
deemed a continuing breach of this Agreement), (D) a relocation of Executive's
principal place of employment by more than thirty-five (35) miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites available to Executive to which Executive does not
consent or for which Executive is not or will not be provided the economic
benefit pursuant to Section 3(b) hereof, (E) liquidation or dissolution of the
Bank or the Holding Company, 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 a reasonable period of time not to
exceed, except in case of a continuing breach, four calendar 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 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: (i) the amount of the
remaining payments and benefits that Executive would have earned or accrued if
he
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had continued his employment with the Holding Company or the Bank during the
remaining unexpired term of this Agreement, based on the Executive's Base Salary
and benefits provided at the Date of Termination, as set out in Sections 3(a)
and (b) hereof, as the case may be, and (ii) the amount still due the Executive
under any paragraph of Section 3 for service through the Date of Termination.
Such payments shall be paid monthly during the remaining term of the agreement
following Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Bank or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Bank or the Holding Company on Executive's behalf to the
extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or the Bank continues to offer
any life, medical, health, disability or dental insurance plan or arrangement in
which Executive participates in on the last day of his employment (each being a
"Welfare Plan"), after an Event of Termination (as herein defined), Executive
and his dependents shall continue participating in such Welfare Plans, subject
to the same premium contributions on the part of Executive as were required
immediately prior to the Event of Termination until the earlier of (i) his
death; (ii) his employment by another employer other than one of which he is the
majority owner; or (iii) the end of the remaining term of this Agreement. If the
Holding Company or Bank does not offer the Welfare Plans after the Event of
Termination, then the Holding Company shall provide Executive with a payment
equal to the actuarial value of the provision of such benefit for the period
which runs until the earlier of (i) his death; (ii) his employment by another
employer other than one of which he is the majority owner; or (iii) the end of
the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis. Such election shall be irrevocable for the year for
which such election is made.
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(f) For the purpose of this Section, termination of Executive based on
"Retirement" shall mean termination in accordance with the Holding Company's or
Bank's retirement policy or in accordance with any retirement arrangement
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Holding Company or the Bank and other plans to which
Executive is a party or a participant.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank 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 Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), with respect to the Holding
Company, as in effect on the date of this Agreement; 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 voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
Subsidiaries, or (B) individuals who constitute the Board 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 a Nominating Committee solely
composed of members which are Incumbent Board members, 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 or is effectuated in which the Bank or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such 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 Holding Company then outstanding.
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(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation during the term of this Agreement following any
demotion, loss of title, office or significant authority or responsibility,
reduction in annual compensation or benefits or relocation of his principals
place of employment by more than 50 miles from its location immediately prior to
the Change in Control, unless such termination is because of his death, or
Termination for Cause; provided, however, that such payments shall be reduced by
any payment made under Section 4 of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in 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 payments due for the
remaining term of the Agreement or (2) three (3) times Executive's average
annual compensation for the five (5) preceding taxable years. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, pension, profit sharing and employee stock
ownership plan contributions or benefits (whether pursuant to a tax-qualified
plan or a deferred compensation arrangement and whether or not taxable),
severance payments, retirement benefits, director or committee fees and fringe
benefits paid or to be paid to Executive or paid for Executive's benefit during
any such year. At the election of Executive, which election is to be made prior
to or within thirty (30) days of the Date of Termination on or following a
Change in Control, such payment may be made in a lump sum (without discount for
early payment) on or immediately following the Date of Termination (which may be
the date a Change in Control occurs) or paid in equal monthly installments
during the thirty-six (36) months following Executive's termination. In the
event that no election is made, payment to Executive will be made on a monthly
basis during the thirty-six (36) months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Bank or the Holding
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Bank or the Holding Company on Executive's behalf to the extent such benefits
are not otherwise paid to Executive under a separate provision of this
Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Bank or Holding Company for Executive and any of his
dependents covered under such plans prior to the Change in
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Control. Such coverage and payments shall cease upon the expiration of thirty-
six (36) full calendar months following the Date of Termination. In the event
Executive's participation in any such plan or program is barred, the Holding
Company shall arrange to provide Executive and his dependents with benefits
substantially similar as those of which Executive and his dependents would
otherwise have been entitled to receive under such plans and programs from which
their continued participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Holding Company or Bank to such item for a price equal to the then
fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Holding Company or the Bank to (or for the benefit of)
Executive pursuant to this Agreement or otherwise, the Holding Company shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
--------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + (M + PO)]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 5;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
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SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question;
M = highest marginal rate of Medicare tax; and
PO = adjustment for phase out of or loss of deduction, personal
exemption or other similar items.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
(i) 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 amount determined
as "P", above (such greater 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 (or the Holding
Company, as the case may be) in the same position as the Executive (or the
Holding Company, as the case may be) would have been if the amount determined as
"P" above had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, the independent accountants 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.
(j) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental
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Agreement is being reviewed or is in dispute. The Holding Company shall assume
control at its expense over all legal and accounting matters pertaining to such
federal tax treatment (except to the extent necessary or appropriate for
Executive to resolve any such proceeding with respect to any matter unrelated to
amounts paid or payable pursuant to this contract) and Executive shall cooperate
fully with the Holding Company in any such proceeding. Executive shall not enter
into any compromise or settlement or otherwise prejudice any rights the Holding
Company may have in connection therewith without prior consent to the Holding
Company.
6. DISABILITY BENEFITS.
In the event of the disability of Executive, the Holding Company shall
continue to pay Executive the compensation provided by this Agreement during the
period of his disability. In the event Executive is disabled for a continuous
period exceeding 12 calendar months, the Holding Company may, at its election,
terminate this Agreement; provided, however, the last 6 months of such 12-month
period shall constitute the "elimination period" for benefit determination under
the Holding Company's or the Bank's Long-Term Disability Plan. As used in this
Agreement, the term "disability" shall mean the complete and permanent inability
of Executive to perform his duties under this Agreement as determined by an
independent physician selected with the approval of the Holding Company or the
Bank and Executive. If, in the opinion of said physician, there is a reasonable
prognosis of recovery, this Agreement may not be terminated by the Holding
Company pursuant to this paragraph 6.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, 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 which results in a material loss to the Bank or the Holding
Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
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 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
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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, 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);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(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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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 the period in which he receives payments under Section 4(b)
of this Agreement 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 banking, financial and/or
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economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Holding Company. Further,
Executive may disclose information regarding the business activities of the Bank
or Holding Company to the Superintendent of Banks of the State of Connecticut,
the Connecticut Banking Department, the FDIC and any other applicable government
agency pursuant to a formal regulatory request. 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 13
hereof.
(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 ____________, 2000,
between Executive and the Bank, such compensation payments and benefits paid by
the Bank will be subtracted from any amount due simultaneously to Executive
under similar provisions of this Agreement.
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
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.
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(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and 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 Delaware,
unless otherwise specified herein.
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 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.
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19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
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: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, 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,
hold harmless and defend 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.
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 Bank 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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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 _______________, 2000.
ATTEST: CONNECTICUT BANCSHARES, INC.
__________________________ By: ____________________________
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
__________________________ ________________________________
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EXHIBIT 10.7
FORM OF
THE SAVINGS BANK OF MANCHESTER
CHAIRMAN'S EMPLOYMENT AGREEMENT
This AGREEMENT, entered into on ___________, 2000, by and between The
Savings Bank of Manchester (the "Institution" or the "Bank"), a state-chartered
savings institution, with its principal administrative office at 923 Main
Street, Manchester, CT, Connecticut Bancshares, Inc. (the "Holding Company"), a
corporation organized under the laws of the state of Delaware and the holding
company of the Institution, and_________________ ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Institution on a full-time basis in accordance with the terms of this Agreement.
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. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve as
Chairman of the Board of Directors of the Institution. Executive shall render
administrative and management services to the Institution 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 and director
of the Holding Company.
2. TERM.
(a) Executive's employment under this Agreement shall terminate upon the
earlier of: (i) one year from the date first written above or (ii) Executive's
retirement in accordance with policies established by the Board with respect to
its Executives. However, the term of this Agreement may be extended upon mutual
agreement of the parties to this Agreement.
(b) During the period of his 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 Institution 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 the Board's judgment,
will not present any conflict of interest with the Institution, or
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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 Institution may be terminated by the Institution or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE INSTITUTION.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Institution in exchange for the duties described in
Section 1. The Institution shall pay Executive as compensation a salary of not
less than $90,000 per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any employee benefit plan or
deferred compensation arrangement maintained by the Bank or the Holding Company.
In addition to the Base Salary provided in this Section 3(a), the Institution
shall also provide Executive, at no cost to Executive, with all such other
benefits as are provided uniformly to permanent full-time employees of the
Institution.
(b) The Institution will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Institution will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Nothing paid to Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) 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 Institution shall pay or reimburse Executive for all reasonable expenses
incurred by Executive in performing his obligations 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 Executive's term of employment under this Agreement, the provisions of
this Section 4 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 Institution of Executive's full-time employment hereunder for
any reason other than, Retirement, as defined in Section 6 hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Institution's employ, upon any (A) a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility,
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importance, or scope from the position and attributes thereof described in
Section 1 above (and any such material change shall be deemed a continuing
breach of this Agreement), (B) a relocation of Executive's principal place of
employment by more than thirty-five (35) miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites available to Executive to which Executive does not consent or for
which Executive is not or will not be provided the economic benefit pursuant to
Section 3(b) hereof, (C) liquidation or dissolution of the Institution or the
Holding Company, or (D) breach of this Agreement by the Institution. Upon the
occurrence of any event described in clauses (A), (B), (C), or (D) 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 a reasonable period of time not to exceed, except in case of a
continuing breach, four calendar 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 Institution 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, the amount of the remaining
payments and benefits that Executive would have earned if he had continued his
employment with the Institution or Holding Company during the remaining
unexpired term of this Agreement, based on the Executive's Base Salary and
benefits provided at the Date of Termination, as set out in Sections 3(a) and
(b) hereof, as the case may be. Such payments shall be paid monthly during the
remaining term of the agreement following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Institution or
the Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Institution or the Holding Company continues to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death; (ii) his employment by another employer other than
one of which he is the majority owner; or (iii) the end of the remaining term of
this Agreement. If the Institution or the Holding Company does not offer the
Welfare Plans after the Event of Termination, then the Institution shall provide
Executive with a payment equal to the actuarial value of the provision of such
benefit for the period which runs until the earlier of (i) his death; (ii) his
employment by another employer other than one of which he is the majority owner;
or (iii) the end of the remaining term of this
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Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or the Holding Company 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 Institution 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 Institution, and the Rules and Regulations promulgated by
the Office of Thrift Supervision ("OTS") (or its predecessor agency), with
respect to the Holding Company, as in effect on the date of this Agreement; 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 voting
securities of the Institution or the Holding Company representing 20% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board 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 a Nominating Committee solely composed of members
which are Incumbent Board members, 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 Institution or the Holding Company or similar transaction occurs
or is effectuated in which the Institution or Holding Company is not the
resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs
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at any time during the term of this Agreement due to (1) Executive's dismissal;
(2) Executive's voluntary resignation for any reason on or within the sixty (60)
day period immediately following the date a Change in Control has occurred; or
(3) Executive's resignation following any demotion, loss of title, office or
significant authority or responsibility, reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, or Termination for Cause; provided,
however, that such payments shall be reduced by any payment made under Section 4
of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Institution 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 payments due for the
remaining term of the Agreement or (2) three (3) times Executive's average
annual compensation for the five (5) preceding taxable years. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, pension and profit sharing plan contributions or
benefits (whether or not taxable), severance payments, retirement benefits,
director or committee fees and fringe benefits paid or to be paid to Executive
or paid for Executive's benefit during any such year. At the election of
Executive, which election is to be made prior to or within thirty (30) days of
the Date of Termination on or following a Change in Control, such payment may be
made in a lump sum (without discount for early payment) on or immediately
following the Date of Termination (which may be the date a Change in Control
occurs) or paid in equal monthly installments during the thirty-six (36) months
following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the thirty-six (36)
months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Institution or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Institution will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Institution or Holding Company for Executive and any
of his dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Institution shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and
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his dependents would otherwise have been entitled to receive under such plans
and programs from which their continued participation is barred or provide their
economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Institution or the Holding Company to such item for a price equal to
the then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Institution or the Holding Company (or for the benefit
of) Executive pursuant to this Agreement or otherwise, the Institution shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
---------------------------
1 - [(FI x (1 - SLI)) + SLI + E + (M + PO)]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 5;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in
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question;
M = highest marginal rate of Medicare tax; and
PO = adjustment for phase out of or loss of deduction, personal
exemption or other similar items.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Institution is required to withhold such tax, (ii)
the date the tax is required to be paid by Executive, or (iii) at the time of
the Change in Control. It is the intention of the parties that the Institution
provide Executive with a full tax gross-up under the provisions of this Section,
so that on a net after-tax basis, the result to Executive shall be the same as
if the excise tax under Section 4999 (or any successor provisions) of the Code
had not been imposed. The tax gross-up may be adjusted if alternative minimum
tax rules are applicable to Executive.
(i) 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 amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Institution's independent
accountants shall determine the amount (the "Adjustment Amount") the Institution
must pay to the Executive, in order to put the Executive (or the Institution, as
the case may be) in the same position as the Executive (or the Holding Company,
as the case may be) would have been if the amount determined as "P" above had
been equal to the Determinative Excess Parachute Payment. In determining the
Adjustment Amount, the independent accountants 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.
(j) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Institution as described above. The Institution
shall indemnify and hold Executive harmless from any and all losses, costs and
expenses (including without limitation, reasonable attorney's fees, interest,
fines and penalties) which Executive incurs as a result of so reporting such
information. Executive shall promptly notify the Institution in writing whenever
the Executive receives notice of the institution of a judicial or administrative
proceeding, formal or informal, in which the federal tax treatment under Section
4999 of the Code of any amount paid or payable under this Supplemental Agreement
is being reviewed or is in dispute. The Institution shall assume control at its
expense over all legal and accounting matters pertaining to such federal tax
treatment (except to the extent necessary or appropriate for Executive to
resolve any such proceeding with
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respect to any matter unrelated to amounts paid or payable pursuant to this
contract) and Executive shall cooperate fully with the Institution in any such
proceeding. Executive shall cooperate fully with the Holding Company in any such
proceeding. Executive shall not enter into any compromise or settlement or
otherwise prejudice any rights the Institution may have in connection therewith
without prior consent to the Institution.
6. DISABILITY AND RETIREMENT BENEFITS.
(a) In the event of the disability of Executive, the Institution shall
continue to pay Executive the compensation provided by this Agreement during the
period of his disability. In the event Executive is disabled for a continuous
period exceeding 12 calendar months, the Institution may, at its election,
terminate this Agreement; provided, however, the last 6 months of such 12-month
period shall constitute the "elimination period" for benefit determination under
the Institution's Long-Term Disability Plan. As used in this Agreement, the term
"disability" shall mean the complete and permanent inability of Executive to
perform his duties under this Agreement as determined by an independent
physician selected with the approval of the Institution and Executive. If, in
the opinion of said physician, there is a reasonable prognosis of recovery, this
Agreement may not be terminated by the Holding Company pursuant to this Section
6.
(b) Upon the expiration of the term of this Agreement, Executive shall be
engaged as a consultant of the Bank for a period of ten (10) years from such
date ("Consulting Term"). During the Consulting Term, to the extent Executive is
not subject to a disability as defined in paragraph (a) of this Section 6,
Executive agrees to perform such reasonable consulting services as may be
assigned to Executive by the Bank's Board of Directors or Chief Executive
Officer including, but not limited to, providing advice and information to the
Holding Company and the Bank on the operations of the Bank, providing background
and historical information on the operations of the Bank and attending
occasional meetings or participating in telephonic conferences at mutually
agreeable times and locations. Except as specifically set forth herein, or as
directed by the Bank, it is agreed that Executive shall have no other authority
to act on behalf of the Holding Company or the Bank.
Notwithstanding the foregoing, Executive, or in the event of his
death, his surviving spouse is guaranteed at least five (5) annual payments of
the benefit he is entitled to under this Section 6 if Executive is survived by a
spouse. In the event of Executive's death prior to the receipt of five (5)
annual payments, any remaining payments shall be made to the Executive's
surviving spouse, provided, however, that if Executive is not survived by a
spouse, the Bank shall have no further obligation under this Agreement following
the Participant's death.
(c) Subject to Executive's adherence to the terms and conditions of
paragraph (b) of this Section 6, Executive shall be paid a fee equal to his base
salary in effect on his retirement date.
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7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, 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 which results in a material loss to the Institution or the
Holding Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. 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 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 Institution 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);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with
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Section 8(c) of this Agreement.
(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 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, 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.
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 Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution 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 Institution for the
period in which he receives payments under Section 4(b) or 6(b) of this
Agreement in any city, town or county in which the Executive's normal business
office is located and the Institution 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 Institution. The parties hereto, recognizing that irreparable injury will
result to the Institution, 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 Institution, will be entitled, in
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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 Institution 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
Institution from pursuing any other remedies available to the Institution 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 Institution as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. 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 Institution 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 banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Institution.
Further, Executive may disclose information regarding the business activities of
the Institution to the Connecticut Department of Banks, the FDIC and any other
applicable government agency pursuant to a formal regulatory request. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Institution 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 Institution 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 Institution from
pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Institution. 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
Institution are not timely paid or provided by the Institution, such amounts and
benefits shall be paid or provided by the Holding Company.
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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 Institution or any
predecessor of 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.
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 Institution 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. REQUIRED 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) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.
16. 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
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extent consistent with law continue in full force and effect.
17. 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.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Connecticut,
unless otherwise specified herein.
19. 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.
20. REINSTATEMENT OF BENEFITS.
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 any back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
21. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Institution 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, hold
harmless and defend Executive (and his heirs, executors and administrators) to
the fullest extent permitted under Connecticut 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 Institution (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,
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court costs and attorneys' fees and the cost of reasonable settlements.
22. 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 or the Holding
Company, 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.
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SIGNATURES
IN WITNESS WHEREOF, The Savings Bank of Manchester and Connecticut
Bancshares, Inc. 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 __________________, 2000.
ATTEST: THE SAVINGS BANK OF MANCHESTER
__________________________ BY: ______________________________
Secretary For the Board of Directors
[SEAL]
ATTEST: CONNECTICUT BANCSHARES, INC.
(Guarantor)
__________________________ BY: ______________________________
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
__________________________ ___________________________________
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EXHIBIT 10.8
FORM OF
THE SAVINGS BANK OF MANCHESTER
________YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ____________, 1999, by and among The
Savings Bank of Manchester (the "Institution"), a state chartered savings
institution, with its principal administrative office at 923 Main Street,
Manchester, CT, _________________ ("Executive"), and Connecticut Bancshares,
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 period of 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 term of this
Agreement may be extended for an additional year such that the remaining term of
this Agreement may be ____________, unless Executive or the Board elects not to
extend the term of the Agreement by giving written notice to the other party in
accordance with Section 4 of this Agreement, in which case the term of this
Agreement.
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, material reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 35 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
<PAGE>
or 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" of the
Institution or Holding Company shall mean 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution 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 Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; 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 voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board 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 Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity,
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company, or (E) a tender offer is
made for 20% or more of the voting securities of the Stock Institution or
Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of: 1) Executive's personal
dishonesty, willful misconduct, 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
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and desist order or material breach of any provision of this Agreement which
results in a material loss to the Institution or the Holding Company, or 2)
Executive's conviction of a crime or act involving moral turpitude or a final
judgement rendered against Executive based upon actions of Executive which
involve moral turpitude. For the purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interests of the Bank or its affiliates.
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 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
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 such unvested stock
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 the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Institution
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 _________ (___) times Executive's average annual compensation 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 annual compensation shall
include base salary, commissions, bonuses, any other cash compensation,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, benefits received or to be received under any stock-based benefit
plan, severance payments, director or committee fees and fringe benefits paid or
to be paid to the Executive during such years. At the election of Executive
which election is to be made prior to a Change in Control, such payment shall be
made: (a) in a lump sum, (b) on a bi-weekly basis in approximately equal
installments over a period of _____________(___) months, or (c) on an annual
basis in approximately equal installments over a period of _____________(___)
months.
(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
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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.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor thereof (the "Termination Benefits"),
would be deemed to include an "excess parachute payment" under
Section 280G of the Code; and
(ii) if such Termination Benefits were reduced 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 and the Non-
Triggering Amount less the product of the marginal rate of any
applicable state and federal income tax and the Non-Triggering
Amount would be greater than the aggregate value of the
Termination Benefits (without such reduction) minus (i) the amount
of tax required to be paid by the Executive thereon by Section
4999 of the Code and further minus (ii) the product of the
Termination Benefits and the marginal rate of any applicable state
and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the 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
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date such Notice of Termination is given); provided, however, that if a dispute
regarding the Executive's termination exists, the "Date of Termination" shall be
determined in accordance with Section 4(c) of this Agreement.
(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 the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his annual salary)
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.
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.
5
<PAGE>
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.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) 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) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
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.
6
<PAGE>
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of ___________________.
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
pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
---------------
The Institution 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
_________________ 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 Institution (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.
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, The Savings Bank of Manchester and Connecticut
Bancshares, Inc. have caused this Agreement to be executed by their duly
authorized officers, and Executive has signed this Agreement, on the ______ day
of ____________, 1999.
ATTEST: THE SAVINGS BANK OF MANCHESTER
_______________________________ By: _________________________________
SEAL
ATTEST: CONNECTICUT BANCSHARES, INC.
(Guarantor)
_______________________________ By: __________________________________
SEAL
WITNESS: EXECUTIVE
_______________________________ ______________________________________
8
<PAGE>
EXHIBIT 10.9
THE SAVINGS BANK OF MANCHESTER
FORM OF
CONSULTATION PLAN FOR
CERTAIN OUTSIDE DIRECTORS
Effective as of January 1, 2000
<PAGE>
THE SAVINGS BANK OF MANCHESTER
CONSULTATION PLAN FOR CERTAIN OUTSIDE DIRECTORS
The Savings Bank of Manchester Consultation Plan for Certain Outside
Directors has been authorized and adopted by the Board of Directors of The
Savings Bank of Manchester effective as of January 1, 2000. The purpose of the
Plan is to provide retirement benefits to individuals who are outside directors
of the Bank at the time of the conversion of the Bank from a mutual company to a
stock company.
The Plan is unfunded and all benefits payable under the Plan shall be paid
out of the general assets of the Bank. The Bank may establish and fund one or
more grantor trusts in order to aid it in providing benefits due under the Plan;
provided, that the establishment of any such trust shall not cause the Plan to
be other than "unfunded."
<PAGE>
THE SAVINGS BANK OF MANCHESTER
CONSULTATION PLAN FOR CERTAIN OUTSIDE DIRECTORS
<TABLE>
<S> <C>
ARTICLE
I DEFINITIONS..................................................... 4
II PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
2.01 Participation............................................ 6
2.02 Amount of Benefits....................................... 6
2.03 Payment of Benefits...................................... 6
2.04 Death.................................................... 7
2.05 Resumption of Membership on the Board of Directors....... 7
2.06 Change-in-Control........................................ 7
III PLAN ADMINISTRATION
3.01 Administration........................................... 8
3.02 Claims Procedure......................................... 8
3.03 Expenses................................................. 9
IV GENERAL PROVISION
4.01 No Funding............................................... 10
4.02 Amendment of the Plan.................................... 10
4.03 Termination of the Plan.................................. 10
4.04 Plan Not a Directorship Agreement........................ 11
4.05 Facility of Payment...................................... 11
4.06 Withholding Taxes........................................ 11
4.07 Nonalienation............................................ 11
4.08 Forfeiture for Cause..................................... 12
4.09 Construction............................................. 12
APPENDIX A
</TABLE>
<PAGE>
THE SAVINGS BANK OF MANCHESTER
CONSULTATION PLAN FOR CERTAIN OUTSIDE DIRECTORS
ARTICLE I
DEFINITIONS
The following terms when capitalized herein shall have the meanings
assigned below.
1.01 Average Board Cash Compensation shall mean all meeting fees and retainers
received by a Participant over the three (3) most recently completed
calendar years preceding his retirement date.
1.02 Bank shall mean The Savings Bank of Manchester, a Bank organized under the
laws of Connecticut, or any successor by merger, purchase or otherwise.
1.03 Board of Directors shall mean the Board of Directors of the Bank.
1.04 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 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 Rules and
Regulations promulgated by the Office of Thrift Supervision ("OTS") (or
its predecessor agency), with respect to the Company, as in effect on the
date of this Agreement; 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 voting securities of the Bank or
the Company representing 20% or more of the Bank's or the Company's
outstanding voting securities or right to acquire such securities except
for any voting securities of the Bank purchased by the Company and any
voting securities purchased by any employee benefit plan of the Company or
its Subsidiaries, or (B) individuals who constitute the Board 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 Company's stockholders was approved
by a Nominating Committee solely composed of members which are Incumbent
Board members, 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
4
<PAGE>
occurs or is effectuated in which the Bank or Company is not the resulting
entity, or (D) a proxy statement has been distributed soliciting proxies
from stockholders of the Company, by someone other than the current
management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or Bank with one or
more corporations as a result of which the outstanding shares of the class
of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Bank or
the Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Company then outstanding.
1.05 Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.
1.06 Director shall mean a member of the Board of Directors.
1.07 Effective Date shall mean January 1, 2000.
1.08 Holding Company shall mean Connecticut Bancshares, Inc., a company
organized under the laws of Delaware or any successor by merger, purchase
or otherwise.
1.09 Participant shall mean a Director who is participating in the Plan
pursuant to Section 2.01 hereof.
1.10 Plan shall mean The Savings Bank of Manchester Consultation Plan for
Certain Outside Directors, as set forth herein and as may be amended from
time to time.
5
<PAGE>
ARTICLE II
PARTICIPATION; AMOUNT AND PAYMENT OF BENEFITS
2.01 Participation
(a) A Director of the Bank who is listed in Appendix A, as the same may be
amended from time to time by resolution of the Board, shall participate in
the Plan as of the Effective Date.
(b) A Participants participation in the Plan shall terminate upon the
Participant's death or upon the Participant ceasing to be a member of the
Board of Directors, unless a benefit is payable under the Plan with
respect to the Participant or his or her spouse under the provisions, of
this Article II.
2.02 Amount of Benefits
A Participant who retires as a Director at age 70 with ten (10) years of
service on the Board of Directors shall receive a benefit under the Plan
equal to fifty percent (50%) of his Average Board Cash Compensation. Said
benefit will increase by 5% for each additional full year of service of
the Participant on the Board of Directors for a maximum of one hundred
percent (100%) of a Participant's Average Board Cash Compensation upon the
completion of twenty (20) years of service on the Board of Directors.
2.03 Payment of Benefits
(a) A Participant shall receive the benefits payable under this Plan,
commencing as of the first of the month next following his or her last day
as a Director.
(b) A Participant with at least ten (10) years of service may elect to retire
before attaining age seventy (70) but after attaining age sixty-five (65)
and in doing so receive a reduced benefit under Section 2.02 of this Plan,
equal to five percent (5%) for each year the Participant's age is less
than age seventy (70).
(c) Benefits under this Plan are payable until the earlier to occur of: (1)
the tenth anniversary of a Director's retirement; or (2) a Director's
death.
(d) Notwithstanding the foregoing, each Participant, or in the event of his
death, his surviving spouse is guaranteed at least five (5) annual
payments of the benefit he is entitled to under this Plan if the
Participant is survived by a spouse. In the event of a Participant's death
prior to the receipt of five (5) annual payments, any remaining payments
shall be made to the Participant's surviving spouse, provided, however,
that if the Participant is not survived by a spouse, the Bank shall have
no further obligation under the Plan following the Participant's death.
6
<PAGE>
(e) Notwithstanding the foregoing, the payment of benefits under this
Plan are contingent upon a Participant's performance of certain consulting
services for the Bank, unless a Participant is subject to a disability
(within the meaning of Section 22(e)(3) of the Internal Revenue Code, as
amended). Such consulting services include, but are not limited to,
providing advice and information to the Company and the Bank on the
operations of the Bank, providing background and historical information on
the operations of the Bank and attending occasional meetings or
participation in telephonic conferences at mutually agreeable times and
locations.
2.04 Death
(a) If a Participant with at least ten (10) years of service on the Board of
Directors dies while in active service prior to attaining age sixty-five
(65), such Participant's surviving spouse shall receive a benefit payable
for five (5) years equal to fifty percent (50%) of the benefit the
Participant would have been eligible to receive had the Participant
attained age seventy (70) before his death. The benefit payments to the
surviving spouse shall commence of the first of the month next following
the Participant's death.
(b) If a Participant with at least ten (10) years of service on the Board of
Directors dies while in active service after attaining age sixty-five
(65), such Participant's surviving spouse shall receive a benefit payable
for five (5) years equal to 100% of the benefit the Participant would have
received had he retired as of his date of death.
(c) If a Participant is not married at the time of death, no further benefits
will be paid under the Plan.
2.05 Resumption of Membership on the Board of Directors
If a Participant who is receiving benefits under the Plan again becomes a
Director, all benefit payments to such Participant shall cease during the
period of service as a Director. Payments shall resume upon subsequent
termination of membership on the Board of Directors, without adjustment
for the period during which payments were not made.
2.06 Change-in-Control
In the event of a Change-in-Control of the Bank or the Holding Company,
each incumbent Director shall be deemed retired for purposes of the Plan
as of the effective date of the Change-in-Control and shall receive a lump
sum payment equal to the present value of the normal retirement benefit
assuming that, as of such date, each Director who was eligible to retire
or elect early retirement gets full benefit others assumed to have ten
(10) years of service and age seventy (70). For purposes of this Section,
each Participant is assumed to have at least ten (10) years of service on
the Board of Directors.
In addition, within a reasonable period following a Change-in-Control, the
Bank shall establish a grantor trust, as described in Section 4.01(b). The
Bank shall contribute to such trust the amount necessary in cash or cash
equivalents to fund all benefits accrued as
7
<PAGE>
of the Change-in-Control, determined using actuarial factors as determined
by an actuary appointed by the Bank, using reasonable actuarial factors
based on the actuarial standards set forth in Section 417(e) of the Code
or any successor thereto. Following a Change-in-Control a change in the
actuary may only take effect with the unanimous written consent of all
Participants in the Plan including in the case of a deceased Participant,
any surviving spouse who is entitled to benefits under the Plan.
8
<PAGE>
ARTICLE III
PLAN ADMINISTRATION
3.01 Administration
The administration of the Plan, the exclusive power to interpret it, and
the responsibility for carrying out its provisions are vested in the Bank
or its designate. The Bank or its designate shall have the authority to
resolve any question under the Plan. The determination of the Bank or its
designate as to the interpretation of the Plan or any disputed question
shall be conclusive and final to the extent permitted by applicable law.
3.02 Claims Procedure
(a) Claims for benefits under the Plan shall be submitted in writing to the
Bank or to an individual designated by the Bank for this purpose.
(b) If any claim for benefits is wholly or partially denied, the claimant
shall be given written notice within a reasonable period following the
date on which the claim is filed, which notice shall set forth:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions on which the denial
is based;
(iii) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(iv) an explanation of the Plan's claim review procedure.
If the claim has not been granted and written notice of the denial of the
claim is not furnished in a timely manner following the date on which the
claim is filed, the claim shall be deemed denied for the purpose of
proceeding to the claim review procedure.
(c) The claimant or his authorized representative shall have 30 days after
receipt of written notification of denial of a claim to request a review
of the denial by making written request to the Bank, and may review
pertinent documents and submit issues and comments in writing within such
30-day period.
After receipt of the request for review, the Bank or its designate shall,
in a timely manner, render and furnish to the claimant a written decision,
which shall include specific reasons
9
<PAGE>
for the decision and shall make specific references to pertinent Plan
provisions on which it is based. Such decision by the Bank shall not be
subject to further review. If a decision on review is not furnished to a
claimant, the claim shall be deemed to have been denied on review.
(d) No claimant shall institute any action or proceeding in any state or
federal court of law or equity or before any administrative tribunal or
arbitrator for a claim for benefits under the Plan until the claimant has
first exhausted the provisions set forth in this section.
3.03 Expenses
Expenses attributable to the administration of the Plan shall be paid
directly by the Bank.
10
<PAGE>
ARTICLE IV
GENERAL PROVISIONS
4.01 No Funding
(a) All amounts payable in accordance with the Plan shall constitute a general
unsecured obligation of the Bank. Such amounts, as well as any
administrative costs relating to the Plan, shall be paid out of the
general assets of the Bank, to the extent not paid from the asset of any
trust established pursuant to paragraph (b) below.
(b) The Bank may, for administrative reasons, establish a grantor trust with
an independent trustee for the benefit of Participants in the Plan. The
assets placed in said trust shall be held separate and apart from other
Bank funds and shall be used exclusively for the purposes set forth in the
Plan and the applicable trust agreement, subject to the following
conditions:
(i) the Bank shall be treated as "grantor" of said trust for purposes of
Section 677 of the Code; and
(ii) the agreement of said trust shall provide that its assets may be used
upon the insolvency or bankruptcy of the Bank to satisfy claims of
the Bank's general creditors and that the rights of such general
creditor are enforceable by them under federal and state law.
4.02 Amendment of the Plan
The Bank reserves the right to modify or amend the Plan, in whole or in
part, at any time, and from time to time. However, no modification or
amendment shall adversely affect the right of any Participant or surviving
spouse of a deceased Participant to receive the vested benefits accrued as
of the date of such modification, amendment or discontinuance without
their unanimous written consent.
Notwithstanding the foregoing, no amendment or modification to the Plan
may be made in connection with, or after, a Change-in-Control without the
unanimous written consent of the Participants and, in the case of any
deceased Participants, the surviving spouses who am entitled to benefits
under the Plan.
4.03 Termination of the Plan
The Bank reserves the right to terminate the Plan at any time, provided,
however, that no termination shall be effective retroactively. As of the
effective date of termination of the Plan:
11
<PAGE>
(a) the benefits of any Participant or spouse whose benefit payments have
commenced shall continue to be paid, and
(b) any Participant whose benefit is vested in accordance with Section
2.02 and Spouse thereof shall be entitled to receive such benefit in
accordance with the terms of the Plan.
Notwithstanding the foregoing, the Plan may not be terminated in
connection with, or after, a Change-in-Control without the unanimous,
written consent of the Participants and, in the case of any deceased
Participant, the surviving spouses who are entitled to benefits under the
Plan.
4.04 Plan Not a Directorship Agreement
The Plan is not a directorship agreement, and the Participant's service as
a Director shall not be affected in any way by the Plan or related
instruments, except as specifically provided therein. The establishment of
the Plan shall not be construed as conferring any legal rights upon any
person for a continuation of service as a Director. Each Participant and
all persons who may have or claim any right by reason of his participation
shall be bound by the terms of the Plan and all agreements entered into
pursuant thereto.
4.05 Facility of Payment
In the event that the Bank shall find that a Participant or surviving
spouse is unable to care for his affairs because of illness or accident,
or because such individual is a minor or has died, the Bank may, unless
claim shall have been made therefor by a duly appointed legal
representative, direct that any benefit payment due him be paid on his
behalf to his spouse, a child, a parent or other blood relative, or to a
person with whom he resides, and any such payment so made shall be a
complete discharge of the liabilities of the Bank and the Plan therefor.
4.06 Withholding Taxes
The Bank shall have the right to deduct from each payment to be made under
the Plan any required withholding taxes.
4.07 Nonalienation
Subject to any applicable law, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to do so shall be void. Nor
shall any such benefit be in any manner liable for or subject to
garnishment, attachment, execution or levy, or liable for or subject to
the debts, contracts, liabilities, engagements or torts of the person
entitled to such benefits.
12
<PAGE>
4.08 Forfeiture for Cause
In the event that the Participants service as Director is involuntarily
terminated for reason of serious misconduct, including by way of example,
dishonesty or fraud on the part of such Participant in his relationship
with the Bank, all benefits that would otherwise be payable to him or to
his spouse under the Plan shall be forfeited. Notwithstanding the
foregoing, no forfeiture shall take place following a Change-in-Control
unless the Participant is convicted of a felony involving dishonesty or
fraud on the part of such Participant in his relationship with the Bank.
4.09 Construction
(a) The Plan shall be construed, regulated and enforced under the laws of the
State of Connecticut.
(b) The masculine pronoun shall mean the feminine wherever appropriate.
(c) The illegality of any particular provision of this document shall not
affect the other provisions and the document shall be construed in all
respects as if such invalid provision were omitted.
(d) The headings and subheadings in the Plan have been inserted for
convenience of reference only, and are to be ignored in any construction
of the provisions thereof.
13
<PAGE>
THE SAVINGS BANK OF MANCHESTER
CONSULTATION PLAN FOR CERTAIN OUTSIDE DIRECTORS
APPENDIX A
PARTICIPANTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DATE OF SERVICE AS
NAME SOCIAL SECURITY NUMBER DIRECTOR
- -------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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</TABLE>
14
<PAGE>
EXHIBIT 10.10
FORM OF
THE SAVINGS BANK OF MANCHESTER
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(as amended and restated)
<PAGE>
The Savings Bank of Manchester
Supplemental Executive Retirement Plan
Table of Contents
<TABLE>
<S> <C>
Article I - Introduction......................................... 1
Article II - Definitions......................................... 2
Article III - Eligibility and Participation...................... 6
Article IV - Benefits............................................ 7
Article V - Accounts............................................. 10
Article VI - Supplemental Benefit Payments....................... 11
Article VII - Claims Procedures.................................. 13
Article VIII - Amendment and Termination......................... 15
Article IX - General Provisions.................................. 16
Article X - Required Regulatory Provisions....................... 19
</TABLE>
i
<PAGE>
Article I
Introduction
Section 1.01 Purpose, Design and Intent.
--------------------------
(a) The purpose of The Savings Bank of Manchester Supplemental Executive
Retirement Plan, as amended and restated (the "Plan") is to assist The
Savings Bank of Manchester (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.
(c) This Plan constitutes an amendment, restatement, and consolidation of the
two existing supplemental retirement benefit arrangements by and between
the Bank and Richard P. Meduski and the Bank and Charles Pike with and into
this Plan. The Effective Date of this Plan, as amended and restated, is
January 1, ____________.
1
<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;
(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; and
(v) the maximum limitations, under Sections 401(k), 401(m), or 402(g) of
the Code, on pre-tax contributions that may be made to a qualified
defined contribution plan.
(c) "Bank" means The Savings Bank of Manchester, and its successors.
(d) "Board of Directors" means the Board of Directors of the Bank.
(e) "Change in Control" means 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 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 Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), with respect to the Company, as
in effect on the date of this Agreement; or (iii) without limitation such a
Change
2
<PAGE>
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 voting securities of the Bank or the Company
representing 20% or more of the Bank's or the Company's outstanding voting
securities or right to acquire such securities except for any voting securities
of the Bank purchased by the Company and any voting securities purchased by any
employee benefit plan of the Company or its Subsidiaries, or (B) individuals who
constitute the Board 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 Company's stockholders was
approved by a Nominating Committee solely composed of members which are
Incumbent Board members, 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 or is
effectuated in which the Bank or Company is not the resulting entity, or (D) a
proxy statement has been distributed soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Company or Bank with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Company shall be distributed, or (E) a tender
offer is made for 20% or more of the voting securities of the Bank or Company
then outstanding.
(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 Connecticut Bancshares, Inc. and its successors.
(j) "Eligible Individual" means any Employee of the Bank or an Affiliate who
participates in the ESOP or the Pension Plan, as the case may be, 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.
3
<PAGE>
(n) "ESOP" means The Savings Bank of Manchester 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.
(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 January 1, _________.
(r) "Final Average Compensation" means the sum of the Participant's immediately
preceding annual rate of base pay from the Bank, plus the average of the three
(3) most recently earned incentive compensation bonuses.
(s) "Participant" means an Eligible Employee who is entitled to benefits under
the Plan.
(t) "Pension Plan" means The Savings Bank of Manchester Defined Benefit Pension
Plan, as amended from time to time.
(u) "Plan" means this Savings Bank of Manchester Supplemental Executive
Retirement Plan, as amended and restated.
(v) "Retirement" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under either the
ESOP or the Pension Plan, as appropriate.
(w) "Savings Plan" means The Savings Bank of Manchester Savings Plan, as amended
from time to time.
(x) "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.
(y) "Supplemental ESOP Benefit" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(z) "Supplemental Pension Account" means an account established by an Employer,
pursuant to Section 5.03 of the Plan, with respect to a Participant's
Supplemental Pension Benefit.
(aa) "Supplemental Pension Benefit" means the benefit earned by a Participant
pursuant to Section 4.03 of the Plan.
(bb) "Supplemental Savings Benefit" means the benefit credited to a Participant
pursuant to Section 4.04 of the Plan.
(cc) "Supplemental Savings Account" means an account established by an Employer,
pursuant to Section 5.04 of the Plan, with respect to a Participant Supplement
Savings Benefit.
4
<PAGE>
(dd) "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.
(ee) "Supplemental Stock Ownership Benefit" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
(ff) "Supplemental Retirement Income Benefit" means the benefit earned by a
Participant pursuant to Section 4.05 of the Plan.
5
<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.
6
<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
the 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:
(A) The first ESOP Valuation Date following the Participant's
Retirement, or
7
<PAGE>
(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.
Section 4.03 Supplemental Pension Benefit.
----------------------------
A Participant or, in the event of his death, his beneficiary, whose retirement
or survivor benefits under the Pension Plan are limited by one or more of the
Applicable Limitations shall be entitled to a supplemental retirement benefit or
survivor benefit (Supplemental Pension Benefit) under this Plan in an amount
equal to the excess of:
(i) the benefit to which he would be entitled under the Pension Plan in
the absence of the Applicable Limitations, computed as of the day the
Participant separates from service with the Employer on the basis of
the benefit form elected under the Pension Plan; over
(ii) the actual benefit to which he is entitled under the Pension Plan,
computed as of the day the Participant separates from service with the
Employer on the basis of the benefit form elected under the Pension
Plan;
8
<PAGE>
provided, however, that, if the Plan is terminated with respect to a Participant
prior to his separation from service with the Employer, such Supplemental
Pension Benefit shall not exceed the Supplemental Pension Benefit that would
have been payable under this Section 4.03, on the basis of the benefit form
elected under the Pension Plan, if his separation from service had occurred as
of the date of the termination of the Plan.
Section 4.04 Supplemental Savings Benefit.
----------------------------
A Participant's Supplemental Savings Benefit under the Plan shall be equal to
the excess of (a) over (b), where:
(a) is matching contributions that would otherwise be allocated to an account of
the Participant under the Savings Plan for a particular year if the
provisions of the Savings Plan were administered without regard to any of
the Applicable Limitations; and
(b) is the matching contributions made by the Employer that are actually
allocated to an account of the Participant under the provisions of the
Savings Plan for that particular year after giving effect to any reduction
of such allocation required by any of the Applicable Limitations.
Section 4.05 Supplemental Retirement Income Benefit
--------------------------------------
(a) Upon designation by the Board as a Participant with respect to this Section
4.05, a Participant's retirement from the Employer at age sixty (60), the
Participant shall be entitled to an annual benefit equal to sixty percent (60%)
of the Participant's Final Average Compensation less:
(i) the actual benefit to which he is entitled under the Pension
Plan, computed as of the day the Participant separates from
service with the Employer on the basis of the benefit form
elected under the Pension Plan; and
(ii) the amounts payable under Section 4.03 of this Plan.
(b) A Participant who ceases to be an employee of the Bank before attaining age
sixty (60) will receive no benefit under this Section 4.05, except in the event
of the Participant's death, disability or a Change in Control of the Bank or the
Company.
9
<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.
Section 5.03 Supplemental Pension Account.
----------------------------
Reserved
Section 5.04 Supplemental Savings Account.
----------------------------
The Employer shall establish a memorandum account, the "Supplemental Savings
Account" for each Participant on its books, and each year the Committee will
credit the amount of contributions determined under Section 4.04 of the Plan.
Contributions credited to a Participant's Supplemental Savings Account shall be
credited monthly with interest at a rate equal to the combined weighted return
provided to the Participant's matching contribution account under the Savings
Plan.
10
<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 Payment of Supplemental Pension Benefit.
---------------------------------------
(a) A Participant's Supplemental Pension Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Pension Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental
Pension Benefit under this Plan in the same percentage as he has to his
accrued benefits under the Pension Plan at the time the benefits become
distributable to him under the Pension Plan.
Section 6.04 Payment of Supplemental Savings Benefit.
---------------------------------------
(a) A Participant's Supplemental Savings Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Savings Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental
Savings Benefit under this Plan in the same percentage as he has to his
accrued benefits under the Pension Plan at the time the benefits become
distributable to him under the Savings Plan.
11
<PAGE>
Section 6.05 Payment of Supplemental Retirement Income Benefit
-------------------------------------------------
(a) A Participant's Supplemental Retirement Income Benefit shall be paid to the
Participant commencing on the first of the month next following the later
of (i) the Participant's attainment of age sixty (60), or (ii) his last day
as an employee of the Bank.
(b) In the event of the Participant's death, his surviving spouse shall receive
a monthly payment for life equal to fifty percent (50%) of the benefit
provided to the Participant during his lifetime. Such benefit shall
commence as of the first of the month next following the date the
Participant would have attained age sixty (60) or the date of his death, if
later.
(c) If a Participant is not married at the time of death, no further benefits
will be paid under this Section 6.05.
Section 6.06 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 and/or the Supplemental Pension Benefit
and/or Supplemental Savings Benefit to which he is entitled, and the survivor
benefit to which his beneficiary under the Pension Plan may be entitled under
Section 4.03 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 or the Pension Plan; provided,
however, that in the event of any difference with respect to his Supplemental
Pension Benefit, the benefit actually paid under this Section 6.04 shall be the
actuarial equivalent (as determined based on applicable tables, factors, and
assumption set forth in the Pension Plan) of the benefit that would be paid in
accordance with the provisions of Section 6.03 of the Plan.
12
<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
13
<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.
14
<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.
15
<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 constitutes 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.
16
<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.
17
<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 State of Connecticut.
Section 9.11 Withholding Taxes
----------- -----
The Bank shall have the right to deduct from each payment to be made under the
Plan any required withholding taxes.
18
<PAGE>
Article X
Required Regulatory Provisions
Section 10.01 Required Regulatory Provisions.
------------------------------
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.
Having been adopted by its Board of Directors on the ___ day of____________,
this Plan is executed by its duly authorized officer this ___ day
of________________.
THE SAVINGS BANK OF MANCHESTER
Attest:
________________________ By:___________________________________
For the Entire Board of Directors
19
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EXHIBIT 10.11
FORM OF
THE SAVINGS BANK OF MANCHESTER
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of The Savings Bank of Manchester Employee Severance
Compensation Plan is to assure for The Savings Bank of Manchester (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 the Connecticut Bancshares,
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 one year with such benefits in order to defray the costs and changes
in Employee 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 "The Savings Bank of Manchester 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.
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.
<PAGE>
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 cash compensation, if any, paid (including accrued amounts)
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
are or would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Bank" means The Savings Bank of Manchester or any successor 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 Institution 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 Institution, and the Rules and Regulations promulgated by
the Office of Thrift Supervision ("OTS") (or its predecessor agency), with
respect to the Holding Company, as in effect on the date of this Agreement; 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 voting
securities of the Institution or the Holding Company representing 20% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board 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 a Nominating Committee solely composed of members
which are Incumbent Board members, 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 Institution or the Holding Company or similar transaction occurs
or is effectuated in which the Institution or Holding Company is not the
resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of
2
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which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(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 thereof who
has completed at least one Year of Service with the Bank, or any subsidiary
thereof, 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) "Termination for Cause" shall include termination because of
Participant's personal dishonesty, incompetence, willful misconduct, any breach
of fiduciary duty involving personal profit, intentional failure or unjustified
neglect to perform stated duties, conviction of or pleading guilty or nolo
contendere to any crime or offense punishable as a felony or to any crime or
offense involving moral turpitude, 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.
(j) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of 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.
(k) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
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(l) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(m) "Plan" means The Savings Bank of Manchester Employee Severance
Compensation Plan.
(n) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire in which an Employee is credited with at least
one hour of service in each of the 12 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 12 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 sections of this Plan.
2.2 Applicable Law
--------------
The laws of the State of Connecticut 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.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
For purposes of this Plan, the term "Participant" shall include:
(a) Without regard to Years of Service, all Employees who were employed by
the Employer as of the Conversion Date; and
(b) All Employees employed after the Conversion Date who have completed at
least One Year of Service with the Employer at the time of any termination
pursuant to Section 4.2 herein; and
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.
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<PAGE>
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 an 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 its 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 twenty-four
(24) months, thereafter, the Participant's employment with an 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 an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause 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-five (35) 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 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.
5
<PAGE>
(e) A successor to the Employer fails or refuses to assume the Bank'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 who was employed by the Employer as of the
Conversion Date and is entitled to a Payment under this Plan, shall receive from
the Bank a lump sum cash payment equal to one-twelfth (1/12th) of Annual
Compensation for each year of service. The maximum benefit paid under this
subsection shall be 1.99 times Annual Compensation and the minimum benefit shall
be 1.00 times Annual Compensation.
(b) Each Participant who was employed by the Employer after the
Conversion Date and who is entitled to a Payment under this Plan shall receive
from the Bank, a lump sum cash payment equal to one-twelfth of Annual
Compensation for each year of service up to a maximum of 1.99 times Annual
Compensation.
(c) 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 defined in 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
the 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.
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.
6
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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.
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.
7
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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, 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 Payments 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 payments 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 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,
Employee and the Bank and their respective successors and assigns.
8
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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 Employee's right to compensation or other benefits under this Plan.
Employee shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2.1 hereinabove.
10.2 If an 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 Plan 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 an 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 Plan shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
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. For
this purpose, the Board's powers will include, but will not be limited to, the
following authority, in addition to all other
9
<PAGE>
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 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
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.
(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
10
<PAGE>
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 ____________.
Attest THE SAVINGS BANK OF MANCHESTER
______________________________ By: _________________________________
For the Entire Board of Directors
12
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Arthur Andersen LLP
Exhibit 23.1
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
dated January 15, 1999, except for Note 14 as to which the date is October 26,
1999 (and to all references to our Firm) included or made a part of this
registration statement for Connecticut Bancshares, Inc. and a part of the
application for conversion for Connecticut Bancshares, M.H.C. We further consent
to the use of our opinions referred to in the registration statement for
Connecticut Bancshares, Inc. and a part of the application for conversion for
Connecticut Bancshares, M.H.C. regarding certain income tax consequences of the
proposed reorganization and offering and of the proposed charitable foundation.
/s/ Arthur Andersen LLP
Hartford, Connecticut
November 12, 1999
<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 Connecticut Bancshares, Inc., and
all amendments thereto; in the Form H-(e)1-S for Connecticut Bancshares, Inc.,
and all amendments thereto; and in the Application for Conversion filed by
Connecticut Bankshares, M.H.C., and all amendments thereto, relating to the
conversion of Connecticut Bankshares, M.H.C., from a Connecticut-chartered
mutual holding company to a Delaware stock holding company, the concurrent
issuance of The Savings Bank of Manchester's outstanding capital stock to
Connecticut Bancshares, Inc., a holding company formed for such purpose, and the
offering of Connecticut Bancshares, Inc.'s common stock.
/s/ MULDOON, MURPHY & FAUCETTE LLP
----------------------------------
MULDOON, MURPHY & FAUCETTE LLP
Dated this 12th day of
November, 1999
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF RP FINANCIAL, LC.]
Board of Directors
Connecticut Bancshares, Inc.
Connecticut Bankshares, MHC
Savings Bank of Manchester
923 Main Street
Manchester, Connecticut 06040
Members of the Board of Directors:
We hereby consent to the use of our firm's name in the Application for
Conversion of Connecticut Bankshares, MHC, the mutual holding company for
Savings Bank of Manchester, Manchester, Connecticut, and any amendments
thereto, and in the Form S-1 Registration Statement, and any amendments thereto,
for Connecticut Bancshares, Inc. We also hereby consent to the inclusion of,
summary of and references to our Appraisal Report and our letter concerning
subscription rights in such filings including the Prospectus of Connecticut
Bancshares, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ RP Financial, LC.
---------------------
<PAGE>
EXHIBIT 23.4
October 22, 1999
Board of Directors
Connecticut Bankshares, MHC
Connecticut Bancshares, Inc.
Savings Bank of Manchester
923 Main Street
Manchester, Connecticut 06040
Re: Plan of Reorganization and Stock Issuance Plan: Subscription Rights
--------------------------------------------------------------------
Members of the Board of Directors:
All capitalized terms not otherwise defined in this letter have meanings
given to such terms in an amended Plan of Reorganization and Stock Issuance Plan
(the "Plan") adopted by the Board of Directors of Connecticut Bankshares, MHC
(the "Mutual Holding Company"). Pursuant to the Plan, the Mutual Holding
Company will change its name to Connecticut Bancshares, Inc. ("Bancshares"), and
convert to the stock form of ownership. Simultaneously, Bancshares will issue
shares of common stock.
We understand that, in accordance with the Plan, Subscription Rights to
purchase shares of Common Stock in Bancshares are to be issued to: (1) Eligible
Account Holders; (2) the Employee Stock Ownership Plan; and (3) Savings Bank of
Manchester directors, officers and employees. Based solely upon our observation
that the Subscription Rights will be available to such parties without cost,
will be legally non-transferable and of short duration, and will afford such
parties the right only to purchase shares of Common Stock at the same prices as
will be paid by members of the general public, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the belief that,
as a factual matter:
1. the Subscription Rights will have no ascertainable market value; and
2. the price at which the Subscription Rights are exercisable will not be
more or less than the estimated pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates and other external forces (such as
natural disasters or significant world events) may occur from time to time,
often with great unpredictability, and may materially impact the value of thrift
stock as a whole or Bancshares' value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the Subscription
Offering will thereafter be able to buy or sell such shares at the same price
paid in the Subscription Offering.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP Financial, LC.
---------------------
<PAGE>
Exhibit 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Richard P. Meduski and Nicholas B. Mason, 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
Application for Conversion of Connecticut Bankshares, M.H.C. and the
Registration Statement on Form S-1 by Connecticut Bancshares, Inc. and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Connecticut Department of Banking, the Federal Deposit
Insurance Corporation, the Federal Reserve Board and 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 have been duly signed by
the following persons in the capacities and on the dates indicated.
NAME DATE
---- ----
/s/ Richard P. Meduski November 12, 1999
- ------------------------------
Richard P. Meduski
President, Chief Executive Officer and Director
(principal executive officer)
Connecticut Bancshares, Inc.
President
(principal executive officer)
Connecticut Bankshares, M.H.C.
/s/ Nicholas B. Mason November 12, 1999
- -----------------------
Nicholas B. Mason
Senior Vice President and Chief
Financial Officer
(principal accounting and financial officer)
Connecticut Bancshares, Inc.
Senior Vice President and Chief
Financial Officer
(principal accounting and financial officer)
Connecticut Bankshares, M.H.C.
<PAGE>
/s/ Thomas A. Bailey November 12, 1999
- -------------------------------
Thomas A. Bailey
Chairman of the Board and Director
Connecticut Bancshares, Inc.
Chairman of the Board and Director
Connecticut Bankshares, M.H.C.
/s/ A. Paul Berte November 12, 1999
- ------------------------------------
A. Paul Berte
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ Timothy J. Devanney November 12, 1999
- ------------------------------------
Timothy J. Devanney
Director
Connecticut Bancshares, Inc.
/s/ M. Adler Dobkin November 12, 1999
- ------------------------------------
M. Adler Dobkin
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ Sheila B. Flanagan November 12, 1999
- ------------------------------------
Sheila B. Flanagan
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ John D. LaBelle, Jr. November 12, 1999
- -----------------------------
John D. LaBelle, Jr.
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
<PAGE>
November __, 1999
- -------------------------------
Michael B. Lynch
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ Eric A. Marziali November 12, 1999
- --------------------------------
Eric A. Marziali
Director
Connecticut Bancshares, Inc.
/s/ Jon L. Norris November 12, 1999
- --------------------------------
Jon L. Norris
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ William D. O'Neill November 12, 1999
- --------------------------------
William D. O'Neill
Director
Connecticut Bancshares, Inc.
/s/ Laurence P. Rubinow November 12, 1999
- --------------------------------
Laurence P. Rubinow
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ John G. Sommers November 12, 1999
- ------------------------------
John G. Sommers
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
<PAGE>
November __, 1999
- ----------------------------
Thomas E. Toomey
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
/s/ Gregory S. Wolff November 12, 1999
- -------------------------------
Gregory S. Wolff
Director
Connecticut Bancshares, Inc.
Director
Connecticut Bankshares, M.H.C.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CONNECTICUT BANKSHARES, M.H.C. AND
SUBSIDIARY AT AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND AT AND FOR THE EIGHT
MONTHS ENDED AUGUST 31, 1999 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-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 AUG-31-1999
<CASH> 45,039 42,811
<INT-BEARING-DEPOSITS> 9 12
<FED-FUNDS-SOLD> 1,000 16,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 205,943 192,821
<INVESTMENTS-MARKET> 221,205 203,584
<LOANS> 817,372 910,483
<ALLOWANCE> 10,585 10,791
<TOTAL-ASSETS> 1,108,287 1,181,669
<DEPOSITS> 855,117 887,322
<SHORT-TERM> 79,545 97,847
<LIABILITIES-OTHER> 7,172 6,314
<LONG-TERM> 45,000 66,899
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 112,807 118,042
<TOTAL-LIABILITIES-AND-EQUITY> 1,108,287 1,181,669
<INTEREST-LOAN> 64,511 43,299
<INTEREST-INVEST> 12,347 8,138
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 76,858 51,437
<INTEREST-DEPOSIT> 34,893 22,012
<INTEREST-EXPENSE> 37,200 23,976
<INTEREST-INCOME-NET> 39,658 27,461
<LOAN-LOSSES> 1,200 400
<SECURITIES-GAINS> 2,621 246
<EXPENSE-OTHER> 37,092 22,681
<INCOME-PRETAX> 13,526 9,798
<INCOME-PRE-EXTRAORDINARY> 13,526 9,798
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,318 6,663
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.22 7.57
<LOANS-NON> 784 5,050
<LOANS-PAST> 740 912
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 4,286
<ALLOWANCE-OPEN> 9,945 10,585
<CHARGE-OFFS> 1,087 332
<RECOVERIES> 527 138
<ALLOWANCE-CLOSE> 10,585 10,791
<ALLOWANCE-DOMESTIC> 10,585 10,791
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 10,585 10,791
</TABLE>
<PAGE>
EXHIBIT 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO SBM CHARITABLE FOUNDATION, INC.
Connecticut Bancshares, Inc., 923 Main Street, Manchester, CT 06040 (the
"Company"), desires to make a gift of its common stock, par value $.01 per share
to SBM Charitable Foundation, Inc. (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 Connecticut Bancshares, 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, Connecticut Bancshares, Inc. now gives, transfers, and
delivers to the Foundation _________ shares of its common stock, par value $.01
per share, for 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 The Savings Bank of
Manchester, Manchester, Connecticut operates, 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.
3. The Common Stock contributed to the Foundation by the Company shall,
for so long as such shares are held by the Foundation, be considered by the
Company to be voted in the same ratio as all other shares of Common Stock of the
Company which are voted on each and every proposal considered by stockholders of
the Company, provided, however that this voting restriction shall have no force
and effect in the event that such restriction is waived by the Federal Deposit
Insurance Corporation.
Dated:_________, 1999 Connecticut Bancshares, Inc.
By: _______________________
Richard P. Meduski
President & Chief Executive Officer
