<PAGE>
As filed with the Securities and Exchange Commission on November 23, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PORT FINANCIAL CORP.
(exact name of registrant as specified in its charter)
Massachusetts 6035 Application Pending
(state or other jurisdiction of (Primary Standard) (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
c/o Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
(617) 661-4900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
James B. Keegan
President and Chief Executive Officer
Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
(617) 349-8010
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
Richard A. Schaberg, Esq.
Thacher Proffitt & Wood
1700 Pennsylvania Ave, N.W., Ste. 800
Washington, D.C. 20006
(202) 347-8400
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 /
---
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================================
Title of each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price Per Share(2) Aggregate Offering Price(2) Registration Fee
- --------------------------- ------------- --------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C>
Common Stock 11,902,500 $10.00 $119,025,000 $33,088.95
$.01 par Value
==================================================================================================================================
</TABLE>
(1) Includes the maximum number of shares that may be issued in connection with
this offering.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration 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.
Port Financial Corp.
<PAGE>
Cross Reference Sheet showing location in the Prospectus of information required
by Items of Form S-1:
<TABLE>
<CAPTION>
Registration Statement Item and Caption Location or Headings in Prospectus
- ------------------------------------------------ ----------------------------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover Pages
Pages of Prospectus
3. Summary Information and Risk Factors Summary; Risk Factors
4. Use of Proceeds Summary--How We Intend to Use the Proceeds We Raise from the
Offering; How We Intend to Use the Proceeds from the Offering
5. Determination of Offering Price Summary---How We Determined the Offering Range and the $10.00
Price Per Share; The Conversion and the Offering--How We
Determined the Offering Range and the $10.00 Price Per Share
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Summary--Persons Who May Order Stock in the Offering; The
Conversion and the Offering--Subscription Offering and Subscription
Rights, Direct Community Offering and Syndicated Community
Offering
9. Description of Securities to be Registered Description of Capital Stock of Port Financial Corp.
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Outside Front Cover Page; Summary--The Companies; Summary--
Our Directors, Officers and Employees Will Have Additional
Compensation and Benefit Programs After the Conversion; Selected
Consolidated Financial and Other Data; Cambridgeport Bank; Port
Financial Corp.; Our Policy Regarding Dividends; Market for the
Common Stock; Regulatory Capital Compliance; Capitalization; Pro
Forma Data; Cambridgeport Mutual Holding Company Consolidated
Statements of Operations; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Business of
Cambridgeport Bank; Business of Port Financial Corp.; Regulation
of Cambridgeport Bank and Port Financial Corp; Federal Banking
Regulation; Management; Executive Officers; The Conversion and
the Offering; Restrictions on Acquisition of Port Financial Corp. and
Cambridgeport Bank; Description of Capital Stock of Port Financial
Corp.; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE>
PROSPECTUS
[LOGO]
PORT FINANCIAL CORP.
Proposed Holding Company for Cambridgeport Bank
Up to 11,902,500 Shares of Common Stock
Port Financial Corp. is a Massachusetts corporation that is offering shares of
its common stock in connection with the conversion of Cambridgeport Mutual
Holding Company to a stock holding company which will own all of the outstanding
stock of Cambridgeport Bank. We have applied to have the common stock of Port
Financial Corp. quoted on the Nasdaq National Market System under the symbol
"PORT."
____________________________________________________________
TERMS OF THE OFFERING
Price: $10.00 per share
<TABLE>
<CAPTION>
Minimum Maximum
----------- ------------
<S> <C> <C>
Number of shares........................................... 7,650,000 10,350,000
Underwriting commissions and expenses...................... $ 1,055,000 $ 1,055,000
Net proceeds to Port Financial Corp........................ $74,332,000 $101,332,000
Net proceeds per share to Port Financial Corp.............. $ 9.72 $ 9.79
</TABLE>
We may sell up to 11,902,500 shares because of regulatory considerations
or changes in market or economic conditions without the resolicitation of
subscribers.
____________________________________________________________
Please read the Risk Factors beginning on page [_].
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation, the Depositors Insurance Fund or
any other governmental agency.
None of the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Commissioner of Banks of the Commonwealth of Massachusetts nor
any state securities regulator has approved or disapproved these securities or
determined if this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
We are offering the common stock on a best efforts basis, subject to certain
conditions. The minimum number of shares that you may purchase is 25 shares.
Funds received prior to the completion of the offering will be held in an
account at Cambridgeport Bank which will bear interest at our savings passbook
rate. This offering will terminate on or about [_], 2000.
Ryan, Beck & Co.
[_], 2000
<PAGE>
[MAP OF CAMBRIDGEPORT BANK BRANCH OFFICES]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary ........................................................................................
Risk Factors ...................................................................................
Selected Consolidated Financial and Other Data .................................................
Cambridgeport Bank .............................................................................
Port Financial Corp. ...........................................................................
How We Intend to Use the Proceeds from the Offering ............................................
Our Policy Regarding Dividends .................................................................
Market for the Common Stock ....................................................................
Regulatory Capital Compliance ..................................................................
Capitalization .................................................................................
Pro Forma Data .................................................................................
Cambridgeport Mutual Holding Company Consolidated Statements of Operations .....................
Management's Discussion and Analysis of Financial Condition and Results of Operations ..........
Business of Cambridgeport Bank .................................................................
Business of Port Financial Corp. ...............................................................
Regulation of Cambridgeport Bank and Port Financial Corp. ......................................
Taxation .......................................................................................
Management .....................................................................................
The Conversion and the Offering ................................................................
Restrictions on Acquisition of Port Financial Corp. and Cambridgeport Bank .....................
Description of Capital Stock of Port Financial Corp. ...........................................
Legal and Tax Opinions .........................................................................
Experts ........................................................................................
Registration Requirements ......................................................................
Where You Can Find Additional Information ......................................................
Index to Financial Statements ..................................................................
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
SUMMARY
You should read this entire document carefully, including the consolidated
financial statements and the notes to the consolidated financial statements.
References in this document to "we", "us" or "our" refer to Cambridgeport Bank.
In certain instances where appropriate, "we", "us" or "our" refers to Port
Financial Corp., Cambridgeport Bank and Cambridgeport Mutual Holding Company,
either individually or in the aggregate.
Our Conversion and Stock Offering
Cambridgeport Mutual Holding Company is converting to a stock holding
company, Port Financial Corp., which will own all of the stock of Cambridgeport
Bank after the conversion. As part of the conversion, Port Financial Corp. is
offering shares of its common stock in a subscription offering on a priority
basis to qualifying depositors, tax-qualified employee benefit plans such as an
employee stock ownership plan (ESOP), and employees, officers, directors,
trustees and corporators of Cambridgeport Bank or Cambridgeport Mutual Holding
Company (Management). Any remaining stock not subscribed for in the subscription
offering will be offered in a community offering with preference given to
natural persons residing in the cities and towns of Cambridge, Arlington,
Bedford, Belmont, Boston, Braintree, Brookline, Burlington, Canton, Dedham,
Dover, Framingham, Lexington, Lincoln, Medford, Milton, Natick, Needham, Newton,
Norwood, Quincy, Randolph, Sherbourne, Somerville, Stoneham, Walpole, Waltham,
Watertown, Wayland, Wellesley, Weston, Westwood, Weymouth, Winchester and Woburn
(the Local Community), and possibly to the general public.
The Companies
Cambridgeport Bank
We are a Massachusetts-chartered stock savings bank that is currently a
wholly owned subsidiary of Cambridgeport Mutual Holding Company, a
Massachusetts-chartered mutual holding company. We were formed in 1853 and
reorganized into a mutual holding company structure (without a stock offering)
in 1994. Our mission in to be a profitable community-oriented provider of
banking products and services to individuals and businesses, including
residential and commercial mortgages, consumer loans, commercial loans, and a
variety of deposit instruments. We operate through ten full service banking
offices located in the cities and towns in and around Cambridge, Massachusetts.
Six of these banking offices are located in Middlesex County and four are
located in Norfolk County. In addition, we operate a Telebanking Center located
in Cambridge, Massachusetts to service loan and deposit customers, including
opening checking and deposit accounts and accepting loan applications.
1
<PAGE>
Cambridgeport Mutual Holding Company
Cambridgeport Mutual Holding Company is a Massachusetts-chartered mutual
holding company formed in 1994 in connection with Cambridgeport Bank's
reorganization. Cambridgeport Mutual Holding Company is governed by its Board of
Corporators and its Board of Trustees. On a consolidated basis at September 30,
1999, Cambridgeport Mutual Holding Company had unaudited total assets of
approximately $721.8 million and deposits and retained earnings of approximately
$596.1 million and $78.6 million, respectively. Under the conversion,
Cambridgeport Mutual Holding Company will convert to stock form and be renamed
Port Financial Corp.
Port Financial Corp.
Port Financial Corp. will be the stock holding company for Cambridgeport
Bank after the conversion. Port Financial Corp. has not engaged in any business
to date.
The following are highlights of Cambridgeport Bank's operating strategy:
. Community Banking and Customer Service
Since 1853, we have met the banking needs of Cambridge and its surrounding
communities. We are a service-oriented bank providing retail and business
customers with value driven products and services designed to create long term,
profitable relationships. Our focus is to develop core banking relationships by
securing checking accounts and then to provide customers appropriate loan and
other services from among a full array of banking products. In this regard, we
offer residential mortgage loans, commercial real estate loans and business
banking loans and services to customers throughout eastern Massachusetts. With
the recent mergers and consolidations of banks in our market, we believe that
our community-oriented approach to banking may help us to increase our market
share of retail consumers and business customers.
. Residential Lending
Cambridgeport Bank emphasizes the origination of residential mortgage
loans. At September 30, 1999, we had $276.9 million of residential mortgage
loans, representing 50.8% of our total loan portfolio. Our strategy is to offer
customers a broad range of mortgage products including adjustable, fixed rate
loans and jumbo loan products. We utilize mortgage originators to call on real
estate brokers and other key referral sources. In addition, our branch staff is
trained to prequalify potential mortgage borrowers and actively refer new
lending relationships to the mortgage department. Our Telebanking Center is
equipped with a special toll free number for loan customers and handles
information requests and accepts mortgage applications over the telephone.
We also offer home equity lines of credit to complement our mortgage
services. At September 30, 1999, we had $59.5 million of outstanding borrowings
under home equity lines of credit representing 10.9% of our portfolio.
2
<PAGE>
. Commercial Real Estate Lending
Beginning in 1994, we developed an expertise in commercial real estate
lending throughout the Boston metropolitan area as a means to increase the yield
on our loan portfolio and diversify our assets. Currently the commercial real
estate portfolio represents a significant portion of our lending activity. At
September 30, 1999, there were 225 loans in the commercial real estate portfolio
which totaled $200.4 million, or approximately 36.7% of our total loan
portfolio. The average size of commercial real estate loans in our portfolio was
approximately $891,000 Approximately 40% of our commercial real estate portfolio
was secured by properties located in the City of Boston. Properties in Cambridge
secured about 20% of the portfolio. The remainder was secured by properties
located elsewhere in our market area.
. Business Banking
We plan to increase our emphasis on business banking and to utilize our
existing branch franchise to provide expanded commercial deposit products and
services to business customers. Our service-oriented relationship banking
philosophy is targeted to capture business customers disenfranchised by recent
bank mergers. We have recently hired two senior commercial banking officers who
have extensive experience in establishing commercial banking centers and
generating and administering business banking for large Boston-based commercial
banks. These senior officers will work to enhance our operational infrastructure
and our loan production capabilities, so we can both expand relationships with
current business customers and attract new relationships. We will also hire
additional personnel to serve our business customers. We currently offer
traditional lending products such as lines of credit and term loans and we will
be expanding our services in 2000 by introducing cash management services, sweep
accounts and business banking using the internet.
. Business Diversification Strategies
We plan to become a broader provider of financial services, enhancing our
ability to attract and retain both retail and commercial customers and
diversifying our income stream. We intend to increase both our customer base and
our share of customers' financial services business by offering a diverse range
of products and services that formerly were offered only by insurance companies
and securities brokerage firms. We will continue to offer various uninsured
investment and insurance products, including fixed-rate and variable annuities
and mutual funds, through a relationship with a third party broker-dealer that
serves both retail and business customer needs for investment products. In
addition, we intend to apply to the Commissioner of Banks for permission to
conduct expanded insurance activities.
. Expanded Delivery Systems
To serve our existing customers better and to complement our expanded
product line and presence in the business banking market, we will increase the
channels through which we deliver products and services. The increased use of
alternative delivery channels has simplified and reduced the costs of financial
transactions for consumers, businesses and financial institutions. In addition
to conducting financial transactions at branch offices, customers are
increasingly using ATMs and online banking. In response to these trends, we
offer 24 hour telebanking
3
<PAGE>
services which provide our customers with continuous access to their accounts
through the use of a touch tone telephone. We plan to introduce an internet home
banking product which will give our customers access to their accounts and the
ability to conduct account transactions such as online bill payment and
electronic funds transfers. Business banking customers will also have access to
an internet banking service tailored to their needs.
. Asset Quality
We have a commitment to conservative loan underwriting policies and
investing in high grade assets. As a result of such practices and a relatively
stable economy, at September 30, 1999, we had $507,000 in non-performing assets
and a ratio of allowance for possible loan losses to total loans of 1.34%.
. Interest Rate Strategy
We seek to maintain an acceptable balance between maximizing potential
yield and limiting exposure to changing interest rates. To reduce the risk that
our earnings will be impacted if interest rates change, we:
. sell most of our fixed rate one- to four-family mortgage loans
rather than retain them in our loan portfolio;
. emphasize investments with adjustable rates and/or short- and
intermediate-term maturities of less than ten years;
. structure most of our commercial real estate loans with
adjustable rates; and
. offer home equity credit lines with variable rates indexed to the
prime rate.
Reasons for the Conversion
The conversion is intended to provide an additional source of capital not
available to us as a mutual institution. Funds raised in the offering will allow
Cambridgeport Bank to serve better the needs of our local community through:
. increased lending
(especially to support the growth of business banking);
. opportunistic branch expansion;
. diversifying products that we offer;
. increasing delivery systems, including the introduction of internet
banking; and
. marketing to customers disenfranchised by recent consolidations in
the local banking market.
4
<PAGE>
The conversion is also intended to provide an additional source of capital
to Port Financial Corp. in order to allow it to:
. finance acquisitions of other financial institutions or other
businesses related to banking;
. pay dividends to stockholders; and
. repurchase shares of our common stock.
Additionally, after the conversion, Port Financial Corp. will have the
ability to issue additional shares of common stock to raise capital or to
support mergers or acquisitions, although no additional capital issuance and no
mergers or acquisitions are planned or contemplated at the present time. In
addition, stock ownership by officers and other employees, through stock-based
benefit plans, has proven to be an effective performance incentive and an
effective means of attracting and retaining qualified personnel. We also believe
that the conversion will provide local customers and other residents with an
opportunity to become equity owners of Port Financial Corp., and thereby
participate in possible stock price appreciation and cash dividends. This is
consistent with our objective of being a locally-owned financial institution. We
believe that, through expanded local stock ownership, current customers and non-
customers who purchase common stock will seek to enhance the financial success
of Cambridgeport Bank through consolidation of their banking business and
increased referrals to Cambridgeport Bank.
After considering the advantages and risks of the conversion, as well as
applicable fiduciary duties, the Board of Trustees of Cambridgeport Mutual
Holding Company and the Board of Directors of Cambridgeport Bank unanimously
approved the conversion as being in the best interests of Cambridgeport Bank and
Cambridgeport Mutual Holding Company, our depositors and the communities that we
serve.
Terms of the Offering
We are offering between 7,650,000 and 10,350,000 shares of common stock of
Port Financial Corp. to qualifying depositors, tax-qualified employee plans,
Management, and possibly to the public. The maximum number of shares that we
sell in the offering may increase by 15% to 11,902,500 shares as a result of
regulatory considerations or changes in financial markets. Unless the number of
shares to be issued is increased to more than 11,902,500 or decreased below
7,650,000, you will not have the opportunity to change or cancel your stock
order. The offering price is $10.00 per share. Ryan, Beck & Co., Inc., our
financial and marketing advisor in connection with the conversion, will use its
best efforts to assist us in selling our stock.
5
<PAGE>
Persons Who May Order Stock in the Offering
We are offering the shares of common stock of Port Financial Corp. in what
we call a "subscription offering" in the order of priority listed below:
(1) Depositors with accounts at Cambridgeport Bank with aggregate balances
of at least $50 on July 31, 1998;
(2) Depositors with accounts at Cambridgeport Bank with aggregate balances
of at least $50 on September 30, 1999;
(3) The tax-qualified employee plans of Cambridgeport Bank
(including the ESOP), which will provide retirement benefits to our
employees; and
(4) Management.
The shares of common stock not purchased in the subscription offering will
be offered in what we call a "direct community offering," on a priority basis,
with preference to the natural persons residing within our Community
Reinvestment Act assessment area which consist of cities and towns of Cambridge,
Arlington, Bedford, Belmont, Boston, Braintree, Brookline, Burlington, Canton,
Dedham, Dover, Framingham, Lexington, Lincoln, Medford, Milton, Natick, Needham,
Newton, Norwood, Quincy, Randolph, Sherbourne, Somerville, Stoneham, Walpole,
Waltham, Watertown, Wayland, Wellesley, Weston, Westwood, Weymouth, Winchester
and Woburn. Shares may also be offered to the general public. We also may offer
shares of common stock not purchased in the subscription offering or the direct
community offering to the public in a "syndicated community offering." We have
the right to accept or reject orders received in the direct Community Offering
and the syndicated community offering at our sole discretion.
How We Determined the Offering Range and the $10.00 Price Per Share
The offering range is based on an independent appraisal of the common stock
to be offered. RP Financial, LC., an appraisal firm experienced in appraisals of
banks and financial institutions, has estimated the market value of the common
stock to be between $76,500,000 and $103,500,000. This results in an offering of
between 7,650,000 and 10,350,000 shares of common stock at an offering price of
$10.00 per share. RP Financial's estimate of our market value was based in part
upon our financial condition and results of operations and the effect of the
additional capital raised in this offering. RP Financial's independent appraisal
will be updated before we complete our conversion.
Two of the factors that RP Financial considered in determining our market
value were the price-to-book ratio and the price-to-earnings ratio or P/E ratio.
The price-to-book ratio represents the price per share of stock divided by its
book value per share. Assuming we completed the conversion at September 30,
1999, each share of Port Financial Corp. common stock would have a book value of
$16.18, assuming we sell 10,350,000 shares in the subscription offering. This
means that the price you pay for each share in this offering would be 61.80% of
the book value per share.
6
<PAGE>
The P/E ratio represents the price per share of stock divided by net income
per share. In our case, for 1999, our P/E ratio would have been 12.71x on an
annualized basis, assuming that we sold 10,350,000 shares in the subscription
offering. Each of the price-to-book ratio and the P/E ratio were calculated
using information contained in our pro forma financial data, included in this
prospectus.
The $10.00 price per share was selected primarily because $10.00 is the
price per share most commonly used in stock offerings involving conversions of
savings institutions. See "Pro Forma Data."
Limits on Your Purchase of the Common Stock
Your orders for common stock will be limited in the following ways:
(1) the minimum order is 25 shares or $250;
(2) in the subscription offering, the maximum amount that an individual
may purchase is $1,000,000;
(3) in the direct community offering and in the syndicated community
offering, the maximum amount that an individual may purchase is
$1,000,000;
(4) in all categories of the offering combined, the total amount that an
individual may purchase, acting together with others, is $2,000,000;
and
(5) if we receive orders for a greater number of shares than we are
offering, then we will allocate the available shares that we issue
based upon deposit balances. This may result in your receiving a
smaller number of shares than you ordered. See "The Conversion and The
Offering."
We may increase the $1,000,000 and $2,000,000 purchase limitations if we do not
receive orders for at least 7,650,000 shares. The ESOP is authorized to purchase
up to 8% of the shares issued without regard to these purchase limitations. For
additional information on these purchase limitations see "The Conversion and The
Offering -- Limitations on Common Stock Purchases."
How You May Pay for Your Shares
In the subscription offering and the direct community offering you may pay
for your shares only by:
(1) personal check, bank check or money order; or
(2) authorizing us to withdraw money from your non-check writing deposit
accounts maintained with Cambridgeport Bank.
7
<PAGE>
You May Not Sell or Transfer Your Subscription Rights
If you order stock in the subscription offering, you will be required to
state that you are purchasing the stock for yourself and that you have no
agreement or understanding to sell or transfer your subscription rights. We
intend to take legal action, including reporting persons to federal or state
regulatory agencies, against anyone who we believe sells or gives away their
subscription rights. We will not accept your order if we have reason to believe
that you sold or transferred your subscription rights.
Deadline for Orders of Common Stock
If you wish to purchase shares, a properly completed stock order form,
together with payment for the shares, must be received by the Stock Information
Center or our main office no later than 10:00 a.m., Massachusetts time, on
[ ], 2000, unless we extend this deadline. You must submit your order forms
by mail, overnight courier or by dropping off your order at our main office.
Termination of the Offering
The subscription offering will terminate at 10:00 a.m., Massachusetts time,
on [ ], 2000. We expect that the community offering will terminate at the
same time. We may extend this expiration date without notice to you, until
[ ], 2000, unless regulators approve a later date. If the subscription
offering and/or community offering is extended beyond [ ], 2000, we will be
required to resolicit subscriptions before proceeding with the offering. All
further extensions, in the aggregate, may not last beyond [ ].
Steps We May Take If We Do Not Receive Orders for the Minimum Number of Shares
If we do not receive orders for at least 7,650,000 shares of common stock,
we may take several steps in order to sell the minimum number of shares in the
offering range. Specifically, we may increase the $1,000,000 and $2,000,000
purchase limitations to a maximum of $5,167,500, which is 5% of the maximum of
the offering range. In addition, we may seek regulatory approval to extend the
offering beyond the [ ], 2000 expiration date, provided that any such
extension will require us to resolicit subscriptions received in the offering.
See "The Conversion and The Offering -- Limitations on Common Stock Purchases."
Market for the Common Stock
We have applied to have the common stock of Port Financial Corp. quoted on
the Nasdaq National Market System under the symbol "PORT". Ryan, Beck & Co.
intends to make a market in the common stock but it is under no obligation to do
so.
8
<PAGE>
How We Intend to Use the Proceeds We Raise from the Offering
Assuming we sell 10,350,000 shares in the offering, we intend to distribute
the net proceeds from the offering as follows:
. $50,666,000 will be contributed to Cambridgeport Bank;
. $8,280,000 will be loaned to the ESOP to fund its purchase of common
stock; and
. $42,386,000 will be retained by Port Financial Corp.
Port Financial Corp. intends to use the net proceeds retained from the
offering to invest in securities, to finance the possible acquisition of other
financial institutions and other businesses that are related to banking, to pay
dividends, to repurchase common stock or for other general corporate purposes.
The Bank may use the proceeds it receives for the expansion of its lending
activities (especially to support the emphasis of business banking);
opportunistic branch expansion; expanding delivery systems, including the
introduction of Internet banking; and capitalization on opportunities to serve
customers disenfranchised by recent consolidations in the local banking market.
Our Policy Regarding Dividends
Although no decision has been made yet regarding the payment of dividends,
we will consider a policy of paying quarterly cash dividends on the common stock
beginning in the first full quarter after we complete the conversion. We do not
guarantee that we will pay dividends, or that we will not reduce or eliminate
dividends in future periods.
Our Directors, Officers and Employees Will Have Additional
Compensation and Benefit Programs After the Conversion
We are adding a new benefit plan for our officers and employees at no cost
to them:
. ESOP. This retirement plan will cover most of our employees. Port
Financial Corp. will lend the ESOP money to buy up to 8% of the shares
we sell in the offering. The ESOP will buy shares either in the
offering or in the open market after the offering and will allocate
the stock to employees over a thirty-year period as additional
compensation for their services.
. ESOP Restoration Plan. This plan will provide selected executive
officers additional benefits if the tax laws limit their benefits or
if they retire before the allocation of all stock under the ESOP.
9
<PAGE>
We currently have the following termination pay arrangements:
. Employment Agreements and Change of Control Agreements. We have
entered into employment agreements with Mr. James B. Keegan, our
President and Chief Executive Officer, and Ms. Jane L. Lundquist,
Executive Vice President. If we discharge one of them without cause,
if one of them resigns because we do not meet our obligations under
these agreements or following a change in control of Port Financial
Corp., we must make a termination payment. As of the conversion, we
will also enter into change in control agreements with other senior
officers that will provide for termination payments in the event of
termination of employment under certain circumstances following a
change of control.
. Directors' Emeritus Consultation Plan. Under this plan, directors
who retire from service on the board of Port Financial Corp. within
four years from the conversion may elect to provide consulting
services to Port Financial Corp. for a period of 12 to 36 months for a
monthly fee of $1,000. A director emeritus will provide the
consulting services agreed upon and may attend meetings of the board
of Port Financial Corp., but will have no power or right to vote at
such meetings.
We also plan to add the following stock-based benefit plans for our
directors, officers and employees:
. Stock Option Plan. Under this plan, we may grant our officers,
directors and employees options to purchase our stock at a price that
is set on the date we grant the option. The price that we set cannot
be less than our stock's trading price when we grant the options, so
the options will have value only if our stock price increases.
Recipients of options will have up to ten years to exercise their
options.
. Management Recognition Plan. This plan will allow selected officers,
directors and employees to receive shares of our stock, without making
any payment, if they work for us until the end of a specified service
period.
Assuming we sell 10,350,000 shares, we expect to ask our stockholders for
approval to grant options to purchase 1,035,000 of our shares and make stock
grants under a management recognition plan of up to 414,000 shares under the
plans described above. We will not implement a stock option plan or management
recognition plan unless our stockholders approve them. We do not expect to ask
our stockholders to approve these plans until at least six months after we
complete the offering. We expect to obtain the shares we would need for these
plans through open market stock purchases or from authorized but unissued
shares.
10
<PAGE>
The following table presents the dollar value of the shares that we expect
to grant under the ESOP and the contemplated management recognition plan and
stock option plan, and the percentage of Port Financial Corp.'s outstanding
common stock that will be represented by these shares. The numbers in the table
are based on the issuance of 10,350,000 shares of common stock at $10.00 per
share.
<TABLE>
<CAPTION>
Percentage of
Value of common stock sold
Benefit Plan shares granted in the offering
--------------------------------- -------------------- -------------------
(In thousands)
<S> <C> <C>
ESOP............................. $ 8,280 8%
Stock option plan................ - 10%
Management recognition plan...... $ 4,140 4%
</TABLE>
How You May Obtain Additional Information Regarding the Conversion and Offering
If you have any questions regarding the offering or the conversion, please
call the Stock Information Center at [ ], Monday through Friday between
9:00 a.m. and 4:00 p.m., Massachusetts time.
11
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
You should consider carefully the following risk factors before deciding
whether to invest in our common stock.
- --------------------------------------------------------------------------------
After the conversion our return on average equity will be low compared
to other companies. This could hurt the price of our common stock.
We will not be able to deploy the increased capital from this offering into
high-yielding earning assets immediately. Our ability to leverage our new
capital profitably will be significantly affected by industry competition for
loans and deposits. Initially, we intend to invest the net proceeds in short-
term investments and mortgage-backed securities, which generally have lower
yields than loans. This will reduce our return on average equity to a level
that will be lower than our historical ratios. For the nine months ended
September 30, 1999, our return on average equity was 6.45%. Until we can
leverage our increased capital and increase interest earning assets, we expect
our return on equity to be below the industry average, which may negatively
impact the value of our stock.
Our intent to pursue conservative and locally-based business goals may not suit
your investment objectives.
On a post-conversion basis, Cambridgeport Bank intends to continue to serve
the financial needs of the local community and to remain an independent,
locally-based institution pursuing safe operations and conservative lending and
investment strategies. We are going to continue to lend primarily in eastern
Massachusetts after our conversion as we did before. We also will not lower
credit standards even though our capital base will be larger. For these
reasons, our future earnings may not increase significantly. If your investment
goals are to invest in companies with high earnings growth, you may find that we
may not suit your investment objectives.
Recent stock market volatility may adversely affect the price of your stock.
Publicly traded stocks, including stocks of financial institutions, have
recently experienced substantial market price volatility. These market
fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded. In several cases, common stock issued by
recently converted financial institutions has traded at a price that is below
the price at which such shares were sold in the initial offerings of those
companies. The purchase price of our common stock in the offering is based on
the independent appraisal by RP Financial. After our shares begin trading, the
trading price of our common stock will be determined by the marketplace, and may
be influenced by many factors, including prevailing interest rates, investor
perceptions of Port Financial Corp. and general industry and economic
conditions. Due to possible continued market volatility, we cannot assure you
that, following the conversion, the trading price of our common stock will be at
or above the $10.00 per share initial offering price.
12
<PAGE>
Also, because Port Financial Corp. has never issued stock, there is no
current trading market for the common stock. Consequently, Port Financial Corp.
cannot assure or guarantee that an active trading market for the common stock
will develop or that, 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 Port Financial Corp. 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.
Provisions under Massachusetts law, in our charter documents and other laws and
regulations may prevent transactions you would like.
Provisions of our articles of organization and bylaws and applicable
provisions of Massachusetts and Federal law and regulations may delay, inhibit
or prevent an organization or person from gaining control of Port Financial
Corp. through a tender offer, business combination, proxy contest or some other
method even though some of our stockholders might believe a change in control is
desirable. See "Description of Capital Securities --" and "--Special Charter
and Massachusetts Corporate Law Provisions" in the accompanying prospectus and
"Business -- Supervision and Regulation."
A decrease in demand for mortgage, commercial and consumer loans may lower our
profitability.
Making loans is our primary business and primary source of profits. In the
past, loan demand has fluctuated due to economic conditions in our primary
market area. If customer demand for loans decreases, our profits may decrease
because our alternative investments earn less revenue for us than real estate,
commercial and consumer loans. Customer demand for loans could be reduced by a
weaker economy, an increase in unemployment, a decrease in real estate values,
an increase in interest rates or increased competition from other institutions.
Our emphasis on commercial real estate lending increases the risk that downturns
in the real estate market or economy will adversely impact our profits.
Loans secured by commercial real estate properties generally involve a
higher degree of risk than the residential mortgages traditionally emphasized by
banking institutions engaged in residential real estate lending. Because
payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to a greater extent, to adverse conditions in the
real estate market or the economy. Commercial real estate loans may also
involve relatively large loan balances to single borrowers or groups of related
borrowers. A downturn in the real estate market or the economy could adversely
impact the value of properties secured by the loan as the future cash flow of
the affected properties. Our emphasis on commercial real estate loans could
therefore adversely affect our profits.
13
<PAGE>
Our increased commercial business activities may adversely impact earnings and
asset quality.
Our future will depend on the success of our efforts to diversify our loan
portfolio through the expansion of commercial banking, the related development
of new products, and expansion delivery systems. The success of our efforts to
increase commercial loan originations and successfully market commercial
products will depend on market conditions in our primary market area and will
require a significant investment in administrative infrastructure of our
business banking and personnel to staff the department. Commercial business
loans involve a higher degree of risk that loans will not be repaid than loans
secured by residential and commercial real estate because repayment is generally
dependent upon the successful operation of the borrower's business. As the
volume of commercial business loans in our loan portfolio increases, the
corresponding risks and potential for losses from these activities may also
increase.
Our loans are concentrated in a small geographic area.
Our loan portfolio is secured primarily by real estate located in the
Massachusetts counties of Middlesex, Suffolk and Norfolk. Accordingly, the
asset quality of our loan portfolio depends upon the economy and unemployment
rate in this area. A downturn in the economy or the real estate market in our
primary lending area would likely adversely affect our operations and
profitability.
Strong competition within our market area may reduce our customer base.
Competition in the banking and financial services industries is intense.
We have competed for customers by offering excellent service and competitive
rates on our loans and deposit products. We compete with commercial banks,
savings institutions, mortgage banking firms, credit unions, finance companies,
mutual funds, insurance companies, and brokerage and investment banking firms.
Some of these competitors have greater resources than we do and may offer
services that we do not provide. Our profitability depends upon our continued
ability to compete successfully in our market area.
Changing interest rates may adversely affect our profits.
To be profitable, we must earn more interest on loans and investments than
the interest we pay on deposits and borrowings. If interest rates rise, our net
interest income could be negatively affected if interest paid on interest-
earning liabilities, such as deposits and borrowings, increases more quickly
than interest earned on interest-earning assets, such as loans and investment
securities. This would reduce our net income to go down. In addition, rising
interest rates may hurt our income because they may reduce the demand for loans
and the value of our investment securities and make it more difficult for our
borrowers to repay their loans. If interest rates decline, however, our loans
may be refinanced at lower rates or paid and our investments may be prepaid
earlier than expected, which may also lower our income. Interest rates will
continue to fluctuate, and we cannot predict future Federal Reserve Board
actions or other factors that will cause rates to change.
14
<PAGE>
We have broad discretion in allocating the proceeds of the offering. Our
failure to effectively apply such proceeds could hurt our profits.
We intend to contribute approximately $50.7 million of the $103.5 million
in net proceeds (assuming the sale of 10,350,000 shares in the offering) to
Cambridgeport Bank, which will use the proceeds to support increased lending,
opportunistic branch expansion, diversification of products, and the expansion
of delivery systems. In addition, Port Financial Corp. plans to use the
proceeds to invest in securities, to finance the possible acquisition of other
financial institutions or other businesses related to banking, to repurchase
common stock or to pay dividends and for other general corporate purposes. We
have not allocated specific amounts of proceeds for these purposes, and we will
have significant flexibility in determining the amounts of net proceeds we apply
to different uses and the timing of such applications. Our failure to apply
these funds effectively could hurt our profits.
The implementation of stock-based benefits will increase our future compensation
expense, reduce our earnings, and cause dilution.
We intend to adopt a stock option plan that will provide for granting to
our eligible officers, employees, and directors options to purchase common stock
of up to 10% of the common stock issued in the offering, to adopt a management
recognition plan that will provide for awards of common stock of up to 4% of the
common stock issued in the offering to our eligible officers, employees and
directors, and to have an ESOP which will purchase up to 8% of the stock issued
in the offering for allocation to employees as a retirement benefit. These
plans will increase our future costs of compensating our directors and
employees, thereby reducing our earnings. Additionally, stockholders will
experience a reduction in ownership interest in the event newly issued shares
are used to fund stock options and restricted stock awards.
Banking reform legislation may increase competition.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-
Bliley Financial Services Modernization Act of 1999, federal legislation
intended to modernize the financial services industry by establishing a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers. As a result
of the legislation, bank holding companies will be permitted to engage in a
wider variety of financial activities than permitted under prior law,
particularly with respect to insurance and securities activities. In addition,
in a change from prior law, bank holding companies will be in a position to be
owned, controlled or acquired by any company engaged in financially-related
activities. However, to the extent that it permits banks, securities firms and
insurance companies to affiliate, the financial services industry may experience
further consolidation. This could result in a growing number of larger
financial institutions that offer a wider variety of financial services than we
currently offer and that can aggressively compete in the markets we currently
serve. This could adversely impact our profitability.
15
<PAGE>
Forward Looking Statements
This prospectus contains certain "forward-looking statements" which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general and local
economic conditions, changes in interest rates, deposit flows, demand for
mortgages and other loans, real estate values, and competition; changes in
accounting principles, policies, or guidelines; changes in legislation or
regulation; and other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and services.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The summary information presented below at or for each of the years
presented is derived in part from the consolidated financial statements of
Cambridgeport Mutual Holding Company. The following information is only a
summary, and you should read it in conjunction with our consolidated financial
statements and notes beginning on page F-1.
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------ ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- --------- -------- --------- ---------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets................................. $721,813 $686,460 $678,087 $619,368 $574,817 $508,558 $470,337
Loans, net(1)................................ 537,901 473,719 496,390 419,187 306,321 272,968 235,109
Investment securities available for sale(2).. 140,286 154,955 150,642 164,617 215,369 164,792 167,559
Investments securities held to maturity...... - - - - - - 22,517
Deposits..................................... 596,137 579,842 568,075 520,357 502,698 425,199 400,289
Federal Home Loan Bank advances.............. 41,431 24,824 27,066 21,604 720 11,720 7,045
Total retained earnings...................... 78,578 75,679 76,088 71,072 66,845 64,552 58,206
Allowance for possible loan losses........... 7,297 6,061 6,633 4,907 4,269 4,074 4,130
Non-performing assets........................ 507 850 963 789 903 1,471 1,763
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months For the Years Ended
Ended September 30, December 31,
------------------- ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- --------- -------- ---------- -------- -------- ---------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest and dividend income.................. $37,097 $36,292 $48,656 $43,961 $37,741 $35,413 $27,249
Interest expense.............................. 18,944 19,358 25,880 23,554 21,038 18,733 12,562
------- ------- ------- ------- ------- ------- -------
Net interest income........................... 18,153 16,934 22,776 20,407 16,703 16,640 14,687
Provision for possible loan losses............ 562 1,183 1,760 600 450 100 -
------- ------- ------- ------- ------- ------- -------
Net interest and dividend income after
provision for loan losses.................... 17,591 15,751 21,016 19,807 16,253 16,540 14,687
Total non-interest income..................... 2,131 2,651 3,571 3,176 3,220 3,506 1,502
Total non-interest expenses................... 14,289 13,631 18,042 17,638 16,199 13,945 13,656
------- ------- ------- ------- ------- ------- -------
Income before provision for income
taxes........................................ 5,433 4,771 6,545 5,345 3,274 6,101 2,533
Provision for income taxes.................... 1,826 1,707 2,357 1,679 787 2,101 31
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 3,607 $ 3,064 $ 4,188 $ 3,666 $ 2,487 $ 4,000 $ 2,502
======= ======= ======= ======= ======= ======= =======
</TABLE>
___________
(1) Loans include loans held for sale and are shown net of deferred loan fees,
allowance for loan loss and unadvanced loan funds.
(2) Includes Federal Home Loan Bank of Boston stock and Savings Bank Life
Insurance stock.
17
<PAGE>
<TABLE>
<CAPTION>
At or For the
Nine Months Ended
September 30, At or For Years Ended December 31,
-------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- -------- -------- -------- -------- -------- --------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other
Data(3)
Performance Ratios:
Return on average assets........... 0.69% 0.63% 0.63% 0.61% 0.46% 0.82% 0.59%
Return on average equity........... 6.45 5.85 5.93 5.50 3.89 6.62 4.31
Average equity to average assets... 10.65 10.73 10.71 11.14 11.81 12.32 13.11
Equity to total assets at end of
period............................ 10.89 11.02 11.22 11.47 11.63 12.69 12.38
Average interest rate spread....... 2.90 2.85 2.94 2.91 2.58 2.86 3.01
Net interest margin(4)............. 3.57 3.58 3.56 3.52 3.19 3.50 3.44
Average interest earning assets
to average interest bearing
liabilities....................... 115.18 115.26 115.32 115.04 115.03 111.24 112.26
Total noninterest expense to
average assets.................... 2.72 2.79 2.73 2.95 2.99 2.78 3.14
Efficiency ratio(5)................ 70.44 69.81 68.64 77.17 83.72 72.59 81.58
Regulatory Capital Ratios:
Regulatory tier 1 leverage capital. 10.76 10.65 10.66 11.04 11.38 12.42 12.86
Tier 1 risk-based capital.......... 18.37 18.36 18.74 19.24 21.32 20.93 21.26
Total risk-based capital........... 20.19 20.18 20.54 20.51 22.57 22.18 22.51
Asset Quality Ratios:
Non-performing loans as a percent
of total loans.................... 0.09 0.18 0.19 0.19 0.29 0.49 0.72
Non-performing assets as a percent
of total assets................... 0.07 0.03 0.14 0.13 0.16 0.29 0.37
Allowance for loan losses as a
percent of total loans............ 1.34 1.26 1.32 1.16 1.37 1.47 1.72
Number of:
Full-service offices............... 10 10 10 9 8 6 5
Telebanking Center................. 1 1 1 1 - - -
Full-time equivalent employees..... 182 179 179 169 155 141 134
</TABLE>
________________
(3) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
Ratios for the period at or for the nine months ended September 30 are
annualized.
(4) Net interest margin represents net interest income as a percentage of
average interest earning assets.
(5) The efficiency ratio represents the ratio of operating expenses divided by
the sum of net interest income and non-interest income less gain on sales of
investments.
18
<PAGE>
CAMBRIDGEPORT BANK
Cambridgeport Bank is a Massachusetts-chartered stock savings bank,
chartered in 1853. We are headquartered in Cambridge, Massachusetts, a suburb of
Boston. Our deposits are insured by the FDIC up to applicable legal limits and
by the Depositors Insurance Fund in excess of such amounts. We are examined and
regulated by the Division of Banks of the Commonwealth of Massachusetts and the
FDIC. Our executive offices are located at 689 Massachusetts Avenue, Cambridge,
Massachusetts 02139 and our telephone number is (617) 661-4900.
We are a community-oriented bank providing retail and business customers
with value driven products and services to meet customer needs. We provide a
wide variety of deposit products, residential mortgage loans, commercial real
estate loans, commercial loans and consumer loans to our customers in the cities
and towns around Cambridge, Massachusetts. Over the past five years, we have
more than doubled our branch network from four full service bank offices to ten
full service bank offices and one telebanking center. We have strategically
located our branch offices in cities and towns with a strong base for real
estate lending and deposit growth and where community bank competition has been
reduced by a consolidating banking industry. Our branch expansion has increased
our customer base and allowed us to increase our profitability by shifting our
mix of assets more towards higher yielding loans relative to investment
securities. As of September 30, 1999, approximately 75.6% of our total assets
were invested in loans. These loans are funded primarily by core deposits with
little reliance on borrowings. Our total deposits amounted to $596.1 million at
September 30, 1999 while borrowings totaled $41.4 million on that date.
Our branch expansion and broadened customer base has also enabled us to
diversify our loan portfolio without sacrificing asset quality or capital
strength. As of September 30, 1999, 36.7% of our loan portfolio consisted of
commercial real estate loans and 10.9% consisted of home equity lines of credit.
Non-performing assets were 0.07% of total assets while our tier 1 leverage
capital ratio was 10.76% on that date. For further information on our
operations and financial condition, see "Business of Cambridgeport Bank."
PORT FINANCIAL CORP.
Port Financial Corp. will be a Massachusetts-chartered stock holding
company. Port Financial Corp. has not engaged in any business to date and will
serve as a holding company of Cambridgeport Bank following the conversion. Port
Financial Corp. will be a registered bank holding company with the Federal
Reserve Board. Port Financial Corp.'s executive offices are located at 689
Massachusetts Avenue, Cambridge, Massachusetts and its telephone number is (617)
661-4900.
19
<PAGE>
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
The net proceeds will depend on the total number of shares of common stock
sold in the offering, which in turn will depend on RP Financial's appraisal,
regulatory and market considerations, and the expenses incurred in connection
with the offering. Although we will not be able to determine the actual net
proceeds from the sale of the common stock until we complete the offering, we
estimate the net proceeds to be between $74.3 million and $101.3 million ($116.9
million if the offering is increased 15%).
Port Financial Corp. intends to distribute the net proceeds from the
offering as follows:
<TABLE>
<CAPTION>
Number of Shares Sold
---------------------------------------
Minimum Maximum Super-Maximum
7,650,000 10,350,000 11,902,500
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Offering proceeds.............................. $ 76,500 $ 103,500 $ 119,025
Less: offering expenses........................ 2,168 2,168 2,168
Net offering proceeds.......................... 74,332 101,332 116,857
Less:
Proceeds contributed to Cambridgeport Bank.. 37,166 50,666 58,429
Proceeds used for loan to ESOP.............. 6,120 8,280 9,522
Proceeds contributed to Port Financial Corp.... 31,046 42,386 48,906
</TABLE>
The net proceeds may vary because total expenses relating to the conversion
may be more or less than our estimates. For example, our expenses would
increase if a syndicated community offering is used to sell shares not purchased
in the subscription offering and community offering. The net proceeds will also
vary if the number of shares to be sold in the offering are adjusted to reflect
a change in the estimated pro forma market value of Port Financial Corp. and
Cambridgeport Bank or if our ESOP purchases shares at an average cost that is
higher or lower than $10 per share. Payments for shares made through
withdrawals from existing deposit accounts will not result in the receipt of new
funds for investment by Cambridgeport Bank but will result in a reduction of
Cambridgeport Bank's deposits and interest expense as funds are transferred from
interest bearing certificates of deposit or other deposit accounts.
Port Financial Corp. may use the proceeds it retains from the offering:
. to finance possible acquisitions of financial institutions or other
businesses related to banking;
. to pay dividends to stockholders;
. to repurchase shares of common stock issued in the conversion;
. to invest in securities; and
. for general corporate purposes.
20
<PAGE>
Cambridgeport Bank may use the proceeds it receives from the offering:
. to fund new loans;
. to establish or acquire new branches;
. to diversify products that we offer;
. to increase delivery systems, including the introduction of internet
banking;
. to invest in securities; and
. for general corporate purposes.
Our ability to repurchase our common stock may be subject to certain
regulatory restrictions. See "Management-Future Stock Benefit Plans."
OUR POLICY REGARDING DIVIDENDS
Although no decision has been made yet regarding the payment of dividends,
we will consider a policy of paying quarterly cash dividends on the common stock
of Port Financial Corp., beginning in the first full fiscal quarter after
completion of the conversion. The payment of dividends will be subject to the
determination of our Board of Directors and will depend upon our debt and equity
structure, earnings and financial condition, need for capital in connection with
possible future acquisitions and other factors, including economic conditions,
regulatory restrictions and tax considerations. We cannot guarantee that we
will pay dividends to the amount and frequency of dividends, if declared.
The only funds available for the payment of dividends on the capital stock
of Port Financial Corp. will be cash and cash equivalents held by Port Financial
Corp. (but only statutory retained earnings or net profits), dividends paid by
Cambridgeport Bank to Port Financial Corp., and borrowings. Cambridgeport Bank
will be prohibited from paying cash dividends to Port Financial Corp. to the
extent that any such payment would reduce Cambridgeport Bank's capital below
required capital levels or would impair the liquidation account to be
established for the benefit of the Cambridgeport Bank's eligible account holders
and supplemental eligible account holders at the time of the conversion. See
"The Conversion and The Offering -- Effects of the Conversion -- Depositors'
Rights If We Liquidate; Liquidation Account."
If Port Financial Corp. issues preferred stock, the holders of the
preferred stock may have dividend preferences over the holders of common stock.
FDIC regulations limit Cambridgeport Bank's ability to pay dividends under
certain circumstances, for example, if, among other things, it was not in
compliance with applicable regulatory capital requirements. In addition,
Massachusetts law provides that dividends may not be declared, credited or paid
by Cambridgeport Bank so long as there is any impairment of capital stock. No
dividend may be declared on Cambridgeport Bank's common stock for any period
other than for which dividends are declared upon preferred stock, except as
authorized by the Commissioner. The approval of the Commissioner is also
required for Cambridgeport Bank to declare a dividend, if the total of all
dividends declared by it in any calendar year shall exceed
21
<PAGE>
the total of its net profits for that year combined with its retained net
profits of the preceding two years, less any required transfer to surplus or a
fund for the retirement of any preferred stock.
MARKET FOR THE COMMON STOCK
We have not previously issued common stock, and there is currently no
established market for the common stock. We have applied to have our common
stock quoted on the Nasdaq National Market under the symbol "PORT" after
completion of the offering. Ryan, Beck & Co. has advised us that it intends to
make a market in the common stock following the conversion, but is under no
obligation to do so. We will seek to encourage and assist additional market
makers to make a market for our common stock.
The development of an active trading market depends on the existence of
willing buyers and sellers, the presence of which is not within our control, or
any market maker. The number of active buyers and sellers of the common stock
at any particular time may be limited. Under such circumstances, you could have
difficulty selling your shares on short notice, and, therefore, you should not
view the common stock as a short-term investment. We cannot assure you that an
active trading market for the common stock will develop or that, if it develops,
it will continue, nor can we assure you that if you purchase shares you will be
able to sell them at or above $10.00 per share.
22
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At September 30, 1999, we exceeded all regulatory capital requirements.
Set forth below is a summary of our capital computed under generally accepted
accounting principles ("GAAP") and our compliance with regulatory capital
standards at September 30, 1999, on a historical and pro forma basis. We have
assumed that the indicated number of shares were sold as of September 30, 1999
and that Cambridgeport Bank received 50% of the net proceeds from the offering.
For purposes of the table below, the amount expected to be loaned to the
employee stock ownership plan and the cost of the shares expected to be acquired
by the management recognition plan are deducted from pro forma regulatory
capital. For a discussion of the capital requirements applicable to
Cambridgeport Bank, see "Regulation of Cambridgeport Bank and Port Financial
Corp. -- Federal Banking Regulation -- Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1999 Based Upon the Sale at $10.00 Per Share
-------------------------------------------------------------------------------------------------
7,650,000 Shares 9,000,000 Shares 10,350,000 Shares
Historical at Minimum of Midpoint of (Maximum of
September 30, 1999 Range) Range) Range)
-------------------- -------------------- --------------------- -----------------------
Percent Percent Percent Percent
of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------- -------- ------ --------- ------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital and Retained Earnings
under Generally Accepted
Accounting Principles........ $78,578 10.89% $106,564 14.10% $111,694 14.66% $116,824 15.20%
======= ======== ======== ========= ======== ===== ======== =========
Tier 1 Leverage Capital(3).... 76,038 10.76 104,023 14.04 109,153 14.61 114,283 15.17
Requirement(4)................ 28,266 4.00 29,630 4.00 29,879 4.00 30,127 4.00
------- -------- ------- ----- -------- ----- -------- ---------
Excess........................ 47,772 6.76 74,393 10.04 79,274 10.61 84,156 11.17
======= ======== ======= ===== ======== ===== ======== =========
Tier 1 Risk-Based
Capital(3)(5)................ 76,038 18.37 104,023 24.73 109,153 25.87 114,283 27.01
Requirement................... 16,555 4.00 16,828 4.00 16,877 4.00 16,927 4.00
------- ------- ------- ----- -------- ----- -------- ---------
Excess........................ 59,483 14.37 87,195 20.73 92,276 21.87 97,356 23.01
======= ======= ======= ===== ======== ===== ======== =========
Total Risk-Based
Capital(3)(4)................ 83,547 20.19 111,533 26.51 116,663 27.65 121,793 28.78
Requirement(4)................ 33,110 8.00 33,656 8.00 33,755 8.00 33,854 8.00
------- ------- ------- ----- -------- ----- -------- ---------
Excess........................ $50,437 $ 12.19% 77,877 18.51% $ 82,908 19.65% $ 87,939 20.78%
======= ======= ======= ===== ======== ===== ======== =========
<CAPTION>
11,902,500 Shares
(15% Above Maximum
of Range) (1)
--------------------
Percent
of
Amount Assets(2)
-------- ---------
<S> <C> <C>
Capital and Retained Earnings
under Generally Accepted
Accounting Principles........ $122,724 15.83%
======== =====
Tier 1 Leverage Capital(3).... 120,183 15.81
Requirement(4)................ 30,413 4.00
-------- -----
Excess........................ 89,770 11.81
======== =====
Tier 1 Risk-Based............. 120,183 28.30
Capital(3)(5)
Requirement................... 16,985 4.00
-------- -----
Excess........................ 103,198 24,30
======== =====
Total Risk-Based
Capital(3)(4)................ 127,623 30.07
Requirement(4)................ 33,969 8.00
------- -----
Excess........................ $ 93,724 22.07%
======== =====
</TABLE>
- ---------------
(1) As adjusted to give effect to an increase in the number of share which
could occur due to an increase in the estimated price range of up to
15% as a result of changes in market conditions or general financial and
economic conditions following the commencement of the offering.
(2) Leverage capital levels are shown as a percentage of "total loss," and
risk-based capital levels are calculated on the basis of a percentage of
"risk-weighted assets," each as defined in the FDIC regulations.
(3) Pro forma capital levels assume receipt by Cambridgeport Bank of 50% of
the net proceeds from the shares of common stock sold at minimum midpoint
and maximum of the offerings range. These levels assume funding by Port
Financial Corp. of the management recognition plan equal to 4% of common
stock issued, including repayment of Port Financial Corp. loan to the
employee stock ownership plan to enable the plan to purchase 8% of the
common stock.
(4) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
ratings for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4%.
(5) Assumes net proceeds are invested in assets that carry a 20%
risk-weighting.
23
<PAGE>
CAPITALIZATION
The following table presents the historical deposits and consolidated
capitalization of Cambridgeport Mutual Holding Company at September 30, 1999,
and the pro forma capitalization of Port Financial Corp. after giving effect to
the conversion, based upon the sale of the number of shares shown below and the
other assumptions set forth under "Pro Forma Data." A change in the number of
shares to be sold in the offering may affect materially the capitalization.
<TABLE>
<CAPTION>
Pro Forma Based Upon Sale at $10.00 Per Share
----------------------------------------------------------------------------
11,902,500 Shares
Historical 7,650,000 Shares 9,000,000 Shares 10,350,000 Shares (15% Above
as of (Minimum (Midpoint (Maximum Maximum of
September 30, 1999 of Range) of Range) of Range) Range) (1)
------------------ ---------------- ---------------- --------------- -----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)....................... $596,137 $596,137 $596,137 $596,137 $596,137
Borrowings........................ 41,431 41,431 41,431 41,431 41,431
-------- -------- -------- -------- --------
Total deposits and borrowed
funds............................ 637,568 637,568 637,568 637,568 637,568
======== ======== ======== ======== ========
Stockholders' equity:
Common stock, $0.01 par
value, 30,000,000
shares authorized; shares to
be issued as reflected(3).... - 77 90 104 119
Preferred stock, $.01 par
value, 5,000,000
shares authorized; no shares
to be issued................. - - - - -
Additional paid-in capital)(3)... - 74,255 87,742 101,228 116,738
Retained earnings(4)............. 76,054 76,054 76,054 76,054 76,054
Accumulated other
comprehensive income (5)..... 2,524 2,524 2,524 2,524 2,524
Less:
Common stock acquired by
ESOP(6)...................... - (6,120) (7,200) (8,280) (9,522)
Common stock acquired by
management
recognition plan(7).......... - (3,060) (3,600) (4,140) (4,761)
-------- -------- -------- -------- --------
Total stockholders' equity........ $ 78,578 $143,730 $155,610 $167,490 $181,152
======== ======== ======== ======== ========
</TABLE>
___________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering of up to 15% as a result of
regulatory considerations or changes in market or general financial and
economic conditions following the commencement of the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the offering at a value of $10.00
per share. No effect has been given to the issuance of additional shares of
common stock pursuant to Port Financial Corp.'s proposed stock option plan
intended to be adopted by Port Financial Corp. and presented for approval of
stockholders at a meeting of the stockholders to be held at least six months
following completion of the offering.
(4) The retained earnings of Cambridgeport Bank will be substantially restricted
after the offering.
(5) Represents the unrealized gain on securities classified as available-for-
sale, net of related taxes.
(6) Assumes that 8% of the shares issued in connection with the offering will be
purchased by the employee stock ownership plan at an average cost of $10 per
share and that the funds used to acquire such shares will be borrowed from
Port Financial Corp. The common stock acquired by the employee stock
ownership plan is reflected as a reduction of stockholders' equity.
(7) Assumes that, subsequent to the offering, an amount equal to 4% of the
shares of common stock issued in the offering is purchased by a management
recognition plan through open market purchases. The proposed management
recognition plan is intended to be adopted by Port Financial Corp. and
presented for approval of stockholders at a meeting of stockholders to be
held at least six months following completion of the offering. The common
stock purchased by the management recognition plan is reflected as a
reduction of stockholders' equity.
24
<PAGE>
PRO FORMA DATA
We can not determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $74.3 million and $101.3 million, or $116.9 million if the
offering range is increased by 15%, based upon the following assumptions:
. we will sell all shares of common stock in the subscription offering;
. we will pay Ryan, Beck & Co. fees and expenses of approximately
$1,055,000; and
. total expenses, excluding fees and expenses paid to Ryan, Beck & Co.
will be approximately $1,113,000.
We calculated the pro forma consolidated net income and stockholders'
equity of Port Financial Corp. for the nine months ended September 30, 1999 and
the year ended December 31, 1998, as if the common stock had been sold at the
beginning of the year and the net proceeds had been invested at 5.18% and 4.52%,
respectively. We chose these yields because they represent the yield on one-
year U.S. Government securities at the corresponding period. In light of
changes in interest rates in recent periods, we believe this rate more
accurately reflects pro forma reinvestment rates than the arithmetic average
method which assumes reinvestment of the net proceeds at a rate equal to the
average of yield on interest earning assets and cost of deposits for these
periods. We assumed a tax rate of 36.0% for both periods. This results in an
annualized after-tax yield of 3.32% for the nine months ended September 30, 1999
and 2.89% for the year ended December 31, 1998.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of pro forma consolidated net income and
stockholders' equity by the indicated number of shares of common stock. We
adjusted these figures to give effect to the shares purchased by the employee
stock ownership plan. We computed per share amounts for each period as if the
common stock was outstanding at the beginning of the periods, but we did not
adjust per share historical or pro forma stockholders' equity to reflect the
earnings on the estimated net proceeds. As discussed under "How We Intend to
Use the Proceeds from the Offering," Port Financial Corp. intends to infuse
Cambridgeport Bank with 50% of the net proceeds from the offering, make a loan
to the employee stock ownership plan to fund the employee stock ownership plan's
purchase of 8% of the common stock, and retain all of the rest of the proceeds
at the holding company level for capital needs that arise in the future.
The following tables give effect to the restricted stock program or
"management recognition plan", which we expect to adopt following the conversion
and present, to stockholders for approval at an annual or special meeting of
stockholders to be held at least six months following the completion of the
conversion. If the management recognition plan is approved by stockholders, the
management recognition plan will acquire an amount of common stock equal to 4%
of the shares of common stock sold in the offering, either through open market
purchases or from authorized but unissued shares of common stock. In preparing
the following tables we assumed that stockholder approval has been obtained and
that the shares acquired by the management recognition plan are purchased in the
open market at the purchase price.
25
<PAGE>
The following tables do not give effect to:
. the shares to be reserved for issuance under the stock option plan,
which requires stockholder approval at a meeting following the
conversion;
. withdrawals from deposit accounts to purchase common stock in the
conversion;
. Port Financial Corp.'s results of operations after the conversion; or
. changes in the market price of the common stock after the conversion.
The following pro forma information may not represent the financial effects
of the conversion at the date on which the conversion actually occurs and you
should not use the table to indicate future results of operations. Pro forma
stockholders' equity represents the difference between the stated amount of
assets and liabilities of Port Financial Corp. computed in accordance with
generally accepted accounting principles. We did not increase or decrease
stockholders' equity to reflect the difference between the carrying value of
loans and other assets and market value. Pro forma stockholders' equity is not
intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
if we liquidated.
26
<PAGE>
<TABLE>
<CAPTION>
At or for the Nine Months Ended September 30, 1999
-----------------------------------------------------
Maximum
Minimum Midpoint Maximum As Adjusted
7,650,000 9,000,000 10,350,000 11,902,500
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share(1)
--------- --------- ----------- ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds..................................... $ 76,500 $ 90,000 $ 103,500 $ 119,025
Less expenses....................................... 2,168 2,168 2,168 2,168
Estimated net proceeds.............................. 74,332 87,832 101,332 116,857
Less: Common stock purchased by ESOP(2)............. (6,120) (7,200) (8,280) (9,522)
Less: Common stock purchased by MRP(3).............. (3,060) (3,600) (4,140) (4,761)
---------- ---------- ----------- -----------
Estimated net proceeds, as adjusted.............. $ 65,152 $ 77,032 $ 88,912 $ 102,574
========== ========== =========== ===========
For the 9 months ended September 30, 1999:
- -----------------------------------------
Consolidated net income:
Historical $ 3,607 $ 3,607 $ 3,607 $ 3,607
Pro forma income on net proceeds................... 1,620 1,915 2,211 2,550
Pro forma ESOP adjustment(2)....................... (98) (115) (132) (152)
Pro forma MRP adjustment(3)........................ (294) (346) (397) (457)
---------- ---------- ----------- -----------
Pro forma net income............................ $ 4,835 $ 5,061 $ 5,289 $ 5,548
========== ========== =========== ===========
Per share net income (reflects SOP 93-6):
Historical......................................... $ 0.53 $ 0.45 $ 0.40 $ 0.34
Pro forma income on net proceeds................... 0.24 0.24 0.24 0.24
Pro forma ESOP adjustment(2)(4).................... (0.01) (0.01) (0.01) (0.01)
Pro forma MRP adjustment(3)........................ (0.04) (0.04) (0.04) (0.04)
---------- ---------- ----------- -----------
Pro forma net income per share.................. $ 0.72 $ 0.64 $ 0.59 $ 0.53
========== ========== =========== ===========
Offering price as a ratio of pro forma net
annualized income per share........................ 10.42x 11.72x 12.71x 14.15x
At September 30, 1999
- ---------------------
Stockholders' equity:
Historical......................................... $ 78,578 $ 78,578 $ 78,578 $ 78,578
Estimated net proceeds............................. 74,332 87,832 101,332 116,857
Less: Common Stock acquired by ESOP(2)............. (6,120) (7,200) (8,280) (9,522)
Less: Common Stock acquired by MRP(3).............. (3,060) (3,600) (4,140) (4,761)
---------- ---------- ----------- -----------
Pro forma stockholders' equity $ 143,730 $ 155,610 $ 167,490 $ 181,152
========== ========== =========== ===========
Stockholders' equity per share(5):
Historical........................................ $ 10.27 $ 8.73 $ 7.59 $ 6.60
Estimated net proceeds............................ 9.72 9.76 9.79 9.82
Less: Common Stock acquired by ESOP(2)............ (0.80) (0.80) (0.80) (0.80)
Less: Common stock acquired by MRP(3)............. (0.40) (0.40) (0.40) (0.40)
---------- ---------- ----------- -----------
Pro forma stockholders' equity per share....... $ 18.79 $ 17.29 $ 16.18 $ 15.22
========== ========== =========== ===========
Offering price as a percentage of pro forma
stockholders' equity per share.................... 53.22% 57.84% 61.80% 65.70%
========== ========== =========== ===========
</TABLE>
27
<PAGE>
________________
(1) We reserve the right to issue up to a total of 11,902,500 shares at $10.00
per share, or 15% above the maximum of the offering range. Unless otherwise
required by the regulators, subscribers will not be given the right to
modify their subscriptions unless the aggregate purchase price of the common
stock is increased to exceed $119.0 million (i.e., 15% above the maximum of
the offering range.)
(2) Assumes 8% of the shares to be sold in the offering are purchased by the
employee stock ownership plan under all circumstances, and that the funds
used to purchase such shares are borrowed from Port Financial Corp. The
approximate amount expected to be borrowed by the ESOP is reflected in this
table as a reduction of capital. Although repayment of such debt will be
secured solely by the shares purchased by the employee stock ownership plan,
we expect to make discretionary contributions to the employee stock
ownership plan in an amount at least equal to the principal and interest
payments on the employee stock ownership plan debt. Pro forma net income
has been adjusted to give effect to such contributions, based upon a fully
amortizing debt with a thirty-year term. The provisions of SOP 93-6 have
been applied for shares to be acquired by the employee stock ownership plan
and for purposes of computing earnings per share.
(3) Assumes a number of issued and outstanding shares of common stock equal to
4% of the common stock to be sold in the offering will be purchased by the
management recognition plan. Before the management recognition plan is
implemented, it must be approved by the stockholders. The dollar amount of
the common stock possibly to be purchased by the management recognition plan
is based on $10.00 per share and represents unearned compensation and is
reflected as a reduction of capital. Such amount does not reflect possible
increases or decreases in the price per share after the offering. As we
accrue compensation expenses to reflect the vesting of such shares over 5
years pursuant to the management recognition plan, the charge against
capital will be reduced accordingly. In the event the shares issued under
the management recognition plan consist of newly issued shares of common
stock at the price per share in the offering, the per share financial
condition and result of operations of Port Financial Corp. would be
proportionately reduced and to the extent the interest of existing
stockholders would be diluted by approximately 3.85%. For purposes of the
preceding table, it was assumed that the number of unvested management
recognition plan shares at September 30, 1999 was 306,000, 360,000, 414,000
and 476,100 for the minimum, midpoint, maximum, and 15% above the maximum of
the offering range, respectively.
(4) Cambridgeport Bank intends to record compensation expense related to the
employee stock option plan in accordance with SOP 93-6. As a result, to the
extent the value of the common stock appreciates over time, compensation
expense related to the employee stock ownership plan will increase. SOP 93-
6 also changes the earnings per share computations for leveraged employee
stock ownership plans to include as outstanding only shares that have been
committed to be released to participants. For purposes of the preceding
table, it was assumed that the number of employee stock ownership plan
shares were committed to be released at September 30, 1999 was 15,300,
18,000, 20,700 and 23,805 for the minimum, midpoint, maximum and 15% above
the maximum of the offering range, respectively.
(5) Stockholders' equity per share data is based upon 7,650,000, 9,000,000,
10,350,000 and 11,902,500 shares outstanding representing shares sold in the
offering, and shares purchased by the ESOP and management recognition plan.
28
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1998
-----------------------------------------------------
Maximum as
Minimum Midpoint Maximum Adjusted
7,650,000 9,000,000 10,350,000 11,902,500
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share(1)
------------ ---------- ---------- --------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................... $ 76,500 $ 90,000 $ 103,500 $ 119,025
Less expenses.................................... 2,168 2,168 2,168 2,168
Estimated net proceeds.......................... 74,332 87,832 101,332 116,857
Less: Common stock purchased by ESOP(2)......... (6,120) (7,200) (8,280) (9,522)
Less: Common stock purchased by MRP(3).......... (3,060) (3,600) (4,140) (4,761)
---------- ---------- ----------- -----------
Estimated net proceeds, as adjusted........... $ 65,152 $ 77,032 $ 88,912 $ 102,574
========== ========== =========== ===========
For the 12 months ended December 31, 1998
- -----------------------------------------
Historical...................................... $ 4,188 $ 4,188 $ 4,188 $ 4,188
Pro forma income on net proceeds................ 1,885 2,228 2,572 2,967
Pro forma ESOP adjustment(2).................... (131) (154) (177) (203)
Pro forma MRP adjustment(3)..................... (392) (461) (530) (609)
---------- ---------- ----------- -----------
Pro forma net income.......................... $ 5,550 $ 5,801 $ 6,053 $ 6,343
========== ========== =========== ===========
Per share net income (reflects SOP 93-6)
Historical...................................... $ 0.62 $ 0.53 $ 0.46 $ 0.40
Pro forma income on net proceeds................ 0.28 0.28 0.28 0.28
Pro forma ESOP adjustment(2)(4)................. (0.02) (0.02) (0.02) (0.02)
Pro forma MRP adjustment(3)..................... (0.06) (0.06) (0.06) (0.06)
---------- ---------- ----------- -----------
Pro forma net income per share................ $ 0.82 $ 0.73 $ 0.66 $ 0.60
========== ========== =========== ===========
Offering price as a ratio of pro forma net
income per share.............................. 12.20x 13.70x 15.15x 16.67x
At December 31, 1998
- --------------------
Stockholders' equity:
Historical...................................... $ 76,088 $ 76,088 $ 76,088 $ 76,088
Estimated net proceeds.......................... 74,332 87,832 101,332 116,857
Less: Common stock acquired by ESOP(2)........ (6,120) (7,200) (8,280) (9,522)
Less: Common stock acquired by MRP(3)......... (3,060) (3,600) (4,140) (4,761)
---------- ---------- ----------- -----------
Pro forma stockholders' equity................ $ 141,240 $ 153,120 $ 165,000 $ 178,662
========== ========== =========== ===========
Stockholders' equity per share (5):
Historical...................................... $ 9.95 $ 8.45 $ 7.35 $ 6.39
Estimated net proceeds........................... 9.72 9.76 9.79 9.82
Less: Common stock acquired by ESOP(2)........ (0.80) (0.80) (0.80) (0.80)
Less: Common stock acquired by MRP(3)......... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ----------- -----------
Pro forma stockholders' equity per share...... $ 18.47 $ 17.01 $ 15.94 $ 15.01
========== ========== =========== ===========
Offering price as a percentage of pro forma...... 54.14% 58.79% 62.74% 66.62%
stockholders' equity per share.................. ========== ========== =========== ===========
</TABLE>
29
<PAGE>
__________________
(1) We reserve the right to issue up to a total of 11,902,500 shares at $10.00
per share, or 15% above the maximum of the Independent Valuation. Unless
otherwise required by the regulators, subscribers will not be given the
right to modify their subscriptions unless the aggregate purchase price of
the common stock is increased to exceed $119.0 million (i.e., 15% above the
maximum of the Independent Valuation.)
(2) Assumes 8% of the shares to be sold in the offering are purchased by the
employee stock ownership plan under all circumstances, and that the funds
used to purchase such shares are borrowed from Port Financial Corp. The
approximate amount expected to be borrowed by the ESOP is reflected in this
table as a reduction of capital. Although repayment of such debt will be
secured solely by the shares purchased by the employee stock ownership plan,
we expect to make discretionary contributions to the employee stock
ownership plan in an amount at least equal to the principal and interest
payments on the employee stock ownership plan debt. Pro forma net income has
been adjusted to give effect to such contributions, based upon a fully
amortizing debt with a thirty-year term. The provisions of SOP 93-6 have
been applied for shares to be acquired by the employee stock ownership plan
and for purposes of computing earnings per share.
(3) Assumes a number of issued and outstanding shares of common stock equal to
4% of the common stock to be sold in the offering will be purchased by the
management recognition plan. Before the management recognition plan is
implemented, it must be approved by the stockholders. The dollar amount of
the common stock possibly to be purchased by the management recognition plan
is based on $10.00 per share and represents unearned compensation and is
reflected as a reduction of capital. Such amount does not reflect possible
increases or decreases in the price per share after the offering. As we
accrue compensation expenses to reflect the vesting of such shares over 5
years pursuant to the management recognition plan, the charge against
capital will be reduced accordingly. In the event the shares issued under
the management recognition plan consist of newly issued shares of common
stock at the price per share in the offering, the per share financial
condition and result of operations of Port Financial Corp. would be
proportionately reduced and to the extent the interest of existing
stockholders would be diluted by approximately 3.85%. For purposes of the
preceding table, it was assumed that the number of unvested management
recognition plan shares at December 31, 1998 was 306,000, 360,000, 414,000
and 476,100 for the minimum, midpoint, maximum and 15% above the maximum of
the offering range, respectively.
(4) Cambridgeport Bank intends to record compensation expense related to the
employee stock ownership plan in accordance with SOP 93-6. As a result, to
the extent the value of the common stock appreciates over time, compensation
expense related to the employee stock ownership plan will increase. SOP 93-6
also changes the earnings per share computations for leveraged employee
stock ownership plans to include as outstanding only shares that have been
committed to be released to participants. For purposes of the preceding
table, it was assumed that the number of employee stock ownership plan
shares were committed to be released at December 31, 1998 was 20,400,
24,000, 27,600 and 31,740 for the minimum, midpoint, maximum and 15% above
the maximum of the offering range, respectively.
(5) Stockholders' equity per share data is based upon 7,650,000, 9,000,000,
10,350,000 and 11,902,500 shares outstanding representing shares sold in the
offering, and shares purchased by the ESOP and management recognition plan.
30
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
The Consolidated Statements of Operations of Cambridgeport Mutual Holding
Company for the years ended December 31, 1998, 1997 and 1996 have been audited
by Arthur Andersen LLP, independent public accountants and are included in this
prospectus, along with their Auditors' Report on page F-2. The following
consolidated statements of operations presented below have been extracted from
the audited consolidated statements of operations and should be read in
conjunction with the Consolidated Financial Statements and accompanying Notes to
Consolidated Financial Statements in this prospectus and "Management's
Discussion and Analysis of the Financial Condition and Results of Operations"
beginning on page 32 of this prospectus. The consolidated statements of
operations for the nine month periods ended September 30, 1999 and 1998 are
unaudited, but in the opinion of management, reflect all adjustments necessary
for a fair presentation of the results for such periods. The results for the
nine month period ended September 30, 1999 are not necessarily indicative of the
results of Cambridgeport Mutual Holding Company for the entire year.
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended September 30, December 31,
----------------------- -----------------------------------
1999 1998 1998 1997 1996
--------- ---------- ----------- ----------- --------
(unaudited) (In thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans...................... $29,886 $27,671 $37,374 $30,304 $23,630
Interest and dividends on investment
securities........................... 6,323 7,691 10,023 12,282 10,450
Interest on other cash equivalents..... 593 564 787 574 2,744
Interest on certificates of deposit.... 295 366 472 801 917
-------- -------- --------- ------- --------
Total interest and dividend income... 37,097 36,292 48,656 43,961 37,741
-------- -------- --------- ------- --------
Interest expense:
Interest on deposits................... 17,361 18,197 24,318 22,732 20,184
Interest on borrowed funds............. 1,583 1,161 1,562 822 854
-------- -------- --------- ------- --------
Total interest expense............... 18,944 19,358 25,880 23,554 21,038
-------- -------- --------- ------- --------
Net interest income.................. 18,153 16,934 22,776 20,407 16,703
Provision for possible loan losses...... 562 1,183 1,760 600 450
-------- -------- --------- ------- --------
Net interest income after provision
for possible loan losses......... 17,591 15,751 21,016 19,807 16,253
-------- -------- --------- ------- --------
Noninterest income:
Customer service fees.................. 622 495 726 623 621
Net gain on sale of investment
securities, net...................... - 60 61 727 575
Gain on sale of loans, net............. 539 849 1,143 312 357
Loan servicing fee income.............. 309 518 656 995 1,173
Increase in cash surrender value 63 493 657 200 -
Other income........................... 598 236 328 319 494
-------- -------- --------- -------- --------
Total noninterest income............. 2,131 2,651 3,571 3,176 3,220
-------- -------- --------- -------- --------
Noninterest expenses:
Salaries and employee benefits......... 7,076 7,140 9,489 9,111 7,589
Occupancy and equipment expenses....... 2,526 2,615 3,507 3,590 3,215
Curtailment loss on nonqualified pension
plan................................. 578 - - - -
Data processing service fees........... 1,072 971 1,279 1,198 689
Advertising............................ 890 735 903 843 914
Other noninterest expenses............. 2,147 2,170 2,864 2,896 3,792
-------- -------- --------- -------- --------
Total noninterest expenses........... 14,289 13,631 18,042 17,638 16,199
-------- -------- --------- -------- --------
Income before provision for income taxes 5,433 4,771 6,545 5,345 3,274
Provision for income taxes.............. 1,826 1,707 2,357 1,679 787
-------- -------- --------- -------- --------
Net income $ 3,607 $ 3,064 $ 4,188 $ 3,666 $ 2,487
======== ======== ========= ======== ========
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------------------------------------
This discussion and analysis reflects Cambridgeport Mutual Holding's financial
statements and other relevant statistical data and is intended to enhance your
understanding of our financial condition and results of operations. You should
read the information in this section in conjunction with Cambridgeport Mutual
Holding's Consolidated Financial Statements and accompanying Notes to
Consolidated Financial Statements beginning on page F-1 of this prospectus,
and the other statistical data provided in this prospectus. Unless otherwise
indicated, the financial information presented herein reflects the financial
condition and operations of Cambridgeport Mutual Holding Company on a
consolidated basis.
------------------------------------------------------------------------------
General
Cambridgeport Mutual Holding Company's results of operations is comprised
of earnings on investments and the net income recorded by its principal
operating subsidiary, Cambridgeport Bank. Cambridgeport Bank's results of
operations depend primarily on net interest income. Net interest income is the
difference between the interest income we earn on our interest-earning assets
and the interest we pay on interest-bearing liabilities. Our interest-earning
assets consist primarily of residential mortgage loans including home equity
loans, commercial mortgage loans, borrowings under home equity credit lines,
consumer loans, mortgage-backed securities and investment securities. Interest-
bearing liabilities consist primarily of time deposits, savings and money market
and NOW account deposits, and borrowings from the Federal Home Loan Bank of
Boston (FHLB). Our results of operations also depend on our provision for
possible loan losses, non-interest income, and our non-interest expense. Non-
interest expense includes salaries and employee benefits, occupancy expenses and
other general and administrative expenses. Non-interest income includes service
fees and charges.
Our results of operations may also be affected significantly by economic
and competitive conditions in our market area and elsewhere, including those
conditions that influence market interest rates, government policies and the
actions of regulatory authorities. Future changes in applicable laws,
regulations or government policies may materially impact us. Furthermore, our
lending activity is concentrated in loans secured by real estate located in the
Boston metropolitan area.
Management Strategy
Our primary management strategy has been to offer a variety of checking and
savings deposit products, as well as residential and commercial mortgage loan
products, in order to generate earnings and to expand our customer base in our
primary market area of Middlesex and Norfolk counties in Massachusetts. We seek
to provide high quality service to our customers while meeting their savings and
borrowing needs. We try to limit our exposure to changes in interest rates by
monitoring and managing our interest rate-sensitive assets and liabilities. To
32
<PAGE>
accomplish these strategies, we originate one- to four-family residential
mortgage loans, home equity and consumer loans and commercial real estate
mortgage loans, and we offer competitive rates to attract new deposits. We also
attempt to cross sell additional services to our existing customers as a way of
maintaining these deposit relationships. We train our employees not only in the
technical aspects of their jobs, but also in how to provide outstanding quality
service to customers. To facilitate our management of liquidity and interest
rate risk, we purchase investment and mortgage-backed securities. In recent
years, we have adopted a growth-oriented strategy that has focused on broadening
our product lines and services, expanding delivery systems for our customers and
extending our branch network. We believe that this business strategy is best
for our long term success and viability, and complements our existing commitment
to high quality customer service. In connection with our overall growth
strategy, we seek to:
. continue to focus on expanding our residential lending and retail
banking franchise, and increasing the number of households served
within our market area;
. expand our commercial banking products and services for businesses,
as a means to increase the yield on our loan portfolio, to attract
lower cost transaction deposit accounts and increase non-interest
income;
. offer a variety of uninsured investment and insurance products and
services as a means to compete for an increased share of our
customers' financial service business; and
. increase the use of alternative delivery channels, such as internet
home banking and telebanking.
Following the conversion, we intend to utilize proceeds from the offering
to further the objectives of our growth-oriented strategy. We may also use the
offering proceeds to acquire branches from other banks or to make other
acquisitions. See "How We Intend to Use the Proceeds from the Offering."
Management of Interest Rate Risk
As a financial institution, we incur risk from interest rate volatility.
Fluctuations in interest rates will impact both our level of income and expense
on a large portion of our assets and liabilities. Fluctuations in interest
rates will also affect the market value of all interest earning assets.
The primary goal of our interest rate management strategy is to limit
fluctuations in net interest income as interest rates vary up or down. We seek
to coordinate asset and liability decisions so that, under changing interest
rate scenarios, our net interest income will remain within an acceptable range.
Our lending activities have emphasized one-to four-family and commercial
mortgage loans. Our primary source of funds has been deposits, consisting
primarily of time deposits, which have shorter terms to maturity than the loan
portfolio, and transaction accounts. Occasionally, we have funded loan growth
with Federal Home Loan Bank (FHLB) advances.
33
<PAGE>
We have employed certain strategies to manage the interest rate risk inherent in
the asset/liability mix, including but not limited to:
. Selling a majority of the 30 and 15 year fixed-rate mortgages we
originate to the secondary market;
. Maintaining the diversity of our existing loan portfolio through the
origination of commercial real estate and consumer loans which
typically have variable rates and shorter terms than residential
mortgages; and
. Emphasizing investments with short- and intermediate-term maturities
of less than ten years, with the majority of maturities or rate resets
currently under 5 years.
The actual amount of time before loans are repaid can be significantly
impacted by changes in market interest rates. Prepayment rates will also vary
due to a number of other factors, including the regional economy in the area
where the loans were originated, seasonal factors, demographic variables, the
assumability of the loans, related refinancing opportunities and competition.
We monitor interest rate sensitivity so that we can adjust our asset and
liability mix in a timely manner and minimize the negative effects of changing
rates.
Net Interest Income Simulation. We use a simulation model to monitor
interest rate risk. This model reports the net interest income at risk
primarily under two different interest rate environments. Specifically, an
analysis is performed of changes in net interest income assuming changes in
interest rates, both up and down 200 basis points ("rate shock") from current
rates over the one year time period following the current financial statement.
In addition, we periodically simulate other scenarios which include changing the
shape of the yield curve, increasing the interest rate shocks to 400 basis
points, or extending the time period covered by the analysis. Our policy
objective is to limit any reduction in net interest income over a one-year
period to 10% from the current financial statement given a change in interest
rates of up or down 200 basis points.
The table below sets forth as of September 30, 2000 the estimated changes
in net interest income that would result from a 200 basis point change in
interest rates over the applicable twelve-month period.
For the Twelve Months Ended September 30, 2000
----------------------------------------------
(Dollars in thousands)
Changes in
Interest Rates Net Interest
(Basis Points) Income % Change
-------------- ------------ --------
200 $23,440 -1.74%
0 23,856 -
-200 23,866 0.04%
34
<PAGE>
Gap Analysis. In addition to net interest income simulation, we use gap
analysis to monitor interest rate risk. We analyze the repricing
characteristics of assets and liabilities by examining the extent to which such
assets and liabilities are "interest rate sensitive". An asset or liability is
deemed to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest bearing-
liabilities maturing or repricing within that same time period.
A gap is considered positive when the amount of interest-earnings assets
maturing or repricing within a specific time period exceeds the amount of
interest-bearing liabilities maturing or repricing within that specific time
period. A gap is considered negative when the amount of interest-bearing
liabilities maturing or repricing within a specific time period exceeds the
amount of interest-earning assets maturing or repricing within the same period.
During a period of rising interest rates, a financial institution with a
negative gap position would be expected, absent the effects of other factors, to
experience a greater increase in the costs of its liabilities relative to the
yields of its assets. Thus, our net interest income would likely decrease. An
institution with a positive gap position would be expected, absent the effect of
other factors, to experience the opposite result. Conversely, during a period
of declining interest rates, a negative gap would tend to result in an increase
in net interest income. A positive gap would tend to reduce net interest
income.
At September 30, 1999, based on the assumptions below, our interest-bearing
liabilities maturing or repricing within one year exceeded our interest-earning
assets maturing or repricing within the same period by $130.2 million. This
represented a negative cumulative one-year interest rate sensitivity gap of
18.8% of total interest earning assets and a ratio of cumulative interest-
earning assets maturing or repricing within one year to cumulative interest-
bearing liabilities maturing or repricing within one year of 65.8%. Our
negative gap position could more adversely impact our net interest income in a
rising rate environment than if we had a positive gap position. Our policy sets
an objective of maintaining the one year cumulative gap between a negative 20%
of total earning assets to a positive 20% of total earning assets.
The following table presents the amounts of our interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1999, which we
anticipate to reprice or mature in each of the future time periods shown.
Except as stated below, we determined the amounts of assets and liabilities
shown which reprice or mature during a particular period in accordance with the
earlier of the term to repricing or the contractual maturity of the asset or
liability. The information presented in the following table is also based on
the following assumptions:
. We assume that various mortgage related products will prepay principal
balances. Prepayment speeds will vary depending on the interest rate
environment, mortgage product type, outstanding principal balances,
average life to maturity and other factors. The residential mortgage
portfolio is segregated based on these factors and prepayment speeds
are calculated using analytical historical data from the Office of
Thrift Supervision.
. 10% of our commercial mortgages and home equity loans are assumed to
prepay annually.
35
<PAGE>
. Federal agency securities with call options that we believed would be
called were reported at the earlier of the next call date or
contractual maturity date.
. Higher earning savings accounts, money market accounts and the
Treasury Index Accounts are reported in the three month category.
The assumptions, as reflected in items 4 and 5 above, are based on
regulatory guidance, as modified by our historical analysis of deposit levels
over during various changes in market rates. Deposit assumptions, prepayment
rates and anticipated call dates can have a significant impact on the estimated
interest sensitivity gap. While we believe that our assumptions are reasonable,
they may not be indicative of actual future deposit activity, mortgage and
mortgage-backed securities prepayments, and the actual timing of federal agency
calls.
36
<PAGE>
GAP Table
<TABLE>
<CAPTION>
Amounts Maturing or Repricing as of September 30, 1999
-----------------------------------------------------------------------------------------------------
less than 3 3 to 6 6 months to
months months 1 year 1 to 2 years 2 to 3 years 3 to 5 years * 5 yrs. Total
----------- --------- ----------- ------------ ------------ ------------ -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets(1)
Short term investments..... $ 6,577 - - - - - - $ 6,577
Certificates of Deposit.... - $ 2,778 $ 2,284 - - - - 5,062
Investment securities(2)... 16,410 4,250 3,681 $ 9,895 $ 14,436 $ 43,639 $ 7,197 99,508
Mortgage and assets
backed securities(2)...... 1,982 3,700 15,484 7,015 2,055 3,556 3,184 36,976
Loans(3)................... 95,529 31,245 66,887 98,341 97,203 131,729 24,624 545,558
----------- --------- ---------- ------------ ------------ ----------- -------- --------
Total interest earning
assets.................. 120,498 41,973 88,336 115,251 113,694 178,924 35,005 693,681
Interest-Bearing Liabilities
NOW accounts(4)............ - - - - - - 42,880 42,880
Regular savings accounts... - - - - - - 54,006 54,006
Money market accounts(5)... 139,414 - - - - - 2,663 142,077
Certificate of deposit
accounts................. 55,573 44,664 118,293 94,519 9,165 2,569 - 324,783
Borrowed funds............. 6,055 10,209 6,823 891 954 1,969 14,717 41,618
----------- --------- ---------- ------------ ------------ -------- -------- --------
Total interest
bearing liabilities..... 201,042 54,873 125,116 95,410 10,119 4,538 114,266 605,364
Interest sensitivity gap...... (80,544) (12,900) (36,780) 19,841 103,575 174,386 (79,261)
Cumulative interest
sensitivity gap.............. (80,544) (93,444) (130,224) (110,383) (6,808) 167,578 88,317
Cumulative interest
sensitivity gap as a
percent of total assets...... -11.16% -12.95% -18.04% -15.29% -0.94% 23.22% 12.24%
Cumulative interest
sensitivity gap as a
percent of total interest
earning assets............... -11.61% -13.47% -18.77% -15.91% -0.98% 24.16% 12.73%
Cumulative interest-earning
assets as a percentage of
cumulative interest-
bearing liabilities.......... 59.94% 63.49% 65.82% 76.83% 98.60% 134.12% 114.59%
</TABLE>
_______________
(1) Interest earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) Debt securities are presented at amortized cost.
(3) For the purposes of the gap analysis, allowances for loan losses and
deferred loan fees have been excluded.
(4) NOW accounts also include appreciation checking and are included in the
over five year column.
(5) Treasury Index and Real Savings accounts are included in 3 months or less.
Business investments accounts are in the over 5 year category.
* greater than
37
<PAGE>
Average Balance Sheet and Analysis of Net Interest Income
The following tables set forth certain information relating to our
financial condition and net interest income at and for the nine months ended
September 30, 1999 and 1998 and for the years ended December 31, 1998, 1997 and
1996, and reflect the average yield on assets and average cost of liabilities
for the periods indicated. We derived the yields and costs by dividing income
or expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown. We derived average balances
from actual daily balances over the periods indicated. Interest income includes
certain fees we earned from making changes in loan rates or terms, and fees we
earned when certain commercial real estate loans were prepaid or refinanced.
<TABLE>
<CAPTION>
At September 30, For the Nine Months Ended September 30,
--------------------- ------------------------------------------------------------------------
1999 1999 1998
--------------------- --------------------------------------- -----------------------------
Average Average Average
Actual Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
--------- ------- ------- -------- ------------- ------- -------- --------
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Short term investments(1)... $ 6,577 5.42% $ 13,411 $ 593 5.83% $ 11,423 $ 564 6.51%
Certificates of deposit..... 5,062 7.30 5,525 295 7.14 7,050 366 6.94
Investment securities(2).... 140,286 6.12 140,208 6,323 6.04 164,407 7,691 6.32
Loans(3).................... 537,901 7.43 517,428 29,886 7.52 448,701 27,671 8.04
-------- -------- ------- -------- -------
Total interest earning
assets.................... 689,826 7.15 676,572 37,097 7.19 631,581 36,292 7.56
------- -------
Total non-interest
earning assets............ 31,987 25,629 21,262
-------- -------- --------
Total assets............... $721,813 $702,201 $652,843
======== ======== ========
Liabilities and Equity:
Interest bearing Liabilities:
NOW accounts................ 42,880 1.38 39,618 417 1.41 35,545 414 1.56
Savings accounts............ 54,006 2.03 54,025 845 2.09 53,332 895 2.24
Money market deposit
accounts................... 142,077 4.06 138,831 3,955 3.81 118,976 3,573 4.02
Certificate of deposit
accounts................... 324,783 4.92 321,610 12,144 5.05 315,980 13,315 5.63
-------- -------- ------- -------- -------
Total interest-bearing
deposits................... 563,746 4.16 554,084 17,361 4.19 523,833 18,197 4.64
Borrowed funds.............. 41,618 6.09 36,883 1,583 5.66 25,250 1,161 6.15
-------- -------- ------- -------- -------
Total interest-bearing
liabilities............... 605,364 4.29 590,967 18,944 4.29 549,083 19,358 4.71
------- -------
Noninterest-bearing
deposits................... 32,391 29,097 25,472
Other noninterest-bearing.... 5,480 5,883 5,684
liabilities................ -------- -------- --------
Total noninterest bearing
liabilities............... 37,871 34,980 31,156
Total liabilities........... 643,235 625,947 580,239
Total retained earnings..... 78,578 76,254 72,604
-------- -------- --------
Total liabilities and
retained earnings.......... $721,813 $702,201 $652,843
======== ======== ========
Net interest income.......... $18,153 $16,934
======= =======
Net interest rate spread(4).. 2.86% 2.90% 2.85%
Net interest margin(5)....... 3.57% 3.58%
Ratio of interest-earning
assets to average interest-
bearing liabilities......... 114.53x 115.18x 115.26x
(footnotes on following page)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ------------------------------ -------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets: (Dollars in thousands)
Interest earning assets:
Short term investments(1).... $ 12,373 $ 787 6.36% $ 8,026 $ 574 7.15% $ 53,923 $ 2,744 5.09%
Certificates of deposit...... 6,736 472 7.01 12,480 801 6.42 14,265 917 6.43
Investment securities(2)..... 162,152 10,023 6.33 194,564 12,282 6.42 173,017 10,450 6.14
Loans(3)..................... 457,271 37,374 8.08 362,888 30,304 8.25 281,234 23,630 8.28
-------- ------- -------- ------- -------- --------
Total interest earning
assets..................... 638,532 48,656 7.60 577,958 43,961 7.59 522,439 37,741 7.20
------- ------- --------
Total non-interest
earning assets............. 21,658 20,103 19,125
-------- -------- --------
Total assets................ $660,190 $598,061 $541,564
======== ======== ========
Liabilities and Equity:
Interest bearing Liabilities:
NOW accounts................. 36,323 559 1.54 32,898 568 1.73 29,933 529 1.77
Savings accounts............. 53,283 1,194 2.24 56,688 1,298 2.29 59,748 1,368 2.29
Money market deposit
accounts.................... 123,020 4,825 3.92 85,968 3,063 3.56 71,107 2,493 3.51
Certificate of deposit
accounts.................... 316,937 17,740 5.60 314,360 17,803 5.66 279,771 15,794 5.65
-------- ------- -------- ------- -------- --------
Total interest-bearing
deposits................... 529,563 24,318 4.59 489,914 22,732 4.64 440,559 20,184 4.58
Borrowed funds............... 25,352 1,562 6.16 13,609 822 6.04 14,859 854 5.75
-------- ------- -------- ------- -------- --------
Total interest-bearing
liabilities................ 554,915 25,880 4.66 503,523 23,554 4.68 455,418 21,038 4.62
Noninterest-bearing
deposits.................... 26,134 20,330 16,008
Other noninterest-bearing
liabilities................. 5,923 5,403 4,367
-------- -------- --------
Total noninterest bearing
liabilities................ 32,057 25,733 20,375
Total liabilities............ 586,972 529,256 475,793
Total retained earnings...... 73,218 68,805 65,771
-------- -------- --------
Total liabilities and
retained earnings............ $660,190 $598,061 $541,564
======== ======== ========
Net interest income........... $22,776 $20,407 $ 16,703
======= ======= ========
Net interest rate spread(4)... 2.94% 2.91% 2.58%
Net interest margin(5)........ 3.56% 3.52% 3.19%
Ratio of interest earning
assets to interest bearing
liabilities.................. 115.32x 115.04x 115.03x
</TABLE>
_________________________
(1) Short term investments include federal funds sold.
(2) All investments securities are considered available for sale and carried at
market value.
(3) Loans are net of deferred loan origination costs (fees), allowance for loan
losses and unadvanced funds.
(4) Net 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>
Rate/Volume Analysis. The following table shows how changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated. Information is provided in each
category with respect to:
(1) interest income changes attributable to changes in volume (changes in
volume multiplied by prior rate);
(2) interest income changes attributable to changes in rate (changes in
rate multiplied by prior volume); and
(3) the net change.
The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes
due to rate.
40
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999 Compared to Year Ended December 31, 1998 Year Ended December 31, 1997
Nine Months Ended Compared to Year Ended Compared to Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
------------------------------- ------------------------------ -------------------------------
Due to Due to Due to
--------------------- -------------------- --------------------
Volume Rate Net Volume Rate Net Volume Rate Net
-------- -------- ------- -------- -------- -------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Short term investments..... $ 71 $ (42) $ 29 $ 268 $ (55) $ 213 $(4,137) $1,967 $(2,170)
Certificates of deposit.... (82) 11 (71) (411) 82 (329) (115) (1) (116)
Investment securities...... (1,038) (330) (1,368) (2,088) (171) (2,259) 1,337 495 1,832
Loans...................... 3,820 (1,605) 2,215 7,682 (612) 7,070 6,759 (85) 6,674
------- ------- ------- ------- ----- ------- ------- ------ -------
Total interest-earning
assets................... $ 2,771 $(1,966) $ 805 $ 5,451 $(756) $ 4,695 $ 3,844 $2,376 $ 6,220
======= ======= ======= ======= ===== ======= ======= ====== =======
Interest bearing
liabilities:
NOW accounts............... $ 19 $ (16) $ 3 $ 164 $(173) $ (9) $ 51 $ (12) $ 39
Savings accounts........... 12 (62) (50) (76) (28) (104) (70) 0 (70)
Money market deposit
accounts.................. 556 (174) 382 1,427 335 1,762 534 36 570
Certificates of deposit.... 245 (1,416) (1,171) 215 (278) (63) 1,981 28 2,009
Borrowed funds............. 508 (86) 422 723 17 740 (80) 48 (32)
------- ------- ------- ------- ----- ------- ------- ------ -------
Total interest bearing
liabilities.............. $ 1,340 $(1,754) $ (414) $ 2,453 $(127) $ 2,326 $ 2,416 $ 100 $ 2,516
======= ======= ======= ======= ===== ======= ======= ====== =======
Change in net interest
income..................... $ 1,431 $ (212) $ 1,219 $ 2,998 $(629) $ 2,369 $ 1,428 $2,276 $ 3,704
======= ======= ======= ======= ===== ======= ======= ====== =======
</TABLE>
41
<PAGE>
Comparison of Financial Condition at September 30, 1999 And December 31, 1998
Our consolidated total assets increased $43.7 million, or 6.4%, to $721.8
million at September 30, 1999 from $678.1 million at December 31, 1998. This
increase was primarily the result of $42.1 million, or 8.4% growth, in loans.
The growth in total assets during the period was primarily funded by:
. deposit growth;
. reduction in investment and mortgage-backed securities;
. additional FHLB borrowings; and
. growth in retained earnings.
Total investment securities available for sale decreased $8.6 million,
5.9%, to $136.5 million. This reduction is part of our strategy to shift assets
from securities into higher yielding loan assets.
Deposits increased $28.0 million, or 4.9%, to $596.1 million at September
30, 1999 compared with $568.1 million at December 31, 1998. Interest-bearing
deposits accounted for $26.5 million, or 94.3%, of the growth in total deposits
and were $563.8 million at September 30, 1999. Of our interest-bearing deposits,
time deposits increased $14.8 million, or 4.8%, to $324.8 million at September
30, 1999 from $310.0 million at December 31, 1998. Deposits other than time
deposits grew $13.3 million, 5.1%, to $271.4 million at September 30, 1999. The
growth in these deposit types reflects our strategy of emphasizing transaction
accounts as the basis for building stable long-term relationships with our
customers.
FHLB borrowings at September 30, 1999 were $14.4 million above the level at
December 31, 1998. In June, 1999, we borrowed $14.5 million from the FHLB in
order to fund the construction and acquisition of a new building. See
"Properties" below.
Total equity increased $2.5 million, or 3.3%, to $78.6 million at September
30, 1999 from $76.1 million at December 31, 1998. $3.6 million in net income was
partially offset by a decline of $1.1 million in the unrealized gain on
available for sale securities.
Comparison of Operating Results for the Nine Months Ended September 30, 1999 and
September, 30 1998
General
Net income was $3.6 million for nine months ended September 30, 1999, an
increase of $543,000, or 17.7%, compared with net income of $3.1 million for the
1998 period. The increase was attributable to a $1.2 million increase in net
interest income and a $621,000 decrease in the provision for loan losses. These
were partially offset by a $520,000 decline in total non-interest income, an
increase of $658,000 in total non-interest expense and a $119,000 increase in
income tax expense.
42
<PAGE>
Interest Income
Total interest and dividend income increased $805,000, or 2.2%, to $37.1
million for the 1999 period compared with $36.3 million in 1998. Interest on
loans rose $2.2 million, or 8.0%, to $29.9 million from $27.7 million in the
first nine months of 1998. Interest and dividends on investment securities
available for sale decreased $1.4 million, to $6.3 million from $7.7 million in
the 1998 period.
The growth in interest income on loans was due in part to a $68.7 million,
or 15.3%, increase in the average balance of total loans, which rose to $517.4
million for the 1999 period. This increase reflects our continued emphasis on
residential one- to four-family mortgage and commercial mortgage loan
originations, and favorable local economic conditions that contributed to active
loan demand. The average balance of investment securities fell $24.2 million,
or 14.7%, to $ 140.2 million for the 1999 period. This decrease reflects our
ongoing strategy of using portions of maturing investment securities to fund
growth in higher yielding residential and commercial real estate loans.
Total interest-earning assets averaged $676.6 million for the nine months-
ended September 30, 1999, up from $631.6 million in the comparable 1998 period,
a 7.1% increase. The effect on interest income from the higher average interest-
earning assets base was partially offset by a 37 basis point decline in the
average yield to 7.19% for 1999 from 7.56% for 1998. The average yield on loans,
net, fell 52 basis points to 7.52% for 1999 compared with 8.04% for the prior
year. The average yield on investment securities, including mortgage-backed
securities, declined 28 basis points to 6.04% for 1999 compared with 6.32% for
1998. The lower interest rate environment along with the relatively flat yield
curve that prevailed during 1999 and 1998 resulted in the downward repricing of
our interest rate-sensitive assets. In addition, the average yield on our loans
was adversely affected by refinancing activity as borrowers sought lower rates.
Interest Expense
Total interest expense for the nine months ended September 30, 1999 was
$414,000, or 2.1%, below the 1998 period, despite a higher average balance of
total interest-bearing liabilities in 1999 of $590.1 million compared with
$549.1 million for the comparable 1998 period. The impact on interest expense
from the rise in interest-bearing liabilities was offset by a 42 basis point
decrease in their average cost, to 4.29% in 1999 from 4.71% for 1998. This
decrease reflects the lower interest rate environment that prevailed during 1999
compared to the 1998 period.
Interest expense on deposits declined $836,000, or 4.6%, to $17.4 million
for the first nine months of 1999 compared with $18.2 million for the 1998
period. The average balance of time deposits increased $5.6 million in 1999 but
because of a 58 basis point decline in their average cost, interest expense on
time deposits declined $1.2 million in the 1999 period compared with 1998.
Interest expense on money market balances increased $382,000, reflecting the
$19.9 million rise in average money market account balances.
43
<PAGE>
Interest expense on borrowed funds increased $422,000, as a result of the
$11.6 million rise in the average balance of borrowed funds.
Net Interest Income
Net interest income for the nine months ended September 30, 1999 increased
$1.2 million, or 7.2%, to $18.1 million compared with $16.9 million for 1998.
The net interest rate spread--the difference between the average yield on
average total interest-earning assets and the average cost of average total
interest-bearing liabilities--increased 5 basis points to 2.90% for 1999 from
2.85% for the prior year. The net interest margin, which is net interest income
divided by average total interest-earning assets, decreased one basis point to
3.57% for 1999.
Provision for Possible Loan Losses
During the first nine months of 1999, we provided $562,000 for possible
loan losses, compared to $1.18 million for the 1998 period. The 1998 provision
reflected the significant growth in our commercial real estate and jumbo
residential loan (mortgage loans with balances that exceed FNMA guidelines)
portfolios. We also experienced an increase in the average size of the
commercial real estate loans we made in 1998. In 1999 we have seen continued
growth in both commercial real estate loans and jumbo residential mortgages,
however the average size of new commercial real estate loans has declined from
$1.25 million in 1998 to $925,000 in 1999.
At September 30, 1999, the allowance for loan losses as a percentage of
total loans was 1.34% compared with 1.26% at September 30, 1998.
Future provisions for loan losses will continue to be based upon our
assessment of the overall loan portfolio and its underlying collateral, the mix
of loans within the portfolio, delinquency trends, economic conditions, current
and prospective trends in real estate values, and other relevant factors. As we
expand our commercial business lending, additional increases to the provision
for possible loan losses are likely.
Non-interest Income
Non-interest income includes service fees on deposit accounts, other
service charges and net gains on sales of securities. Total non-interest income
decreased $520,000, or 19.6%, to $2.1 million for 1999 compared with $2.6
million for the 1998 period. The 1998 figure includes gains on fixed rate loan
sales of $849,000. In 1999, as mortgage interest rates increased, fixed rate
loan applications declined, and sale gains decreased to $539,000 for the period.
We expect that the new administrative center building, described above, will be
approximately 60% occupied by us, and 40% by companies that enter into long term
lease agreements with us. In future periods we expect to receive non-interest
income from these tenants.
44
<PAGE>
Non-interest Expense
Total non-interest expense increased $658,000, or 4.8%, to $14.3 million
during 1999 compared with $13.6 million for the prior year. The 1999 figure
includes a one-time charge of $578,000, reflecting a curtailment loss on a
restructured executive non-qualified retirement plan. Salaries and employee
benefits, occupancy and equipment expense comprised 67.2% of total non-
interest expense for 1999. Salaries and employee benefits decreased $64,000, or
0.9%, to $7.1 million for 1999 compared with $7.2 million for 1998, reflecting
salary increases offset by a decrease in benefits expense.
Our efficiency ratio (determined by dividing non-interest expense by the
sum of net interest income and non-interest income, excluding gains on
securities transactions) was 70.44 % for 1999 compared with 69.81 % for the 1998
period. The ratio of non-interest expense to average assets was 2.0% for 1999
and 2.1% for 1998. In future periods our occupancy expense may increase because
of the costs of our new administrative center. We expect that the increase in
occupancy expense will be partially offset by rental income mentioned above.
Annual operating expenses are expected to increase in the near term due to
future product and service expansion and the increased costs of operating as a
public company.
Income Taxes
Income tax expense increased $119,000, or 7.0%, to $1.8 million for 1999
compared with $1.7 million for 1998, resulting in an effective tax rate of 33.6%
for the nine months ended September 30, 1999 and 35.8% for the 1998 period. The
effective tax rate also reflects the utilization of qualified securities
investment companies to substantially reduce state income taxes.
Comparison of Financial Condition at December 31, 1998 and 1997
Our total assets increased $58.7 million, or 9.5%, to $678.1 million at
December 31, 1998 from $619.4 million at December 31, 1997. Loans increased
$79.1 million, or 18.6%, to $503.5 million. Growth in commercial real estate
loans totaled $45.0 million, and residential mortgage loan growth was $38.8
million. Partially offsetting loan growth was a decline in securities available
for sale which fell $15.2 million to $145.0 million, and a decline in
certificates of deposit that we held in other banks which totaled $12.1 million
at December 31, 1998 and $5.9 million at December 31, 1997.
Asset growth was funded primarily by an increase of $47.7 million in total
deposits, to $568.1 million at December 31, 1998 compared with $520.4 million at
December 31, 1997. We introduced a new "Treasury Index Account" in October,
1997. The Treasury Index Account is a money market savings account offering a
rate that is based on the three month U.S. Treasury bill. The Treasury Index
Account generated approximately $45.9 million in account balances during 1998.
45
<PAGE>
Our total equity increased $5.0 million, or 7.0%, to $76.1 million at
December 31, 1998. Net income accounted for $4.2 million of that increase and
the remainder was attributed to an $828,000 increase in unrealized gains on
securities.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General
Net income of $4.2 million for 1998 represents a $522,000, or 14.1%,
increase from 1997's earnings of $3.7 million. This increase was due primarily
to loan growth. At the same time, earnings on investment securities declined
primarily because of the reduction in investment securities balances discussed
above.
Interest Income
Total interest income increased $4.7 million to $48.7 million for 1998
compared to $44.0 million for 1997. The average balance of interest earning
assets increased $60.6 million, or 10.5%, and the yield on earning assets
increased from 7.60% in 1997 to 7.59% for 1998.
The previously mentioned growth in the loan portfolio, is the primary
reason for the rise in interest income. Interest and fees on loans increased
$7.1 million, or 23.4% to $37.4 million in 1998 from $30.3 million in 1997.
Partially offsetting the increase was a $2.4 million reduction in interest
income from securities and other investments caused primarily by a decline in
average investment portfolio balances.
We reduced the size of the investment portfolio as part of our strategy to
redeploy assets into higher yielding loan products.
Interest Expense
Interest expense increased $2.3 million, or 9.9%, to $25.9 million for 1998
compared with $23.6 million for 1997. The average balance of total interest-
bearing deposits grew $39.6 million in 1998 to $529.6 million, while the average
cost of our deposits fell 5 basis points to 4.59%. The combined effect of the
deposit growth and the decrease in cost of funds produced a $1.6 million
increase in interest expense for the year. The average balance of borrowed
funds rose in 1998, by $11.7 million, and the average cost of the borrowings
also rose by 12 basis points to 6.16% in 1998. These produced an increase in
interest expense of approximately $740,000 compared with 1997.
46
<PAGE>
Net Interest Income
Net interest income for 1998 was $22.8 million as compared with $20.4
million for 1997. Net interest rate spread--the difference between the yield on
average total interest-earning assets and the cost of average total interest-
bearing liabilities--rose to 2.94% for 1998 from 2.91% for the prior year. Net
interest margin--net interest income divided by average total interest-earning
assets--increased to 3.56% for 1998 compared with 3.52% for 1997. The
improvement in net interest income is primarily the result of the shift in our
mix of assets from investment securities to higher yielding loans.
Provision for Possible Loan Losses
During 1998, we provided $1.8 million for loan losses, compared to $600,000
in 1997. The higher provision in 1998 reflects the continued growth in our loan
portfolio, and in particular the growth in commercial real estate loans and in
"jumbo" residential mortgages. We consider these types of loans to contain more
inherent risk than conventional residential mortgages that conform to FNMA
guidelines. The higher provision also reflects the fact that the average size
of the commercial real estate loans we originated in 1998 was significantly
higher than the average size of commercial real estate loans we originated in
prior years. The average size of the new commercial loans was $1.25 million in
1998, 53% larger than the average commercial real estate loan in our portfolio
at the end of 1997, which was $815,000.
The allowance for loan losses at the end of 1998 was 1.32% of total loans
compared with 1.16% at the end of the 1997. The increase in the coverage ratio
reflects the change in loan portfolio composition described above.
Non-Interest Income
Non-interest income increased to $3.6 million in 1998 compared with $3.2
million the year before. Loan fees declined from $995,000 in 1997 to $656,000
in 1998. The high level of residential mortgage refinancing reduced the
balance of loans we had been servicing and the fees we earned from that
servicing. Refinancing activity in 1998 also produced an increase in fixed rate
mortgage applications. Because we sell fixed rate residential mortgage loans,
primarily servicing released, the increased volume produced additional gains on
loan sales compared to 1997. The loan sale gains rose from $300,000 in 1997 to
$1.1 million in 1998.
Service charges on deposit accounts increased from $623,000 in 1997 to
$726,000 in 1998 primarily because we had more checking and NOW account
customers.
Securities gains were $61,000 in 1998, down from $727,000 in 1997.The
gains in 1997 reflect primarily the sale of most of our common stock holdings.
Total non-interest income in 1998 included a $457,000 increase in the cash
surrender value of certain life insurance policies compared with 1997.
47
<PAGE>
Non-Interest Expense
Total non-interest expense increased $404,000, or 2.3%, to $18.0 million in
1998 compared with $17.6 million for the prior year. Salaries and employee
benefits expense represented $378,000 of the increase. During 1998, we
increased our staffing levels in order to handle the higher loan and deposit
activity we were experiencing.
Income Taxes
Income taxes increased $678,000 or 40.4% to $2.4 million from $1.7 million
in 1997. The effective tax rate was 36.0% in 1998 and 31.4% in 1997. The 1997
tax rate was lower because we had held certain tax advantaged securities during
1997 which we no longer held in 1998. The effective tax rate also reflects the
utilization of qualified securities investment companies to substantially reduce
state income taxes.
Comparison of Financial Condition at December 31, 1997 and 1996
Our total assets increased $44.6 million, or 7.75%, to $619.4 million at
December 31, 1997 from $574.8 million at December 31, 1996.
During 1997 we focused our asset generation activities on loan growth,
using maturing short term investments, sales and maturities of investment
securities deposit growth and FHLB borrowings as funding sources.
At December 31, 1997, loans had increased $113.6 million to $424.4 million.
Commercial real estate loans grew $52.8 million, residential mortgages grew
$48.9 million and home equity credit line borrowings rose $14.1 million.
We reduced balances of investment securities available for sale to $160.3
million, $51.6 million below the balance at the end of 1996. We also reduced
short term investments by $11.8 million during 1997.
Our deposits grew by $17.7 million to $520.4 million at December 31, 1997
compared with $502.7 million at December 31, 1996. We introduced a new the
"Treasury Index Account" in October, 1997. The Treasury Index Account is a
money market savings account offering a rate that is based on the three month US
Treasury bill. The Treasury Index Account generated approximately $17.1 million
in account balances by the end of 1997.
We added $20.9 million in FHLB borrowings during 1997. These were
primarily fixed rate borrowings used to fund certain fixed rate loans.
Our total equity increased $4.3 million to $71.1 million at December 31,
1997, from $66.8 million at December 31, 1996, due to $3.7 million of net income
for 1997, and an increase of $561,000 in unrealized gains on securities
available for sale.
48
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
General
Net income was $3.7 million for 1997, up 48.0%, from 1996 earnings of $2.5
million. As described above, we shifted our asset mix during 1997 away from
short term securities and investment securities into higher yielding loans,
primarily residential and commercial real estate loans. We added an additional
branch during the year, and completed preparations for our new Telebanking
Center. The increased loan activity and new offices required us to raise
staffing levels and other non-interest expenses.
Interest Income
Total interest income increased $6.3 million to $44 million for 1997
compared to $37.7 million 1996. The average balance of earning assets increased
$55.5 million and the average yield on earning assets increased from 7.20% for
1996 to 7.59% for 1997. This was primarily the result of the shift in our
asset mix from investments into loans. Interest and fees on loans increased
$6.7 million or 28.4% to $30.3 million in 1997 from $23.6 million in 1996.
Interest and dividends on securities increased $1.8 million, or 17.1%, to
$12.3 million for 1997 from $10.5 million for 1996. Despite the reduction in
the average size of the investment portfolio, we benefitted from having
purchased longer term securities in early 1997.
Interest Expense
Interest expense on deposits increased $2.5 million or 12.4%, to $22.7
million for 1997 compared with $20.2 million for 1996. Although the weighted
average cost of total deposits was 4.58% for 1996 and 4.64% for 1997. The
average balance of deposits rose approximately $53.7 million from 1996 to 1997.
Much of the deposit growth occurred in the latter half of 1996. The full effect
of 1996 deposit growth was reflected in 1997 annual interest expense.
Net Interest Income
Net interest income for 1997 was $20.4 million as compared with $16.7
million for 1996. The net interest rate spread increased 33 basis points to
2.91% for 1997 from 2.58% for the prior year. The net interest margin also
increased 33 basis points to 3.52% for 1997 compared with 3.19% for 1996. The
improvement in net interest income was largely the result of the shift into
loans from lower yielding investments.
49
<PAGE>
Provision for Possible Loan Losses
During 1997, we provided $600,000 for loan losses, compared to $450,000 in
1996. The higher provision reflected primarily the growth in commercial real
estate loans that occurred during the year. The allowance for loan losses at the
end of 1997 was 1.16% of total loans compared with 1.37% at the end of 1996.
Non-Interest Income
Total non-interest income decreased $44,000 to $3.18 million in 1997 from
$3.22 million in 1996. The change included reductions in loan servicing fees and
other income. Mortgage loan prepayments in 1997 reduced the volume of loans we
serviced, for which we collect fees. As a result, the balance of serviced loans
declined from $344.7 million in 1996 to $293.7 million in 1997, our loan
servicing fees declined by $178,000. Other income included a $200,000 increase
in the cash surrender value of life insurance policies in 1997. Security gains
increased $152,000 in 1997 compared to the prior year. These gains resulted from
the sale of common stock that we held in our investment portfolio.
Non-Interest Expense
Total non-interest expense increased $1.4 million or 8.6%, to $17.6 million
during 1997 compared with $16.2 million for the prior year. Salaries and
employee benefits increased by $1.5 million as a result of additional hires and
the introduction of a short term incentive program for officers. Other general
and administrative expenses decreased by $496,000. Building, occupancy, and
equipment expenses increased $375,000 or 11.7% to $3.6 million reflecting higher
equipment depreciation costs and other costs related to the purchase of computer
equipment, expansion of the branch network and the new Telebanking Center.
Income Taxes
Income taxes increased $892,000 or 113.3% to $1,679,000 resulting in
effective tax rates of 31.4% in 1997 and 24.0% in 1996, respectively. In 1996
we held auction rate preferred stock in our short term investment portfolio.
These investments provided tax exempt income. In late 1996, we redeemed most of
these investments and used the proceeds for loan growth.
LIQUIDITY AND CAPITAL RESOURCES
The term "liquidity" refers to our ability to generate adequate amounts of
cash to fund loan originations, loan purchases, deposit withdrawals and
operating expenses. Our primary sources of liquidity are deposits, scheduled
amortization and prepayments of loan principal and mortgage-backed securities,
maturities and calls of investment securities and funds provided by our
operations. We also can borrow funds from the FHLB based on eligible collateral
of loans and securities. Our maximum borrowing capacity from the FHLB is
approximately $300.0
50
<PAGE>
million, net of borrowings that are already outstanding. In addition, we may
enter into reverse repurchase agreements with approved broker-dealers. Reverse
repurchase agreements are agreements that allow us to borrow money using our
securities as collateral.
At September 30, 1999, outstanding borrowings from FHLB were $41.4 million,
$14.4 million above the level at December 31, 1998. In June 1999, we borrowed
$14.5 million from the FHLB in order to fund the construction and acquisition of
a new building. The FHLB loan is to be repaid in equal monthly payments over 20
years. The rate is fixed at 6.19%.
Loan repayment and maturing investment securities are a relatively
predictable source of funds. However, deposit flows, calls of investment
securities and prepayments of loans and mortgage-backed securities are strongly
influenced by interest rates, general and local economic conditions and
competition in the marketplace. These factors reduce the predictability of the
timing of these sources of funds.
Our primary investing activities are the origination of one- to four-family
real estate, commercial real estate, commercial and consumer loans, and to the
purchase of investment securities. During the first nine months of 1999, we
originated loans of approximately $185.1 million, and the comparable period of
1998 we originated loans of approximately $239.4 million. Purchases of
investment securities totaled $28.9 million for the first nine months of 1999
and $70.9 million for 1998. At September 30, 1999, Cambridgeport had loan
commitments to borrowers of approximately $41.7 million, and available home
equity and unadvanced lines of credit of approximately $131.4 million.
Deposit flows are affected by the level of interest rates, by the interest
rates and products offered by competitors and by other factors. Total deposits
increased $28.1 million and $47.7 million during the first nine months of 1999
and 1998, respectively. Time deposit accounts scheduled to mature within one
year were $218.5 million at September 30, 1999. Based on our deposit retention
experience and current pricing strategy, we anticipate that a significant
portion of these time deposits will remain on deposit. We monitor our liquidity
position frequently and anticipate that we will have sufficient funds to meet
our current funding commitments.
At September 30, 1999, we exceeded each of the applicable regulatory
capital requirements. Our leverage tier 1 capital was $76.0 million, or 18.37%
of risk-weighed assets, and 10.76% of average assets. We had a risk-based total
capital of $83.5 million and a risk-based capital ratio of 20.19%.
Except for the construction of our new administrative center, for which we
have already secured funding, and other costs associated with the new building
such as furniture, we do not anticipate any other material capital expenditures
during calendar year 2000. We do not have any balloon or other payments due on
any long-term obligations or any off-balance sheet items other than the
commitments and unused lines of credit noted above.
51
<PAGE>
Financial Services Modernization Bill
On November 12, 1999, President Clinton signed into law the Gramm-Leach-
Bliley Financial Services Modernization Act of 1999, federal legislation
intended to modernize the financial services industry by establishing a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers. Generally,
the Act:
. repeals the historical restrictions and eliminates many federal and
state law barriers to affiliations among banks, securities firms,
insurance companies and other financial service providers;
. provides a uniform framework for the functional regulation of the
activities of banks, savings institutions and their holding companies;
. broadens the activities that may be conducted by national banks,
banking subsidiaries of bank holding companies and their financial
subsidiaries;
. provides an enhanced framework for protecting the privacy of consumer
information;
. adopts a number of provisions related to the capitalization,
membership, corporate governance and other measures designed to
modernize the Federal Home Loan Bank system;
. modifies the laws governing the implementation of the Community
Reinvestment Act and
. addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial
institutions.
Bank holding companies will be permitted to engage in a wider variety of
financial activities than permitted under prior law, particularly with respect
to insurance and securities activities. In addition, in a change from prior
law, bank holding companies will be in a position to be owned, controlled or
acquired by any company engaged in financially-related activities.
We do not believe that the Act will have a material adverse effect on our
operations in the near-term. However, to the extent that it permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than we currently offer and that can aggressively compete in the
markets we currently serve.
52
<PAGE>
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." This Statement permits all entities to chose either
a fair value based method or the Accounting Principles Board (the "APB") Opinion
No. 25 intrinsic value based method of accounting for stock-based compensation
arrangements. Entities electing to remain with the accounting under APB Opinion
No. 25 must make pro forma disclosures of net income and earnings per share, as
if the fair value based method of accounting had been applied.
SFAS No. 123 is generally effective for transactions entered into in fiscal
years that begin after December 15, 1995. It is anticipated that we will adopt
APB Opinion No. 25 for the accounting of stock options and make pro forma
disclosures required by this Statement.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. This Statement simplifies the standards for computing earnings per share
previously found in Accounting Principles Board Opinion No. 15, "Earnings per
Share," and makes them comparable to international earnings per share standards.
It replaces the presentation of primary earnings per share with a presentation
of basic earnings per share. It also requires dual presentation of basic and
diluted earnings per share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. This Statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which establishes standards for the way
that public business enterprises report selected information about operating
segments in annual financial statements. This Statement requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This Statement supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This Statement is effective for financial statements for periods
beginning after December 15, 1997 and is not expected to have a material impact
on us.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The Statement revises employers' disclosures
about pension and other postretirement plans. It does not change the
measurement or recognition of those plans. The Statement standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practical, requires additional information on changes in the benefits
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that were previously required by
generally accepted accounting principles. We adopted these disclosure
requirements as of January 1, 1998.
53
<PAGE>
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was amended by SFAS No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. This Statement standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
balance sheet and measure them at fair value. If certain conditions are met, an
entity may elect to designate a derivative as follows: a hedge of the exposure
or changes in the fair value of a recognized asset or liability, or of an
unrecognized firm commitment that are attributable to a particular risk. A
hedge of the exposure to variability in the cash flows of a recognized asset or
liability, or of a forecasted transaction, that is attributable to a particular
risk. Or, a hedge of the foreign currency exposure of an unrecognized firm
commitment, an available-for-sale security, a forecasted transaction, or a net
investment in a foreign operation. This Statement generally provides for
matching the timing of the recognition of the gain or loss of the hedging
instrument with the recognition of the changes in the fair value of the item
being hedged. Depending on the type of hedge, such recognition will be in
either net income or other comprehensive income. For a derivative not
designated as a hedging instrument, changes in fair value are recognized in net
income in the period of change. We will adopt SFAS No. 133 on January 1, 2001,
and it is not expected to have a material impact on us.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise", which amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities". This statement requires that after
the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. The Bank's adoption of this statement on January 1, 1999, did not
have a material impact on our financial position or results of operation.
Impact of Inflation and Changing Prices
The Financial Statements and accompanying Notes of Cambridgeport Mutual
Holding Company have been prepared in accordance with GAAP. GAAP generally
requires the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of our operations. Unlike industrial companies, our
assets and liabilities are primarily monetary in nature. As a result, changes
in market interest rates have a greater impact on performance than do the
effects of inflation.
54
<PAGE>
BUSINESS OF CAMBRIDGEPORT BANK
General
We are a Massachusetts-chartered stock savings bank that is currently a
wholly owned subsidiary of Cambridgeport Mutual Holding Company, a
Massachusetts-chartered mutual holding company. We were formed in 1853 and
reorganized into a mutual holding company structure (without a stock offering)
in 1994. Our mission is to be a profitable community-oriented provider of
banking products and services to individuals and businesses, including
residential and commercial mortgages, consumer loans, commercial loans, and a
variety of deposit instruments. We operate through ten full service banking
offices located in the cities and towns in and around Cambridge, Massachusetts.
Six of these banking offices are located in Middlesex County and four are
located in Norfolk County. In addition, we operate a Telebanking Center located
in Cambridge, Massachusetts to service loan and deposit customers, including
opening checking and deposit accounts and accepting loan applications.
Our revenues are derived principally from interest on our loans and
mortgage-backed securities and interest and dividends on our investment
securities. Our primary sources of funds are deposits, scheduled amortization
and prepayments of loan principal and mortgage-backed securities, maturities and
calls of investment securities, funds provided by operations and borrowings. We
also use borrowings from the FHLB as a source of funds for loans, investments
and other assets. See "-- Sources of Funds."
The largest component of our expenses is the interest that we pay on
deposits.
Market Area
Consistent with large metropolitan areas in general, the economy in our
market area is based on a mixture of service, manufacturing, wholesale/retail
trade, and state and local government. The market area suffered a downturn in
terms of economic activity and real estate values in the late 1980s and early
1990s--in lockstep with the national recession. However, more recently, the
Boston economy has flourished in line with the national economic expansion and a
resulting increase in demand for the products and services produced by the
Boston economy, particularly with respect to the technology and financial
services sectors. Maintaining operations in a large metropolitan area served as
a benefit to us in periods of economic growth, while at the same time fosters
significant competition for the financial services provided by us.
Our primary market area is representative of the Boston metropolitan area,
with employment primarily in services, wholesale/retail trade and manufacturing
sectors. Our market area also has a high concentration of white collar
professionals who work at the numerous colleges and universities, hospitals and
medical care companies, financial services firms, and high technology companies
located in the Boston metropolitan area. Service jobs represent the largest
employment sector in both of the primary market counties, with jobs in
wholesale/retail trade accounting for the second largest employment sector. The
manufacturing industry, once the backbone of local economy, remains a notable
employment sector in both Middlesex and Norfolk Counties. Manufacturing
employment has experienced a decline in our primary market during
55
<PAGE>
the 1990s, reflecting the general trend of a shrinking manufacturing basis
throughout the northeast. However, the number of manufacturing jobs increased in
both Norfolk and Middlesex Counties during 1997. Population growth has
facilitated job growth in most sectors of the local economy, with services,
wholesale/retail trade, financial services and construction all reflecting
strong job growth in our primary market area.
We believe that the relative affluence of our market area and recent
population and job growth provide significant opportunities for profitable
household banking relationships. The median household and per capita income
levels in Middlesex and Norfolk Counties, the primary two counties of our market
area, were higher than the comparative medians for Massachusetts and the U.S.
However, in comparison to the U.S. and Massachusetts, growth in household income
was lower for Middlesex and Norfolk Counties from 1990 to 1999. Based on the
projections of CACI, household income for both Middlesex and Norfolk Counties
will increase over the next five years, but will continue to increase at a
slower pace than the projected growth rates for Massachusetts and the U.S.
Unemployment rates in Middlesex and Norfolk Counties are lower than comparative
measures for Massachusetts and the U.S.
Competition
We face intense competition both in making loans and attracting deposits.
Eastern Massachusetts has a high concentration of financial institutions, many
of which are branches of large money center and regional banks which have
resulted from the consolidation of the banking industry in Massachusetts and
surrounding states. Some of these competitors have greater resources than we do
and may offer services that we do not provide.
Our competition for loans comes principally from commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies and brokerage and investment banking firms. Our most
direct competition for deposits has historically come from commercial banks,
savings banks, savings and loan associations and credit unions. We face
additional competition for deposits from short-term money market funds and other
corporate and government securities funds and from brokerage firms and insurance
companies.
Lending Activities
Loan Portfolio Composition. Our loan portfolio consists of one- to four-
family residential first mortgage loans, commercial real estate loans, consumer
loans and commercial loans.
At September 30, 1999, we had total loans of $545.6 million, of which
$276.9 million were residential mortgage loans. Outstanding advances under home
equity credit lines totaled $59.5 million. Loans secured by mortgages on
commercial real estate totaled $200.4 million. The remaining portion of our loan
portfolio at September 30, 1999 consisted of consumer loans totaling $6.6
million and commercial loans of $1.2 million.
56
<PAGE>
Our loans are subject to federal and state law and regulations. The
interest rates we charge on loans are affected principally by the demand for
loans, the supply of money available for lending purposes and the interest rates
offered by our competitors. These factors are, in turn, affected by general and
local economic conditions, monetary policies of the federal government,
including the Federal Reserve Board, legislative tax policies and governmental
budgetary matters.
57
<PAGE>
The following table presents the composition of our loan portfolio in
dollar amounts and in percentages of the total portfolio at the dates indicated.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, At December 31,
------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ ---------
Percent Percent Percent Percent
of of of of
Amount Total Amount Total Amount Total Amount Total Amount
-------- ------- -------- ------- -------- ------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential(1)................ $276,921 50.76% $246,917 49.04% $208,124 49.04% $159,271 51.24% $156,031
Home equity lines of
credit....................... 59,471 10.90 56,502 11.22 60,875 14.34 46,745 15.04 39,386
Commercial.................... 200,379 36.73 189,275 37.59 144,292 34.00 91,528 29.45 69,732
Construction.................. 991 0.18 2,741 0.55 1,940 0.46 2,692 0.86 988
-------- ------ -------- ------ -------- ------ -------- ------ --------
Total real estate loans...... 537,762 98.57 495,435 98.40 415,231 97.84 300,236 96.59 266,137
-------- ------ -------- ------ -------- ------ -------- ------ --------
Other loans:
Commercial.................... 1,203 0.22 724 0.15 581 0.14 807 0.26 775
Consumer...................... 6,593 1.21 7,310 1.45 8,576 2.02 9,787 3.15 10,451
-------- ------ -------- ------ -------- ------ -------- ------ --------
Total other loans............ 7,796 1.43 8,034 1.60 9,157 2.16 10,594 3.41 11,226
-------- ------ -------- ------ -------- ------ -------- ------ --------
Total loans.................... 545,558 100.00 503,469 100.00 424,388 100.00 310,830 100.00 277,363
Less:
Net deferred loan fees........ 360 446 294 240 321
Allowance for loan losses..... 7,297 6,633 4,907 4,269 4,074
-------- -------- -------- -------- --------
Total loans, net............... $537,901 $496,390 $419,187 $306,321 $272,968
======== ======== ======== ======== ========
<CAPTION>
------- ----------------------
1994
------- ----------------------
Percent
of Percent of
Total Amount Total
------- -------- ----------
<S> <C> <C> <C>
Real estate loans:
Residential(1)................ 56.26% $134,463 56.13%
Home equity lines of.......... 14.20 37,696 15.73
credit
Commercial..................... 25.14 48,087 20.07
Construction................... 0.35 0 0.00
------ -------- ------
Total real estate loans...... 95.95 220,246 91.93
------ -------- ------
Other loans:
Commercial.................... 0.28 1,262 0.53
Consumer...................... 3.77 18,063 7.54
------ ---------- ------
Total other loans............ 4.05 19,325 8.07
------ ---------- ------
Total loans.................... 100.00 239,571 100.00
Less:
Net deferred loan fees........ 332
Allowance for loan losses..... 4,130
--------
Total loans, net............... $235,109
========
</TABLE>
_____________________
(1) Includes loans held for sale.
58
<PAGE>
Loan Maturity and Repricing. The following table shows the repricing dates
or contractual maturity dates as of September 30, 1999. The table does not
reflect prepayments or scheduled principal amortization.
<TABLE>
<CAPTION>
At September 30, 1999
------------------------------------------------------------------------------------
Home
Equity
Residential Line of Commercial
Loans Credit Real Estate Construction Commercial Consumer Totals
------------ --------- ----------- ------------ ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year................ $ 24,719 $ 59,471 $ 5,574 $ 991 $ 399 $ 5,406 $ 96,560
After one year:
One to three years......... 52,451 - 85,659 - 221 1,050 139,381
Three to five years........ 120,825 - 83,769 - 583 137 205,314
Five to ten years.......... 65,669 - 24,911 - - - 90,580
Ten to twenty years........ 9,047 - 466 - - - 9,513
Over twenty years.......... 4,210 - - - - - 4,210
-------- -------- -------- ------- ------ ------- --------
Total due after one year....... 252,202 - 194,805 - 804 1,187 448,998
-------- -------- -------- ------- ------ ------- --------
Total amount due: $276,921 $ 59,471 $200,379 $ 991 $1,203 $ 6,593 $545,558
======== ======== ======== ======= ====== ======= ========
Less:
Net deferred loan origination 360
costs........................
Allowance for loan losses...... 7,297
--------
Loans, net................... $537,901
========
</TABLE>
59
<PAGE>
The following table presents, as of September 30, 1999, the dollar amount
of all loans contractually due or scheduled to reprice after September 30, 2000
and whether such loans have fixed interest rates or adjustable interest rates.
Due After September 30, 2000
-------------------------------------
Fixed Adjustable Total
----- ---------- -----
(In thousands)
Real Estate Loans
Residential.................. $39,711 $ 212,491 $ 252,202
Home equity lines of credit.. - - -
Commercial real estate....... 24,357 170,448 194,805
Construction................. - - -
------- --------- ---------
Total real estate loans.... 64,068 382,939 447,007
------- --------- ---------
OTHER LOANS
Commercial................... 804 - 804
Consumer..................... 1,187 - 1,187
------- --------- ---------
Total other loans.......... 1,991 - 1,991
------- --------- ---------
Total loans................... $66,059 $ 382,939 $ 448,998
======= ========= =========
60
<PAGE>
The following table presents our loan originations, sales and principal
payments for the periods indicated.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, For the Years Ended December 31,
------------------- --------------------------------
1999 1998 1998 1997 1996
------ ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans(1):
Balance outstanding at beginning of period............. $ 503,023 $ 424,094 $ 424,094 $ 310,590 $277,042
Originations:
Mortgage loans:
Residential........................................... 111,675 133,729 201,371 109,593 65,408
Commercial............................................ 32,585 60,405 71,744 60,397 32,586
Home equity lines of credit........................... 35,620 38,901 49,089 49,873 29,908
--------- --------- --------- --------- --------
Total mortgage originations.......................... 179,880 233,035 322,204 219,863 127,902
Commercial loans....................................... 921 246 689 315 274
Consumer loans......................................... 4,343 6,135 7,644 5,865 4,873
--------- --------- --------- --------- --------
Total originations................................... 185,144 239,416 330,537 226,043 133,049
Less:
Principal repayments, unadvanced funds and other, (103,116) (116,141) (162,796) (84,086) (71,964)
net...................................................
Loan securitizations................................... - (1,584) (1,584) (696) (5,295)
Sale of residential mortgage loans, principal balance.. (39,765) (65,501) (86,499) (26,992) (21,333)
Sale of student loans.................................. (163) (304) (533) (695) (531)
Loan charge-offs....................................... (11) (36) (44) (16) (259)
Change in deferred fees................................ 86 (164) (152) (54) 81
Transfers to foreclosed real estate.................... - - - - (200)
--------- --------- --------- --------- --------
Total deductions..................................... (142,969) (183,730) (251,608) (112,539) (99,501)
Net loan activity...................................... 42,175 55,686 78,929 113,504 33,548
--------- --------- --------- --------- --------
Ending balance........................................ $ 545,198 $ 479,780 $ 503,023 $ 424,094 $310,590
========= ========= ========= ========= ========
</TABLE>
- ------------------
(1) Includes loans held for sale.
61
<PAGE>
Residential Mortgage Loans and Originations. We emphasize the origination
of first and second mortgages secured by one- to four-family properties
primarily within eastern Massachusetts. As of September 30, 1999, loans on
residential properties accounted for 50.8% of our total loan portfolio.
Our mortgage origination strategy is to offer a broad array of products to
meet customer needs. These products include adjustable rate loans which are held
in our portfolio, fixed rate loans sold to investors with servicing released for
fee income, and fixed rate loans sold to the secondary market where we retain
the servicing rights. During 1998, we introduced a "mini-mortgage" product to
take advantage of the high volume of mortgage refinancings. Mini-mortgages are
loans with fixed terms of up to 15 years and loan amounts up to $250,000. Mini-
mortgages are first position mortgages with loan to value ratios under 70% and
which we hold in our portfolio.
Our originations of all types of residential first mortgages amounted to
$111.7 million in the first nine months of 1999, $201.4 million in 1998, $109.6
million in 1997, and $65.4 million in 1996. Due to the low interest rate
environment, a significant portion of loans originated in 1998 and 1999 were
refinances, including refinances of our existing portfolio loans and loans in
our servicing portfolio. The average size of our residential mortgage loans
originated in 1999 was $138,454.
We utilize a variety of strategies to originate new mortgage loans
including third party alliances with mortgage lenders, dedicated mortgage
originators, branch referrals, Telebanking mortgage specialists and targeted
advertising. Our mortgage originators develop referrals from real estate
brokers, attorneys, past customers and other key referral sources. Originators
are also assigned a branch in order to process mortgage referrals made by our
branch staff. In addition, we market our mortgage capabilities in appropriate
media highlighting our toll-free Telebanking number. Our Telebanking Center has
a specialized loan staff which handle mortgage inquiries and preapprovals, and
are equipped to take telephone applications for mortgages as well as home equity
products.
We have invested in automated mortgage origination software allowing us to
take applications via a personal computer at a customer's home or office. In
addition, our software interfaces with FannieMae's automated underwriting
software allowing us to make loan decisions quickly and often reducing the
documentation required from the borrower. We believe our investment in
automation makes the mortgage loan process efficient and fast, thereby improving
the quality of service to our customers.
We offer a variety of mortgage products to allow customers to select the
best product for their needs. A description of the products and underwriting
guidelines are highlighted below:
Adjustable Rate Mortgage Loans. We offer a variety of adjustable rate
mortgage (ARM) products that initially adjust after one, three, five, seven or
ten years. After the initial term, ARM loans generally adjust on an annual basis
at a fixed spread over the monthly average yield on United States Treasury
securities. The adjusted rates are based on a constant maturity of one year
(constant treasury maturity index). The interest rate adjustments are generally
subject to a maximum increase of 2% per adjustment period and the aggregate
adjustment is generally
62
<PAGE>
subject to a maximum increase of 6% over the life of the loan. The initial
interest rates on our ARM loans are frequently below the interest rate that we
determine by a fixed spread above the monthly constant treasury maturity index.
We originated $66.4 million in one- to four-family ARM loans in the first nine
months of 1999. At September 30, 1999, 85.6% of our residential mortgage loans
in our portfolio were ARM loans.
Generally, we offer ARM loans in amounts up to $1.0 million depending on
the loan-to-value ratio and the type of property. The loan-to-value ratio is the
loan amount divided by the lower of (a) the appraised value of the property or
(b) the purchase price of the property. The loan-to-value ratio is commonly used
by financial institutions as one measure of potential exposure to risk.
Loans on owner occupied one- to four-family homes of up to $450,000 are
generally subject to a maximum loan to value ratio of 80%. However, we may make
loans with loan to value ratios above 80% if the borrower obtains private
mortgage insurance. All loans above $500,000 require two outside appraisals and
the lower value is used to determine the loan to value ratio. On loan amounts
between $450,000 and $650,000, our maximum loan to value ratio accepted is 75%.
For loans between $650,000 and $850,000, our maximum loan to value ratio
accepted is 70%. For loan amounts over $850,000, the maximum loan to value ratio
accepted is 60%. As of September 30, 1999, the average loan size of our one- to
four-family mortgage loans held in portfolio was $174,824.
All ARM loans are underwritten using specifications set by FannieMae.
Generally, our ARM loans with loan balances below the FannieMae maximum loan
standard ($240,000 for a single-family property) are conforming loans maintained
in our portfolio. Jumbo loans (amounts above the secondary market conforming
standards) are considered non-conforming but may be saleable to other investors.
As of September 30, 1999, we had approximately $120.4 million in ARM loans in
portfolio with balances above the FannieMae maximum loan amount standard of
$240,000.
Fixed Rate Mortgages Sold Servicing Released. We offer a variety of fixed-
rate products that we sell to investors on a servicing released basis. These
loans are underwritten to the investors' standards and are sold to the investor
after the loan closes. Gains on sales of residential loans amounted to $534,000
of our noninterest income for the first nine months of 1999.
Fixed Rate Mortgages Sold with Servicing Retained. We are an approved
seller/servicer for both FannieMae and the Federal Home Loan Mortgage Corp.
(FreddieMac). Our fixed rate loans are underwritten to comply with
FannieMae/FreddieMac standards for sale to these investors.
Mini-Mortgages. During 1998, we introduced a mini-mortgage product targeted
at borrowers whose loan balances are $250,000 or less and properties with loan
to value ratios under 70% in order to take advantage of the large volume of
mortgage refinancings. The property value is determined by use of a property tax
assessment or an appraisal. These loans use a simplified loan application
similar to fixed-rate home equity loans and have lower fees than a conventional
mortgage. Applications are reviewed as if they were fixed-rate home equity loans
63
<PAGE>
where income and asset information is verified and credit reports are evaluated
to ensure credit quality. Borrowers are also evaluated based on debt to income
ratios as outlined in our underwriting policy similar to our mortgage
underwriting guidelines. Terms are fixed for 10 to 15 years fully amortizing.
The rates charged on mini-mortgages are generally higher than conventional fixed
rate mortgage loans. As of September 30, 1999 mini-mortgages in our portfolio
amounted to $27.1 million or 9.8% of total residential mortgage loans.
In addition to our standard mortgage products, we offer mortgage programs
designed to address the credit needs of low- to moderate-income home mortgage
applicants, first-time home buyers and low- to moderate-income home improvement
loan applicants. We define low- to moderate-income applicants as borrowers
residing in low- to moderate-income census tracts or households with income not
greater than 80% of the median income in the county where the subject property
is located. Among the features of the low- to moderate-income home mortgage and
first-time home buyer's programs are reduced rates, lower down payments, reduced
fees and closing costs, and generally less restrictive requirements for
qualification compared to our traditional one- to four-family mortgage loans.
For instance, certain of these programs currently provide for loans with up to
95% loans-to-value ratios and rates which are 25 to 75 basis points lower than
our traditional mortgage loans. During the first nine months of 1999, we
originated $14.0 million in mortgage loans to home buyers under these programs.
Fixed Rate Home Equity Loans and Second Mortgages. We offer fixed rate home
equity loans and second mortgages in amounts up to $250,000 secured by owner
occupied one- to four-family residences. The maximum term offered is 10 years.
At September 30, 1999, these loans totaled $4.1 million or 1.5% of our
residential mortgage portfolio. Generally, fixed rate home equity loans have
higher rates of interest than conventional mortgages. The underwriting terms are
similar to those used to originate first mortgages.
Home Equity Credit Lines. We offer home equity lines of credit as a
complement to our one- to four-family lending activities. We believe that
offering home equity credit lines helps to expand and create stronger ties to
our existing customer base by increasing the number of customer relationships
and providing cross-marketing opportunities. Home equity credit lines provide
adjustable-rate loans secured by a first or second mortgage on owner-occupied
one- to four-family residences located primarily in eastern Massachusetts. As of
September 30, 1999, 82.3% of our home equity credit lines were secured by first
mortgages. Home equity credit lines enable customers to borrow at rates tied to
the prime rate as reported in The Wall Street Journal. Generally, the maximum
home equity credit line we offer is $250,000. The underwriting standards
applicable to home equity credit lines generally are the same as one-to four-
family first mortgage loans, except that the combined loan-to-value ratio,
including the balance of the first mortgage, cannot exceed 80% of the appraised
or tax assessed value of the property. Generally, our home equity credit lines
have a ten-year advance period and repayment period and are renewable in five-
year increments.
Commercial Real Estate Loans. We originate commercial real estate loans
secured by properties located primarily in the Boston metropolitan area. We
generally make loans on existing properties that have identifiable cash flows.
In underwriting commercial real estate loans, we consider not only the
property's historic cash flow, but also its current and projected occupancy,
location and physical condition. We generally lend up to a maximum loan-to-value
64
<PAGE>
ratio of 80% on commercial properties and require a minimum debt coverage ratio
of 1.25%. At September 30, 1999, we had 225 loans in our commercial real estate
portfolio. The average loan size was approximately $891,000. Approximately 40%
of our $200.4 million commercial real estate portfolio was secured by property
located in the City of Boston (Suffolk County) and 20% was secured by property
in Cambridge. The remainder was secured by property located elsewhere in our
market area. Our largest loan is a commercial real estate loan with an
outstanding balance of $5.5 million at September 30, 1999 which was secured by a
commercial property located in Belmont, Massachusetts.
As of September 30, 1999, our commercial real estate portfolio was
collateralized by a variety of property types with loan to value ratios at
origination, as shown below:
<TABLE>
<CAPTION>
Percentage of
Commercial Real Estate Weighted Average Loan
Loan Balance Portfolio to Value at Origination
------------ ---------------------- -----------------------
(Dollars in thousands)
<S> <C> <C> <C>
Multi-Unit Residential (5+ units) $ 85,924 42.9% 59.0%
Mixed Use - Office/Retail 42,510 21.2 60.0
Office Buildings 26,234 13.1 62.0
Retail 20,541 10.3 56.8
Mixed Use - Residential/Commercial 9,028 4.5 57.2
Other 16,142 8.0 53.3
-------- -----
Total $200,379 100.0% 58.8%
======== =====
</TABLE>
Commercial real estate lending involves additional risks compared with
one- to four-family residential lending. Payments on loans secured by commercial
real estate properties often depend on the successful management of the
properties, on the amount of rent from the properties, or on the level of
expenses needed to maintain the properties. Repayment of such loans may
therefore be adversely affected by conditions in the real estate market or the
general economy. Also, commercial real estate loans typically involve large loan
balances to single borrowers or groups of related borrowers. In order to
mitigate this risk, we monitor our loan concentration and our loan policies
generally limit the amount of loans to a single borrower or group of borrowers.
We also utilize the services of an outside consultant to conduct on-site credit
quality reviews of the commercial loan portfolio.
Because of increased risks associated with commercial real estate loans,
our commercial real estate loans generally have higher rates and shorter
maturities than residential mortgage loans. We usually offer commercial real
estate loans at adjustable rates tied to the prime rate or to yields on U.S.
Treasury securities. The terms of such loans generally do not exceed 25 years.
We closely monitor the performance of our commercial real estate portfolio.
We maintain an internal risk rating system that classifies each loan into one of
the following eight categories:
1. Nominal Risk for our best rated credits
2. Very Satisfactory
3. Satisfactory
65
<PAGE>
4. Generally Satisfactory
5. Close Monitoring
6. Substandard
7. Doubtful
8. Loss
At September 30, 1999, all commercial real estate loans were rated Generally
Satisfactory or better. No commercial real estate loans had outstanding
delinquent payments as of that date.
Commercial Loans. We make loans to businesses in our market area. While the
number and amount of business loans is small in relation to our total portfolio,
we intend to significantly expand our business lending activities in the future.
Commercial loans generally are limited to terms of five years or less.
Substantially all have variable interest rates tied to the prime rate. Whenever
possible, we collateralize these loans with a lien on commercial real estate, or
alternatively, with a lien on business assets and equipment. We also generally
require the personal guarantee of the business owner. Interest rates on
commercial loans generally have higher yields than residential or commercial
real estate loans.
Commercial loans are generally considered to involve a higher degree of
risk than residential or commercial real estate loans because the collateral may
be in the form of intangible assets and/or inventory subject to market
obsolescence. Commercial loans may also involve relatively large loan balances
to single borrowers or groups of related borrowers, with the repayment of such
loans typically dependent on the successful operation and income stream of the
borrower. Such risks can be significantly affected by economic conditions. In
addition, business lending generally requires substantially greater oversight
efforts by our staff compared to residential or commercial real estate lending.
In this regard, we have recently hired two senior commercial banking officers
who have extensive experience in business banking at large Boston based
commercial banks who will work to enhance our operational infrastructure and our
loan production capabilities as well as introduce new underwriting techniques
for commercial loans which will enable us to approve such loans more quickly and
to assess more accurately the credit risk associated with such lending.
Consumer Loans. We offer a variety of consumer loans to retail customers in
the communities we serve in order to increase the yield on our loan portfolio.
Examples of our consumer loans include:
. education loans;
. new and used automobile loans;
. secured passbook loans;
. credit lines tied to deposit accounts to provide overdraft
protection; and
. unsecured personal loans.
At September 30, 1999, the consumer loan portfolio totaled $6.6 million or
1.21% of total loans.
66
<PAGE>
Consumer loans are generally originated at higher interest rates than
residential and commercial mortgage loans but they also generally tend to have a
higher credit risk than residential loans because they are usually unsecured or
secured by rapidly depreciable assets. Despite these risks, our level of
consumer loan delinquencies generally has been low. No assurance can be given,
however, that our delinquency rate on consumer loans will continue to remain low
in the future, or that we will not incur future losses on these activities.
Education loans currently represent the largest portion of our consumer
loan portfolio, $4.0 million, 60.7% of total consumer loans at September 30,
1999. There are two types of education loans in our portfolio. First, we have
$3.4 million, as of September 30, 1999, of loans guaranteed by The Education
Resources Institute, Inc. (TERI). TERI is a tax exempt corporation whose
principal service is to function as a guarantor of student loans disbursed by
participating lending institutions. In its capacity as guarantor, TERI is
required to reimburse us for unpaid principal and interest on defaulted loans.
TERI is subject to various regulatory requirements administered by state banking
agencies, including the Massachusetts Division of Banks. Until 1995, we made
education loans with TERI guarantees. In February, 1995, we discontinued this
program. The $3.4 million represents the remaining balance of the
TERI-guaranteed loans that had been made prior to that date. The balances of our
TERI-guaranteed portfolio at the end of 1998, 1997, and 1996 were $4.1 million,
$5.1 million and $6.0 million respectively. TERI-guaranteed education loans have
also represented a significant portion of our total loan delinquencies. At
September 30, 1999, $475,000 of TERI-guaranteed loans were more than 90 days
delinquent. See "Allowance for Loan Losses".
The other portion of our education loan portfolio consists of loans
guaranteed by Student Loan Marketing Association, Inc. (SallieMae). This
amounted to $600,000 at September 30, 1999. Under a program sponsored by Sallie
Mae, we originate and disburse funds to students for educational expenses while
they are in school. Prior to the loan entering full repayment, we sell the loans
to SallieMae. We originated total student loans of $200,000 during the first
nine months of 1999.
We make loans for automobiles, both new and used, directly to the
borrowers. The required repayment schedule of our automobile loans is generally
limited to five years. The other terms of these loans vary depending on the age
and condition of the collateral. We obtain a title lien on the vehicle and we
require collision insurance policies on all auto loans. At September 30, 1999,
our automobile loans totaled $600,000.
We make loans for up to 90.0% of the amount of a borrower's savings account
or certificate of deposit balance. These passbook loans totaled $1.5 million at
September 30, 1999.
Loan Approval Procedures and Authority. Our lending policies provide that
our residential mortgage and home equity underwriting departments may review and
approve one- to four-family mortgage loans and home equity loans and lines up to
prescribed limits as follows:
. Residential mortgage loans up to but not exceeding $500,000 that
meet underwriting standards set forth in our policies;
. Mini mortgage loans up to $250,000 that meet our underwriting
standards;
67
<PAGE>
. Home equity loans or lines for owner occupied one to four
properties up to $250,000 that conform to our underwriting
guidelines; and
. Home equity loans or lines up to $100,000 for vacation and non
owner occupied properties.
All loan applications that exceed the above mentioned amounts or have
exceptions to our policies require approval of either the Executive Committee of
the Board of Directors or approval of the Credit Committee.
The following generally describes our current lending procedures for
residential mortgages and home equity lines and loans. Upon receipt of a
completed loan application from a prospective borrower, we order a credit report
and verify certain other information. If necessary, we obtain additional
financial or credit related information. We require an appraisal for all
mortgage loans, except for home equity loans or lines and mini-mortgages where
tax assessed values may be used to determine the loan to value ratio. Appraisals
are performed by a licensed or certified third-party appraisal firms and are
reviewed by our lending department. We require title insurance on all mortgage
loans, except for home equity lines and loans and mini-mortgages that do not
exceed $250,000. For these loans, we require evidence of previous title
insurance.
We require borrowers to obtain hazard insurance and we may require
borrowers to obtain flood insurance prior to closing. For properties with a
private sewage disposal system, we also require evidence of compliance with
applicable law on residential mortgage loans, except mini-mortgages. Further, we
require borrowers to advance funds on a monthly basis together with each payment
of principal and interest to a mortgage escrow account from which we make
disbursements for items such as real estate taxes, flood insurance and private
mortgage insurance premiums, if required.
Commercial real estate loans are approved through the Bank's Credit
Committee process. The Credit Committee consists of the President, the Executive
Vice President, the Chief Financial Officer, certain other senior lending and
credit officers, as well as a non-management member of the Board of Directors.
The Credit Committee has authority to approve individual loans and modifications
up to $3.0 million, provided they are not part of a relationship that exceeds
$6.0 million. Any loan exceeding $3.0 million or any loan in a relationship
greater than $6.0 million requires approval by both the Credit Committee and the
Executive Committee of the Board of Directors.
On an exception basis, commercial real estate loans less than $250,000 may
be approved outside the Committee process with the dual signatures including the
President, Chief Financial Officer or Senior Vice-President, Commercial Lending,
and the Vice-President Loan Officer. These loans must also be ratified at the
next Executive Committee meeting.
The Credit Committee meeting minutes detail all approved loans and are
reviewed at least monthly by the Executive Committee and monthly by the Board of
Directors.
68
<PAGE>
Asset Quality
One of our key operating objectives has been and continues to be the
achievement of a high level of asset quality. We maintain a large proportion of
loans secured by residential one- to four-family properties and commercial
properties, we set sound credit standards for new loan originations and we
follow careful loan administration procedures. These practices and relatively
favorable economic and real estate market conditions have resulted in
historically low delinquency ratios and, in recent years, a low level of
non-performing assets. These factors have helped strengthen our financial
condition.
Delinquent Loans and Foreclosed Assets. Our policies require that
management continuously monitor the status of the loan portfolio and report to
the Board of Directors on a monthly basis. These reports include information on
delinquent loans and foreclosed real estate, as well as our actions and plans to
cure the delinquent status of the loans and to dispose of the foreclosed
property.
The following table presents information regarding non-accrual mortgage and
consumer and other loans, accruing loans delinquent 90 days or more, and
foreclosed real estate as of the dates indicated.
Cambridgeport Bank had non-performing assets of $507,000 and $963,000 at
September 30, 1999 and December 31, 1998, respectively.
69
<PAGE>
The following table presents information regarding non-accrual mortgage and
consumer and other loans, accruing loans delinquent 90 days or more, and
foreclosed real estate as of the dates indicated. At September 30, 1999 and
December 31, 1998, 1997, and 1996, we had $32,000, $290,000, $215,000, and
$212,000, respectively, of non-accrual loans. If all non-accrual loans had been
performing in accordance with their original terms and had been outstanding from
the earlier of the beginning of the period or origination, we would have
recorded interest income on these loans of approximately $20,000 for the nine
month period in 1998. In 1999, there would have been no impact.
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------- ----------------------------------------
1999 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual real estate loans
Residential............................... $ 32 $ 290 $ 201 $ 212 $ 667 $ 916
Home equity lines of credit............... - - 14 - 51 -
Commercial real estate.................... - - - - 104 124
Construction and loans.................... - - - - - -
----- ------ ------ ------ ------ ------
Total non-accrual real estate loans........ 32 290 215 212 822 1,040
===== ====== ====== ====== ====== ======
Other loans:
Commercial................................ - - - - - -
Consumer.................................. - - - - - -
- - - - - -
----- ------ ------ ------ ------ ------
Total non-accrual consumer and other loans.. - - - - - -
===== ====== ====== ====== ====== ======
Accruing loans delinquent 90 days or more... 475 673 574 597 544 680
===== ====== ====== ====== ====== ======
Total non-performing loans.................. 507 963 789 809 1,366 1,720
===== ====== ====== ====== ====== ======
Foreclosed real estate, net................. - - - 94 105 43
===== ====== ====== ====== ====== ======
Total non-performing assets 507 963 789 903 1,471 1,763
===== ====== ====== ====== ====== ======
Non-performing loans to total loans......... 0.09% 0.19% 0.19% 0.29% 0.49% 0.72%
===== ====== ====== ====== ====== ======
Non-performing assets to total assets....... 0.07% 0.14% 0.13% 0.16% 0.29% 0.37%
===== ====== ====== ====== ====== ======
</TABLE>
Non-performing assets totaled $507,000 at September 30, 1999, including $475,000
of delinquent student loans. TERI guarantees these loans. The non-performing
asset totals at December 31, 1998 and 1997 were $963,000, and $789,000
respectively. Of these totals, $672,000 and $564,000 respectively represented
TERI guaranteed student loans.
Our non-accrual policy distinguishes between several different loan types.
For student loans guaranteed by TERI and first mortgage loans insured or
guaranteed by the FHA or VA, we continue to accrue interest even if the
principal and interest payments are more than 90 days past due. For commercial,
commercial real estate, construction, and land loans, we stop accruing income
when interest or principal payments are 90 days in arrears. We may stop accruing
income on such loans earlier than 90 days when we consider the timely
collectibility of interest or principal to be doubtful. For residential mortgage
loans, home equities, and consumer loans, we may continue to accrue interest
income beyond 90 days if the loan is well secured and we determine that the
ultimate collection of all principal and interest is not in doubt.
70
<PAGE>
When we designate nonaccrual loans, we reverse all outstanding interest
that we had previously credited. If we receive a payment on a non-accrual loan,
we may recognize that payment as interest income, if we determine that the
ultimate collectibility of principal is no longer in doubt. However, such loans
would remain on non-accrual status. We return a nonaccrual loan to accrual
status when the borrower has made all past due payments and we determine that
ultimate collection of principal is no longer in doubt.
We define impaired loans as all non-accrual commercial real estate and
commercial loans. Impaired loans are individually assessed to determine whether
the carrying value exceeds the fair value of the collateral or the present value
of the cash flow produced by the underlying collateral. Smaller balance
homogeneous loans, such as residential mortgage loans and consumer loans, are
collectively evaluated for impairment. We had no loans classified as impaired at
September 30, 1999. At December 31, 1998 and 1997, impaired loans totaled
$290,000 and $215,000, respectively. At the end of 1996, impaired loans total
was $993,000, consisting of about $426,000 in commercial real estate loans and
the remainder in residential mortgages. At September 30, 1999 and December 31,
1998, 1997, and 1996, we had no loans classified at troubled debt restructuring,
as defined in SFAS No. 15.
Foreclosed real estate consists of property we have acquired through
foreclosure or deed in lieu of foreclosure. Foreclosed real estate properties
are initially recorded at the lower of the recorded investment in the loan or
fair value. Thereafter, we carry foreclosed real estate at fair value less
estimated selling costs. As of September 30, 1999, we had no foreclosed real
estate.
71
<PAGE>
Allowance for Loan Losses. The following table presents the activity in our
allowance for loan losses and other ratios at or for the dates indicated.
<TABLE>
<CAPTION>
At or for Nine months
ended September 30, At or For Years Ended December 31,
--------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period............... $ 6,633 $ 4,907 $ 4,907 $ 4,269 $ 4,074 $ 4,130 $ 4,170
Charge-offs:
Residential............................... - - - - (136) (160) (186)
Commercial real estate.................... - - - - (93) - -
Home equity lines of credit............... - - - - - - (29)
Commercial................................ - - - - - - -
Consumer.................................. (11) (36) (44) (16) (30) (3) (32)
-------- -------- -------- -------- -------- -------- --------
Total charge-offs..................... (11) (36) (44) (16) (259) (163) (247)
-------- -------- -------- -------- -------- -------- --------
Recoveries:
Residential............................... 5 2 2 27 - 3 41
Commercial real estate.................... 106 3 3 27 - - 148
Construction.............................. - - - - - 3 -
Commercial loans.......................... - - - - - - 7
Other consumer loans...................... 2 2 5 - 4 1 11
-------- -------- -------- -------- -------- -------- --------
Total recoveries...................... 113 7 10 54 4 7 207
-------- -------- -------- -------- -------- -------- --------
Net (charge-offs) recoveries................. 102 (29) (34) 38 (255) (156) (40)
Provision for possible loan losses........... 562 1,183 1,760 600 450 100 -
-------- -------- -------- -------- -------- -------- --------
Balance at end of period..................... $ 7,297 $ 6,061 $ 6,633 $ 4,907 $ 4,269 $ 4,074 $ 4,130
======== ======== ======== ======== ======== ======== ========
Total loans receivable(1).................... $543,465 $476,245 $498,194 $420,611 $306,388 $272,758 $235,498
======== ======== ======== ======== ======== ======== ========
Average loans outstanding.................... $523,761 $453,891 $462,528 $367,471 $285,406 $250,594 $217,704
======== ======== ======== ======== ======== ======== ========
Allowance for loan losses as a 1.34% 1.27% 1.33% 1.17% 1.39% 1.49% 1.75%
percent of total loans ======== ======== ======== ======== ======== ======== ========
receivable(1).........................
Net loans (charged off) recovered 0.02% (0.01)% (0.01)% 0.01% (0.09)% (0.06)% (0.02)%
as a percent of average loans ======== ======== ======== ======== ======== ======== ========
outstanding.......................
</TABLE>
_______________
(1) Does not include loans held for sale or passbook loans or deferred fees.
72
<PAGE>
Our evaluation of the loan portfolio includes the review of all loans on
which the collection of principal might be at risk. We consider the following
factors as part of this evaluation: our historical loan loss experience, known
and inherent risks in the loan portfolio, increases in categories with higher
loss potential such as commercial real estate loans and jumbo loans, the
estimated value of the underlying collateral and current economic and market
trends. There may be other factors that may warrant our consideration in
maintaining the allowance at a level sufficient to cover probable losses.
Although we believe that we have established and maintained the allowance for
loan losses at adequate levels, future additions may be necessary if economic,
real estate and other conditions differ substantially from the current operating
environment.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. These agencies, including the FDIC and the Massachusetts
Division of Banks, may require us to increase the allowance for loan losses or
the valuation allowance for foreclosed real estate based on their judgments of
information available to them at the time of their examination, thereby
adversely affecting our results of operations.
For the nine months ended September 30, 1999, we increased our allowance
for loan losses through a $562,000 provision for loan losses based on our
evaluation of the items discussed above. We believe that the current allowance
for loan losses accurately reflects the level of risk in the current loan
portfolio. To determine the adequacy of the allowance, we look at historical
trends in the growth and composition of our loan portfolio, among other factors.
The most significant trend over the last five years is the growth in our
commercial real estate loan portfolio, which has risen from $48.1 million at the
end of 1994 to $200.4 million at September 30, 1999.
We believe that, despite using prudent underwriting standards, commercial
real estate loans contain higher loss potential than one- to four-family
residential mortgages.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--for the Nine Months Ended September 30, 1999 and 1998 and
the Years Ended December 31, 1998, 1997 and 1996--Provision for Loan Losses."
73
<PAGE>
Allocation of Allowance for Loan Losses. The following tables set forth the
allowance for loan losses allocated by loan category, the total loan balances by
category, and the percent of loans in each category to total loans indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Percent of Percent of
loans in loans in
Loan Each Loan Each
Balances Category to Balances Category to
by Total by Total
Loan Category Amount Category Loans Amount Category Loans
- ------------- ------- -------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate - mortgage:
Residential(1)....................... $2,191 $334,856 61.62% $1,917 $280,385 58.87%
Commercial........................... 2,833 202,380 37.24 2,647 189,043 39.69
Commercial loans...................... 18 1,204 0.22 7 488 0.11
Consumer loans(2)..................... 55 5,025 0.92 70 6,329 1.33
Unallocated........................... 2,200 - - 1,420 - -
------ -------- ------ ------ -------- -------
Total allowance for loan losses...... $7,297 $543,465 100.00% $6,061 $476,245 100.00%
====== ======== ====== ====== ======== =======
<CAPTION>
At December 31,
-------------------------------------------------------------------------------
1998 1997
-------------------------------------- ------------------------------------
Percent of Percent of
loans in loans in
Loan Each Loan Each
Balances Category to Balances Category to
by Total by Total
Loan Category Amount Category Loans Amount Category Loans
- ------------- ------ -------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate - mortgage:
Residential(1)....................... $2,014 $298,485 59.91% $1,780 $266,075 63.26%
Commercial........................... 2,703 193,046 38.75 1,908 146,806 34.90
Commercial loans...................... 11 724 0.15 9 581 0.14
Consumer loans(2)..................... 65 5,939 1.19 79 7,149 1.70
Unallocated........................... 1,840 - - 1,131 - -
------ -------- ------ ------ -------- ------
Total allowance for loan losses...... $6,633 $498,194 100.00% $4,907 $420,611 100.00%
====== ======== ====== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------- -------------------------------- -----------------------------
Percent of Percent of Percent of
loans in loans in loans in
Loan Each Loan Each Loan Each
Balances Category to Balances Category to Balances Category to
by Total by Total by Total
Loan Category Amount Category Loans Amount Category Loans Amount Category Loans
- ------------- ------ -------- ----------- ------ -------- ----------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate - mortgage:
Residential(1)............. $1,515 $203,053 66.27% $1,488 $191,254 70.12% $1,332 $168,917 71.73%
Commercial................. 1,225 94,220 30.75 943 70,720 25.93 693 48,656 20.66
Commercial loans............ 12 807 0.27 12 775 0.28 19 1,262 0.53
Consumer loans(2)........... 90 8,308 2.71 116 10,009 3.67 171 16,663 7.08
Unallocated................. 1,427 - - 1,515 - - 1,915 - -
------ -------- ------ ------ -------- ------ ------ -------- ------
Total allowance for loan
losses.................... $4,269 $306,388 100.00% $4,074 $272,758 100.00% $4,130 $235,498 100.00%
====== ======== ====== ====== ======== ====== ====== ======== ======
</TABLE>
_________________________
(1) Includes home equity lines of credit, excludes loans held for sale.
(2) Excluded passbook loans.
74
<PAGE>
Investment Activities
The Board of Directors reviews and approves our investment policy on an
annual basis. The President, Chief Financial Officer and Investment Officer, as
authorized by the Board, implement this policy based on the established
guidelines within the written policy, and other established guidelines,
including those set periodically by the Asset Liability Management Committee.
Our investment policy is designed primarily to manage the interest rate
sensitivity of our assets and liabilities, to generate a favorable return
without incurring undue interest rate and credit risk, to complement our lending
activities and to provide and maintain liquidity within the range established by
policy. In determining our investment strategies, we consider our interest rate
sensitivity or "gap" position, yield, credit risk factors, maturity and
amortization schedules, and other characteristics of the securities to be held.
Massachusetts chartered savings banks have authority to invest in various
types of assets, including U.S. Treasury obligations, securities of various
federal agencies, mortgage-backed securities, certain time deposits of insured
financial institutions, repurchase agreements, overnight and short term loans to
other banks, corporate debt instruments, and equity securities.
Liquidity
We calculate liquidity by taking the total of:
. our cash;
. cash we have in other banks;
. our money market investments;
. U.S. Government Securities;
. Mortgage backed securities guaranteed by the U.S. Government or
Agencies;
. Securities with remaining maturities of less than thirty days;
and subtracting a percentage of maturing CDs and other short term liabilities.
Our policies provide that we shall attempt to maintain liquidity at 7% to
20% of total assets. At September 30, 1999 our liquidity ratio was 9.1% of total
assets.
Investment Portfolio
Securities can be classified as trading, held to maturity, or available for
sale at the date of purchase. All of our securities are currently classified as
"available for sale." The weighted average annualized yield of the portfolio is
6.12% as of September 30, 1999. We believe the credit quality of the portfolio
is high, with 75% of the portfolio invested in U.S. Government, U.S. Agency, or
U.S. Agency guaranteed mortgage backed securities. Our mortgage backed security
portfolio is comprised predominately of adjustable rate securities in addition
to 5-year and 7-year balloon securities. Balloon securities are so named because
the entire principal balance is due (i.e. balloon) prior to completing the
normal 30 year amortization of the underlying mortgages. The remainder of
75
<PAGE>
our portfolio, approximately 25%, is invested in corporate bonds with maturities
of less than five years. Corporate Bonds must be rated investment grade
according to policy guidelines. The amortized cost of the securities that will
mature or reprice within five years is $96.8 million or 75.1%. For information -
Carrying Values, Yields and Maturities."
Finally, we own stock of the FHLB, common stock of a local financial
institution and certain other equity securities also classified as available for
sale.
76
<PAGE>
Investment Portfolio. The following table sets forth the composition of
our investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30, At December 31,
--------------------- ---------------------------------------------------------------------
1999 1998 1997 1996
--------------------- -------------------- --------------------- ---------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
--------- --------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Government securities....... $ 2,974 $ 2,973 $ - $ - $ 2,004 $ 2,008 $ 70,596 $ 70,527
Federal agency securities....... 56,970 55,845 55,516 55,734 53,060 53,262 28,633 28,645
Other debt securities........... 31,918 31,892 34,156 34,419 43,037 43,218 57,176 57,222
--------- --------- --------- --------- --------- --------- --------- ---------
Total investment
securities................. 91,862 90,710 89,672 90,153 98,101 98,488 156,405 156,394
--------- --------- --------- --------- --------- --------- --------- ---------
Mortgage-backed and
mortgage-related securities:
Ginnie Mae...................... 14,235 14,118 18,890 18,836 16,762 16,796 11,764 11,697
Fannie Mae...................... 11,394 11,342 16,516 16,755 17,298 17,391 16,626 16,771
Freddie Mac..................... 11,347 11,339 12,773 13,004 19,289 19,388 16,934 16,871
Other........................... - - 116 117 766 768 1,323 1,326
--------- --------- --------- --------- --------- --------- --------- ---------
Total mortgage-backed and
mortgage-related
securities.................. 36,976 36,799 48,295 48,712 54,115 54,343 46,647 46,665
--------- --------- --------- --------- --------- --------- --------- ---------
Asset-backed securities.......... - - - - - - 778 781
Marketable equity
securities.................... 1,260 6,391 1,262 5,964 3,069 6,790 3,048 6,533
SBLI stock....................... 1,934 1,934 1,934 1,934 1,934 1,934 1,934 1,934
Federal Home Loan Bank
stock......................... 4,452 4,452 3,879 3,879 3,062 3,062 3,062 3,062
--------- --------- --------- --------- --------- --------- --------- ---------
Total investment
securities.................. $136,484 $140,286 $145,042 $150,642 $160,281 $164,617 $211,874 $215,369
========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
At December 31,
----------------------------------------------
1995 1994
----------------------- --------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government securities....... $ - $ - $ 57,386 $ 56,694
Federal agency securities....... 43,059 43,609 23,650 23,679
Other debt securities........... 26,598 26,796 73,022 71,954
-------- -------- -------- --------
Total investment
securities.................. 69,657 70,405 154,058 152,327
-------- -------- -------- --------
Mortgage-backed and
mortgage-related securities:
Ginnie Mae...................... 2,310 2,307 2,003 1,803
Fannie Mae...................... 27,089 27,414 4,869 4,776
Freddie Mac..................... 41,649 41,622 15,645 15,332
Other........................... 989 1,002 1,311 1,252
-------- -------- -------- --------
Total mortgage-backed and
mortgage-related
securities................... 72,037 72,345 23,828 23,163
-------- -------- -------- --------
Asset-backed securities.......... 1,092 1,111 - -
Marketable equity
securities.................... 14,008 16,685 7,760 9,734
SBLI stock....................... 1,934 1,934 1,934 1,934
Federal Home Loan Bank
stock......................... 2,312 2,312 2,312 2,312
-------- -------- -------- --------
Total investment
securities.................. $161,040 $164,792 $189,892 $189,470
======== ======== ======== ========
</TABLE>
77
<PAGE>
Mortgage-Backed Securities and Mortgage-Related Securities. The following
table sets for the amortized cost and fair value of our mortgage-backed and
mortgage-related securities, which are classified as available for sale or held
to maturity as of the dates indicated. Since 1994, all mortgage-backed and
mortgage-related securities have been classified as available for sale.
<TABLE>
<CAPTION>
At September 30, At December 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- ------------------------------- -------------------------------
Percent Percent Percent
Amortized of Market Amortized of Market Amortized of Market
Cost Total(1) Value Cost Total(1) Value Cost Total(1) Value
--------- -------- --------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed and
mortgage-related securities
available for sale........
Ginnie Mae................. $14,235 38.50% $14,118 $18,890 39.11% $18,836 $16,762 30.97% $16,796
Fannie Mae................ 11,394 30.81 11,342 16,516 34.20 16,755 17,298 31.97 17,391
Freddie Mac............... 11,347 30.69 11,339 12,773 26.45 13,004 19,289 35.64 19,388
Other..................... - 0.00 - 116 0.24 117 766 1.42 768
------- ------- ------- ------- ------- ------- ------- ------- -------
Total mortgage-backed
and mortgage related
securities............ $36,976 100.00% $36,799 $48,295 100.00% $48,712 $54,115 100.00% $54,343
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
At December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- -------------------------------
Percent Percent Percent
Amortized of Market Amortized of Market Amortized of Market
Cost Total(1) Value Cost Total(1) Value Cost Total(1) Value
--------- ------- -------- --------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed and
mortgage-related securities
available for sale........
Ginnie Mae................... $11,764 25.22% $11,697 $ 2,310 3.21% $ 2,307 - 0.00% $ -
Fannie Mae.................. 16,626 35.64 16,771 27,089 37.60 27,414 - 0.00 -
Freddie Mac................. 16,934 36.30 16,871 41,649 57.82 41,622 - 0.00 -
Other....................... 1,323 2.84 1,326 989 1.37 1,002 1,311 100.00 1,252
------- ------- ------- ------- ------- ------- ----- ------- -------
Total mortgage-backed
and mortgage- related
securities.............. $46,647 100.00% $46,665 $72,037 100.00% $72,345 1,311 100.00% $ 1,252
======== ======= ======= ======= ======= ======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------
1994
---------------------------------
Percent
Amortized of Market
Cost Total(1) Value
--------- -------- ------
<S> <C> <C> <C>
Mortgage-backed and mortgage-
related securities held to maturity..
Ginnie Mae............................ 2,003 8.90% 1,803
Fannie Mae............................ 4,869 21.62% 4,776
Freddie Mac........................... 15,645 69.48% 15,332
Other................................. - 0.00% -
------ ------- ------
Total mortgage-backed and
mortgage related securities...... 22,517 100.00% 21,911
====== ======= ======
</TABLE>
78
<PAGE>
Investment Portfolio Maturities. The composition and maturities of the
Investment securities portfolio (debt securities) and the mortgage-backed
securities portfolio at September 30, 1999 are summarized in the following
table. Maturities are based on the final contractual payment dates, and do not
reflect the impact of prepayments or redemptions that may occur.
<TABLE>
<CAPTION>
More than One Year More than Five Years
One year or Less through Five Years through Ten Years More than Ten Years
--------------------- --------------------- --------------------- ---------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities available
for sale:
U.S. Government securities...... $ 2,974 4.51% $ - 0.00% $ - 0.00% $ - 0.00%
Federal agency securities....... 2,984 4.83 48,974 5.95 5,012 7.08 - 0.00
Other debt securities........... 9,962 6.10 21,956 6.24 - 0.00 - 0.00
------- ------- ------ -------
Total investment securities.. 15,920 5.56 70,930 6.04 5,012 7.08 - 0.00
------- ------- ------ -------
Mortgage-backed securities
available for sale:
Ginnie Mae.................... - 0.00 - 0.00 - 0.00 14,235 5.84
Fannie Mae.................... 301 6.51 7,257 6.41 801 7.34 3,035 6.31
Freddie Mae................... 61 7.00 2,325 6.03 1,206 7.09 7,755 6.76
------- ------- ------ -------
Total mortgage-back securities.. 362 6.59 9,582 6.32 2,007 7.19 25,025 6.19
------- ------- ------ -------
Total.......................... $16,282 5.59 $80,512 6.07 $7,019 7.11 $25,025 6.19
======= ======= ====== =======
<CAPTION>
Total Securities
--------------------------------
Weighted
Amortized Market Average
Cost Value Yield
---------- ---------- ----------
<S> <C> <C> <C>
Investment securities available
for sale:
U.S. Government securities......
Federal agency securities....... $ 2,974 $ 2,973 4.51%
Other debt securities...........
56,970 55,845 5.99
Total investment securities..
31,918 31,892 6.20
-------- --------
Mortgage-backed securities 91,862 90,710 6.01
available for sale: -------- --------
Ginnie Mae....................
Fannie Mae....................
Freddie Mae...................
Total mortgage-back securities.. 14,235 14,118 5.84
11,394 11,342 6.45
11,347 11,339 6.65
Total.......................... -------- --------
Total mortgage-back 36,976 36,799 6.28
securities..................... -------- --------
Total.......................... $128,838 $127,509 6.09
======== ========
</TABLE>
79
<PAGE>
Sources of Funds
Deposits, scheduled amortization and prepayments of loan principal and
mortgage-backed securities, maturities and calls of investments securities and
funds provided by operations are our primary sources of funds for use in
lending, investing and for other general purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Deposits. We offer a variety of deposit products to meet the needs of
retail and business customers. We currently offer non-interest bearing demand
accounts, interest bearing demand accounts (NOWs), savings passbook and
statement accounts, money market accounts and certificates of deposits.
Deposit products are developed to meet the needs of our market. For
instance, we introduced the Treasury Index Account in October, 1987 to capture
investment dollars of consumers and businesses. The Treasury Index Account is a
savings account where the rate offered on monthly average balances over $25,000
is based on the three month U.S. Treasury bill rate. Currently, the Treasury
Index Account can only be opened by customers who maintain a personal interest
bearing checking account or business demand deposit account. We also offer a
Kids Bank Club savings passbook account targeted at children under 13 years of
age in an effort to teach children the value of saving money at an early age.
We offer other specially packaged deposit products to encourage broad
relationships. Our Appreciation Now account requires a minimum of $10,000 in
various deposit accounts to waive monthly maintenance charges and offers
customers premium rates on selected certificate of deposit accounts. We waive
monthly maintenance fees on our Real Checking Account (an interest bearing
checking account) if mortgage or home equity loan payments are automatically
deducted from the Real account. These and other products have enabled us to
develop multiple account relationships with customers.
Our deposit flows are influenced by a number of factors including: general
and local economic conditions, the perceived strength of the stock and stock
mutual fund market, prevailing interest rates and competition. Our deposits are
primarily obtained from areas surrounding our offices. To attract and retain
deposits, we utilize a strategy that incorporates competitive pricing with high
quality service and the development of long term relationships. We determine
our deposit rates by evaluating our competition's pricing, the cost of FHLB
borrowings, rates on U.S. Treasury securities and other related funds.
As of September 30, 1999, demand deposits, NOW deposits, savings, and money
market accounts represented 45.5% of total deposits. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Analysis of Net Interest Income" for information relating to the average
balances and costs of our deposit accounts for the years ended December 31,
1998, 1997, and 1996.
80
<PAGE>
Deposit Distribution Weighted Average. The following table sets for the
distribution of our deposit accounts, by account type, at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
For the Nine Months Ended
September 30, 1999 1998 1997
---------------------------- ------------------------------- -----------------------------
Weighed Weighed Weighed
Average Average Average
Amount Percent Rates Amount Percent Rates Amount Percent Rates
---------- ------- --------- ----------- ------- --------- ----------- ------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits (1)................... $ 32,294 5.42% 0.00% $ 30,742 5.42% 0.00% $ 23,600 4.53% 0.00%
NOW deposits.......................... 42,977 7.21 1.38 41,546 7.31 1.50 35,061 6.74 1.69
Savings deposits...................... 54,006 9.06 2.03 53,560 9.43 2.18 54,281 10.43 2.28
Money market deposits................. 142,077 23.83 3.94 132,219 23.27 3.71 93,712 18.01 3.79
-------- ------- -------- ------- -------- ------
Total non-certificated accounts.. 271,354 45.52 2.69 258,067 45.43 2.60 206,654 39.71 2.60
Certificate of deposit
Due within 1 year................ 218,530 36.66 4.78 252,594 44.46 5.33 203,194 39.05 5.58
Over 1 year through 3 years...... 103,684 17.39 5.20 54,615 9.61 5.43 105,126 20.20 5.94
Over 3 years..................... 2,569 0.43 5.36 2,799 0.50 5.38 5,383 1.04 5.84
-------- ------- -------- ------- -------- ------
Total certificate accounts.. 324,783 54.48 4.92 310,008 54.57 5.35 313,703 60.29 5.70
-------- ------- -------- ------- -------- ------
Total................................. $596,137 100.00% 3.90% $568,075 100.00% 4.10% $520,357 100.00% 4.46%
======== ======= ======== ======= ======== ======
<CAPTION> At December 31,
-----------------------------
1996
-----------------------------
Weighed
Average
Amount Percent Rates
----------- ------- ---------
<S> <C> <C> <C>
Demand deposits(1).................... $ 20,020 3.99% 0.00%
NOW deposits.......................... 32,918 6.55 1.79
Savings deposits...................... 57,823 11.50 2.28
Money market deposits................. 79,738 15.86 3.59
-------- ------
Total non-certificated accounts.. 190,499 37.90 2.52
Certificate of deposit
Due within 1 year................ 227,757 45.31 5.53
Over 1 year through 3 years...... 78,515 15.62 5.93
Over 3 years..................... 5,927 1.17 6.00
-------- ------
Total certificate accounts.. 312,199 62.10 5.64
-------- ------
Total................................. $502,698 100.00% 4.47%
======== ======
</TABLE>
___________________
(1) Includes mortgagor's escrow payments.
81
<PAGE>
Deposit Flow. The following table summarizes the deposit activity of the
Bank for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, At December 31,
-------------------- --------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........... $568,075 $520,357 $520,357 $502,698 $425,199
Net increase (decrease) before interest
credited (1)............................ 10,701 41,288 23,376 (5,081) 57,315
Interest credited........................ 17,361 18,197 24,342 22,740 20,184
-------- -------- -------- -------- --------
Balance at end of period................. $596,137 $579,842 $568,075 $520,357 $502,698
======== ======== ======== ======== ========
Total increase in deposit accounts.... $ 28,062 $ 59,485 $ 47,718 $ 17,659 $ 77,499
======== ======== ======== ======== ========
Percentage increase...................... 4.94% 11.43% 9.17% 3.51% 18.23%
</TABLE>
_______________
(1) Includes mortgage escrow payments
C.D. Maturities. At September 30, 1999, we had $59.8 million in
certificates of deposits with balances of $100,000 and over maturing as follow:
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Rate
- -------------------------------------- ----------------- -----------------
(In thousands)
<S> <C> <C>
Three months or less.................. $11,859 4.58%
Over three months through six months.. 10,196 4.50%
Over six months through 12 months..... 18,984 5.02%
Over 12 months........................ 18,797 5.24%
-------
Total............................. $59,836 4.91%
=======
</TABLE>
C.D. Balances by Rates. The following table sets forth, by interest rate
ranges, information concerning our certificates of deposit at the dates
indicates.
<TABLE>
<CAPTION>
At September 30, 1999
-----------------------------------------------------------------------------
Period to Maturity
-----------------------------------------------------------------------------
Less than One to Two Two to More than Percent of
One Year Years Three Years Three Years Total Total
---------- ------------ ------------- ------------- --------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
4.00% and below $ 2,930 $ 1 $ $ - $ 2,931 0.90%
4.01% to 5.00% 170,269 20,680 847 820 192,616 59.31%
5.01% to 6.00% 37,656 72,620 6,788 1,502 118,566 36.51%
6.01% to 7.00% 7,675 1,218 1,530 247 10,670 3.28%
7.01% and above - - - - - 0.00%
-------- --------- ---------- --------- --------- ------
Total $218,530 $ 94,519 $ 9,165 $ 2,569 $ 324,783 100.00%
======== ========= ========== ========= ========= ======
</TABLE>
82
<PAGE>
Borrowings. In addition to deposits, borrowings from the FHLB provide an
additional source of funds to finance our lending and investing activities.
The following table sets forth information concerning balances and interest
rates on the Bank's FHLB advances at the dates and for the periods indicated.
<TABLE>
<CAPTION>
At or For The Nine
Months Ended At or For The Year Ended
September 30, December 31,
------------------ --------------------------
1999 1998 1998 1997 1996
----- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Federal Home Loan Bank advances:
Average balance outstanding............... $36,674 $24,988 $25,097 $13,550 $14,859
Maximum amount outstanding at any
month-end during the period.............. 44,525 31,902 31,902 35,810 22,252
Balance outstanding at end of the period.. 41,431 24,824 27,066 21,604 720
Weighted average interest rate during
the period............................... 5.64% 6.03% 6.13% 6.01% 5.75%
Weighted average interest rate at
end of period............................ 6.08% 6.11% 6.04% 6.52% 6.80%
</TABLE>
83
<PAGE>
Properties
We currently conduct our business through our executive and administrative
offices, our ten full service banking offices and our Telebanking Center. We
are in the process of building a new facility located at 1380 Soldiers Field
Road, Brighton, MA. Occupancy of the building should occur by the end of the
second quarter 2000. This facility will house certain administrative
departments and all lending operations. The estimated cost is approximately
$16.0 million of which approximately $14.0 million was borrowed from the FHLB.
As of September 30, 1999, the properties and leasehold improvements owned by us
had an aggregate net book value of $6.9 million.
<TABLE>
<CAPTION>
Year of Lease
or License Deposits as of
Location Ownership Year Opened Expiration(1) September 30, 1999
-------- --------- ----------- ------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Administrative/Main Office:
689 Massachusetts Avenue Owned N/A -- $139,348
Cambridge, MA 02139
Branch Offices:
1751 Massachusetts Avenue Leased 1978 2007 $139,641
Lexington, MA 02420
522 Main Street Leased 1980 2004 $ 74,709
Winchester, MA 01890
Harvard Square Office Leased 1985 2003 $ 44,973
1290 Massachusetts Avenue
Cambridge, MA 02139
177 Linden Street Leased 1994 2003 $ 49,822
Wellesley, MA 02482
1243 Centre Street Leased 1995 2010 $ 50,539
Newton, MA 02459
133 Chapel Street Leased 1995 2015 $ 42,050
Needham, MA 02492
Supermarket Offices:
101 Falls Boulevard Licensed 1996 2011 $ 12,533
Quincy, MA 02169
150 W. Central Street Licensed 1997 2012 $ 9,631
Natick, MA 01760
338 Washington Street Licensed 1997 2012 $ 4,706
Westwood, MA 02090
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Year of Lease
or License Deposits as of
Location Ownership Year Opened Expiration(1) September 30, 1999
-------- --------- ----------- ------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Residential Mortgage Center Leased 1998 2003 N/A
2150 Washington Street
Newton, MA 02462
Telebanking Center Leased 1997 2000 $ 28,185
100 Cambridge Park Drive
Cambridge, MA 02140
</TABLE>
______________________________
(1) Lease expiration dates assume all options to extend lease terms are
exercised.
Legal Proceedings
We are not involved in any pending legal proceeding other than routine
legal proceedings occurring in the ordinary course of business. We believe that
these routine legal proceedings, in the aggregate, are immaterial to our
financial condition and results of operation.
Personnel
As of September 30, 1999, we had 168 full-time employees and 34 part-time
employees. The employees are not represented by a collective bargaining unit,
and we consider our relationship with our employees to be excellent.
Subsidiary Activities
Cambridgeport Bank is the only subsidiary of Cambridgeport Mutual Holding
Company. Cambridgeport Bank currently has two principal subsidiaries: The Port
Corporation and Temple Investment Corporation. The Port Corporation is
currently inactive.
Temple Investment Corporation, a Massachusetts securities corporation,
engages in the investment of securities and was formed to take advantage of
favorable state tax treatment of interest income from certain investment
securities. Temple Investment Corporation owns the subsidiary Temple Realty
Corp., and Temple Realty Corp. owns the subsidiary Temple Realty, LLC. Temple
Realty, LLC. was formed to hold the land and the building of Cambridgeport
Bank's new administrative center and will lease the real estate from the
developer. After construction of the building is complete, Temple Realty, LLC.
will purchase the real estate and will lease the improved property to Temple
Realty Corp.
After the conversion, Port Financial Corp. will have two wholly owned
subsidiaries: Cambridgeport Bank and Brighton Investments Corp., a
Massachusetts securities corporation.
85
<PAGE>
BUSINESS OF PORT FINANCIAL CORP.
Port Financial Corp. has not engaged in any business to date. Upon
completion of the conversion, Port Financial Corp. will own Cambridgeport Bank.
Port Financial Corp. will retain up to 50% of the net proceeds from the
offering. We will invest our initial capital as discussed in "How We Intend to
Use the Proceeds from the Offering."
Immediately after consummation of the conversion, it is expected that the
only business activities of Port Financial Corp. will be to hold all of the
outstanding common stock of Cambridgeport Bank, to fund a loan to the ESOP from
the proceeds of capital raised in the offering, and to contribute 50% of the net
proceeds from the offering to Cambridgeport Bank as additional capital. Port
Financial Corp. may use the net proceeds retained by it to pay dividends to
stockholders and to repurchase shares of its common stock. In the future,
however, Port Financial Corp., as the holding company of Cambridgeport Bank,
will be authorized to pursue other business activities permitted by applicable
laws and regulations for such holding companies, which may include the issuance
of additional shares of common stock to raise additional capital or in
connection with mergers or acquisitions and borrowing funds for reinvestment in
Cambridgeport Bank. There are no plans for any additional capital issuance,
merger or acquisition, or other diversification of the activities of Port
Financial Corp. at the present time.
Our cash flow will depend upon earnings from the investment of the portion
of net proceeds we retain and any dividends Port Financial Corp. receives from
Cambridgeport Bank. Initially, Port Financial Corp. will neither own nor lease
any property, but will instead use the premises, equipment and furniture of
Cambridgeport Bank. At the present time, we intend to employ only persons who
are officers of Cambridgeport Bank to serve as officers of Port Financial Corp.
However, we will use the support staff of Cambridgeport Bank from time to time.
These persons will not be separately compensated by Port Financial Corp. Port
Financial Corp. will hire additional employees, as appropriate, to the extent it
expands its business in the future. See "How We Intend to Use the Proceeds from
the Offering."
86
<PAGE>
REGULATION OF CAMBRIDGEPORT BANK AND
PORT FINANCIAL CORP.
General
Port Financial Corp., as the bank holding company controlling Cambridgeport
Bank, will be subject to the Bank Holding Company Act of 1956, as amended, (the
"BHCA") and the rules and regulations of the Federal Reserve Board (the "FRB")
under the BHCA and to the provisions of the Massachusetts General Laws
applicable to savings banks and other depository institutions and their holding
companies (the "Massachusetts banking laws") and the regulations of the Division
under the Massachusetts banking laws applicable to bank holding companies. Port
Financial Corp. will be required to file reports with, and otherwise comply with
the rules and regulations of the FRB and the Division. Port Financial Corp.
will be required to file certain reports with, and otherwise comply with, the
rules and regulations of the Securities and Exchange Commission under the
federal securities laws.
Any change in such laws and regulations, whether by the Division, the FDIC,
or the FRB, or through legislation, could have a material adverse impact on Port
Financial Corp. and Cambridgeport Bank and their operations and stockholders.
- --------------------------------------------------------------------------------
Certain of the laws and regulations applicable to Port Financial Corp. and
Cambridgeport Bank are summarized below or elsewhere in this prospectus. These
summaries do not purport to be complete and are qualified in their entirety by
reference to such laws and regulations.
- --------------------------------------------------------------------------------
Massachusetts Banking Regulation
Activity Powers. Cambridgeport Bank derives its lending, investment and
other activity powers primarily from the applicable provisions of the
Massachusetts banking laws and its related regulations. Under these laws and
regulations, savings banks, including Cambridgeport Bank, generally may, invest
in:
. real estate mortgages;
. consumer and commercial loans;
. specific types of debt securities, including certain corporate debt
securities and obligations of federal, state and local governments and
agencies;
. certain types of corporate equity securities; and
. certain other assets.
87
<PAGE>
A savings bank may also invest pursuant to a "leeway" power that permits
investments not otherwise permitted by the Massachusetts banking laws. "Leeway"
investments must comply with a number of limitations on the individual and
aggregate amounts of "leeway" investments. A savings bank may also exercise
trust powers upon approval of the Division. Massachusetts savings banks may
also exercise any power and engage in any activity permissible for national
banks in accordance with regulations adopted by the Division with respect to
such power or activity. The exercise of these lending, investment and activity
powers are limited by federal law and the related regulations. See "-- Federal
Banking Regulation -- Activity Restrictions on State-Chartered Banks" below.
Community Reinvestment Act. Cambridgeport Bank is also subject to
provisions of the Massachusetts banking laws that, like the provisions of the
federal Community Reinvestment Act ("CRA"), impose continuing and affirmative
obligations upon a banking institution organized in Massachusetts to serve the
credit needs of its local communities ("Massachusetts CRA"). The obligations of
the Massachusetts CRA are similar to those imposed by the CRA with the exception
of the assigned exam ratings. Massachusetts banking law provides for an
additional exam rating of "high satisfactory" in addition to the federal CRA
ratings of "outstanding," "satisfactory," "needs to improve" and "substantial
noncompliance." The Division has adopted regulations to implement the
Massachusetts CRA that are based on the CRA. See "Federal Banking Regulation --
Community Reinvestment Act." The Division is required to consider a bank's
Massachusetts CRA rating when reviewing the bank's application to engage in
certain transactions, including mergers, asset purchases and the establishment
of branch offices or automated teller machines, and provides that such
assessment may serve as a basis for the denial of any such application. The
Massachusetts CRA requires the Division to assess a bank's compliance with the
Massachusetts CRA and to make such assessment available to the public.
Cambridgeport Bank's latest Massachusetts CRA rating, received by letter, dated
July 8, 1999, from the Division was a rating of "Satisfactory."
Loans-to-One-Borrower Limitations. With specified exceptions, the total
obligations of a single borrower to a Massachusetts chartered savings bank may
not exceed 20% of the savings bank's retained earnings account. A savings bank
may lend additional amounts up to 100% of the bank's retained earnings account
if secured by collateral meeting the requirements of the Massachusetts banking
laws. Cambridgeport Bank currently complies with applicable loans-to-one-
borrower limitations.
Loans to a Bank's Insiders. Provisions of the Massachusetts banking laws
prohibit a savings bank from making a loan or otherwise extending credit to any
of its officers and directors or trustees and prohibits any such officer,
director or trustee from borrowing, otherwise becoming indebted, or becoming
liable for a loan or other extension of credit by such bank to any other person
except for any of the following loans after approval by a majority of the all of
the members of the bank's executive committee, excluding any member involved in
such loan or extension of credit:
. loan or extension of credit, secured or unsecured, to an officer of
the bank in an amount not exceeding $20,000;
88
<PAGE>
. loan or extension of credit intended or secured for educational
purposes to an officer of the bank in an amount not exceeding $75,000;
. loan or extension of credit secured by a mortgage on residential real
estate to be occupied in whole or in part by the officer to whom the
loan or extension of credit is made, in an amount not exceeding
$275,000;
. loan or extension of credit to a director or trustee of the bank who
is not also an officer of the bank in an amount permissible under the
bank's loan-to-one borrower limit. See "Massachusetts Banking
Regulation -- Loans-to-One Borrower Limitations" above.
No such loan may be granted with an interest rate or other terms that are
preferential in comparison to loans granted to persons not affiliated with the
savings bank.
Dividends. Under the Massachusetts banking laws, a stock savings bank may,
subject to several limitations, declare and pay a dividend on its capital stock,
which is the bank's common stock and any preferred stock, out of the bank's net
profits. A dividend may not be declared, credited or paid by a stock savings
bank so long as there is any impairment of capital stock. No dividend may be
declared on the bank's common stock for any period other than for which
dividends are declared upon preferred stock, except as authorized by the
Commissioner. The approval of the Commissioner is also required for a stock
savings bank to declare a dividend, if the total of all dividends declared by
the savings bank in any calendar year shall exceed the total of its net profits
for that year combined with its retained net profits of the preceding two years,
less any required transfer to surplus or a fund for the retirement of any
preferred stock.
In addition, Federal law may also limit the amount of dividends that may be paid
by Cambridgeport Bank. See "-- Federal Banking Regulation -- Prompt Corrective
Action" below.
Examination and Enforcement. The Division is required to periodically
examine savings banks at least once every calendar year or at least once each 18
month period if the savings bank qualifies as well capitalized under the prompt
corrective action provisions of the Federal Deposit Insurance Act. See "--
Federal Banking Regulation -- Prompt Corrective Action" below. The Division may
also examine a savings bank whenever the Division deems an examination
expedient. If the Division finds, after an inquiry, that any trustee, director
or officer of a savings bank has, among other things, violated any law related
to such bank or has conducted the business of such bank in an unsafe or unsound
manner, the Division may take various actions that could result in the
suspension or removal of such person as an officer, director or trustee of the
savings bank. If the Division determines that, among other things, a savings
bank has violated its charter or any Massachusetts law or is conducting its
business in an unsafe or unsound manner or is in an unsafe or unsound condition
to transact is banking business, the Division may take possession of the
property and business of the savings bank and may, if the facts warrant,
initiate the liquidation of the bank.
89
<PAGE>
Federal Banking Regulation
Capital Requirements. FDIC regulations require BIF-insured banks, such as
Cambridgeport Bank, to maintain minimum levels of capital. The FDIC regulations
define two tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of common stockholders' equity
(excluding the unrealized appreciation or depreciation, net of tax, from
available-for-sale securities), non-cumulative perpetual preferred stock
(including any related retained earnings) and minority interests in consolidated
subsidiaries, minus all intangible assets (other than qualifying servicing
rights), and any net unrealized loss on marketable equity securities.
The components of Tier 2 capital currently include cumulative perpetual
preferred stock, certain perpetual preferred stock for which the dividend rate
may be reset periodically, mandatory convertible securities, subordinated debt,
intermediate preferred stock and allowance for possible loan losses. Allowance
for possible loan losses includible in Tier 2 capital is limited to a maximum of
1.25% of risk-weighted assets. Overall, the amount of Tier 2 capital that may
be included in total capital can not exceed 100% of Tier 1 capital.
The FDIC regulations establish a minimum leverage capital requirement for
banks in the strongest financial and managerial condition, with a rating of 1
(the highest examination rating of the FDIC for banks) under the Uniform
Financial Institutions Rating System, of not less than a ratio of 3.0% of Tier 1
capital to total assets. For all other banks, the minimum leverage capital
requirement is 4.0%, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the depository institution.
The FDIC regulations also require that savings banks meet a risk-based
capital standard. The risk-based capital standard requires the maintenance of a
ratio of total capital (which is defined as the sum of Tier 1 capital and Tier 2
capital) to risk-weighted assets of at least 8% and a ratio of Tier 1 capital to
risk-weighted assets of at least 4%. In determining the amount of risk-weighted
assets, all assets, plus certain off balance sheet items, are multiplied by a
risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in
the type of asset or item.
The federal banking agencies, including the FDIC, have also adopted
regulations to require an assessment of an institution's exposure to declines in
the economic value of a bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. Under such a risk assessment, examiners
will evaluate a bank's capital for interest rate risk on a case-by-case basis,
with consideration of both quantitative and qualitative factors. According to
the agencies, applicable considerations include the quality of the bank's
interest rate risk management process, the overall financial condition of the
bank and the level of other risks at the bank for which capital is needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
90
<PAGE>
The following table shows Cambridgeport Bank's leverage ratio, its Tier 1
risk-based capital ratio, and its total risk-based capital ratio, at September
30, 1999:
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------------------------------------------
Percent Pro Pro Forma
Historical of Forma Percent of Capital Percent of
Capital Assets/2/ Capital/1/ Assets/2/ Requirements Assets/2/
-------- ---------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Regulatory Tier 1 leverage capital.. $ 76,038 10.76 $ 109,153 14.61 $ 29,879 4.00
Tier 1 risk-based capital........... 76,038 18.37 109,153 25.87 16,877 4.00
Total risk-based capital............ 83,547 20.19 116,663 27.65 33,755 8.00
</TABLE>
__________________
(1) Assumes the sale of 9,000,000 share of common stock in the offering.
(2) For purposes of calculating Regulatory Tier 1 leverage capital, assets are
based on adjusted total leverage assets. In calculating Tier 1 risk based
capital and total risk-based capital, assets are based on total risk-
weighted assets.
As the table shows, Cambridgeport Bank exceeded the minimum capital
adequacy requirements at the date indicated.
Activity Restrictions on State-Chartered Banks. Section 24 of the Federal
Deposit Insurance Act, as amended (the "FDIA"), which was added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), generally
limits the activities and investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for federally chartered national banks
and their subsidiaries, unless such activities and investments are specifically
exempted by Section 24 or consented to by the FDIC.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if
. the bank held such types of investments during the 14-month period
from December 31, 1990 through November 26, 1991;
. the state in which the bank is chartered permitted such investments
as of December 31, 1991; and
. the bank notifies the FDIC and obtains approval from the FDIC to make
or retain such investments. Upon receiving such FDIC approval, an
institution's investment in such equity securities will be subject to
an aggregate limit up to the amount of its Tier 1 capital.
Cambridgeport Bank received approval from the FDIC to retain and acquire such
equity investments subject to a maximum permissible investment equal to the
lesser of 100% of Cambridgeport Bank's Tier 1 capital or the maximum permissible
amount specified by the Massachusetts banking laws. Section 24 also provides an
exception for majority owned subsidiaries of a bank, but Section 24 limits the
activities of such subsidiaries are limited to those
91
<PAGE>
permissible for a national bank, permissible under Section 24 of the FDIA and
the FDIC regulations issued pursuant thereto, or as approved by the FDIC.
Before making a new investment or engaging in a new activity not
permissible for a national bank or otherwise permissible under Section 24 of the
FDIC regulations thereunder, an insured bank must seek approval from the FDIC to
make such investment or engage in such activity. The FDIC will not approve the
activity unless the bank meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the FDIC
insurance funds.
Enforcement. The FDIC has extensive enforcement authority over insured
savings banks, including Cambridgeport Bank. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease and desist orders and to remove directors and officers. In general,
these enforcement actions may be initiated in response to violations of laws and
regulations and to unsafe or unsound practices.
The FDIC is required, with certain exceptions, to appoint a receiver or
conservator for an insured state bank if that bank is "critically
undercapitalized." For this purpose, "critically undercapitalized" means having
a ratio of tangible capital to total assets of less than 2%. The FDIC may also
appoint a conservator or receiver for a state bank on the basis of the
institution's financial condition or upon the occurrence of certain events,
including:
. insolvency (whereby the assets of the bank are less than its
liabilities to depositors and others);
. substantial dissipation of assets or earnings through violations of
law or unsafe or unsound practices;
. existence of an unsafe or unsound condition to transact business;
. likelihood that the bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business;
and
. insufficient capital, or the incurring or likely incurring of losses
that will deplete substantially all of the institution's capital with
no reasonable prospect of replenishment of capital without federal
assistance.
Deposit Insurance. Pursuant to FDICIA, the FDIC established a system for
setting deposit insurance premiums based upon the risks a particular bank or
savings association posed to its deposit insurance funds. Under the risk-based
deposit insurance assessment system, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as of
the reporting period ending six months before the assessment period. The three
capital categories are (1) well capitalized, (2) adequately capitalized and (3)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subcategories within each capital group. With respect to the
capital ratios, institutions are
92
<PAGE>
classified as well capitalized, adequately capitalized or under capitalization
using ratios that are substantially similar to the prompt corrective action
capital ratios discussed below. The FDIC also assigns an institution to
supervisory subgroup based on a supervisory evaluation provided to the FDIC by
the institution's primary federal regulator and information that the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor).
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the FDIC is confidential and may
not be disclosed. A bank's rate of deposit insurance assessments will depend
upon the category and subcategory to which the bank is assigned by the FDIC.
Any increase in insurance assessments could have an adverse effect on the
earnings of insured institutions, including Cambridgeport Bank.
Under the Deposit Insurance Funds Act of 1996 (the "Funds Act"), the
assessment base for the payments on the bonds (the "FICO bonds") issued in the
late 1980's by the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation was expanded to include, beginning
January 1, 1997, the deposits of BIF-insured institutions, such as Cambridgeport
Bank. Until December 31, 1999, or such earlier date on which the last savings
association ceases to exist, the rate of assessment for BIF-assessable deposits
will be one-fifth of the rate imposed on deposits insured by the Savings
Association Insurance Fund (the "SAIF"). The annual rate of assessments for the
payments on the FICO bonds for the quarterly period beginning on January 1, 1999
was 0.0122% for BIF-assessable deposits and 0.0610% for SAIF-assessable
deposits.
Under the FDIA, the FDIC may terminate the insurance of an institution's
deposits upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC. The management of Cambridgeport Bank does not know of any practice,
condition or violation that might lead to termination of deposit insurance.
Transactions with Affiliates of Cambridgeport Bank. Transactions between
an insured bank, such as Cambridgeport Bank, and any of its affiliates is
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
bank is any company or entity that
controls, is controlled by or is under common control with the bank. Currently,
a subsidiary of a bank that is not also a depository institution is not treated
as an affiliate of the bank for purposes of Sections 23A and 23B, but the FRB
has proposed treating any subsidiary of a bank that is engaged in activities not
permissible for bank holding companies under the Bank Holding Company Act of
1956, as amended, as an affiliate for purposes of Sections 23A and 23B. Sections
23A and 23B (1) limit the extent to which the bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to
10% of such bank's capital
93
<PAGE>
stock and retained earnings, and limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and retained earnings
and (2) require that all such transactions be on terms that are consistent with
safe and sound banking practices. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of guarantees and other similar
types of transactions. Further, most loans by a bank to any of its affiliates
must be secured by collateral in amounts ranging from 100 to 130 percent of the
loan amounts. In addition, any covered transaction by a bank with an affiliate
and any purchase of assets or services by a bank from an affiliate must be on
terms that are substantially the same, or at least as favorable, to the bank as
those that would be provided to a non-affiliate.
Prohibitions Against Tying Arrangements. Banks are subject to the
prohibitions of 12 U.S.C. (S) 1972 on certain tying arrangements. A depository
institution is prohibited, subject to certain exceptions, from extending credit
to or offering any other service, or fixing or varying the consideration for
such extension of credit or service, on the condition that the customer obtain
some additional service from the institution or certain of its affiliates or not
obtain services of a competitor of the institution.
Uniform Real Estate Lending Standards. Pursuant to FDICIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of
the Interagency Guidelines for Real Estate Lending Policies that have been
adopted by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:
. for loans secured by raw land, the supervisory loan-to-value limit is
65% of the value of the collateral;
. for land development loans (i.e., loans for the purpose of improving
unimproved property prior to the erection of structures), the
supervisory limit is 75%;
. for loans for the construction of commercial, multi-family or other
non-residential property, the supervisory limit is 80%;
. for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and
94
<PAGE>
. for loans secured by other improved property (e.g., farmland,
completed commercial property and other income-producing property
including non-owner occupied, one- to four-family property), the limit
is 85%.
Although no supervisory loan-to-value limit has been established for owner-
occupied, one to four-family and home equity loans, the Interagency Guidelines
state that for any such loan with a loan-to-value ratio that equals or exceeds
90% at origination, an institution should require appropriate credit enhancement
in the form of either mortgage insurance or readily marketable collateral.
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), any insured depository institution, including Cambridgeport Bank, has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The CRA requires the
FDIC, in connection with its examination of a savings bank, to assess the
depository institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications by
such institution, including applications for additional branches and
acquisitions.
Among other things, the current CRA regulations replace the prior process-
based assessment factors with a new evaluation system that rates an institution
based on its actual performance in meeting community needs. In particular, the
current evaluation system focuses on three tests:
. a lending test, to evaluate the institution's record of making loans
in its service areas;
. an investment test, to evaluate the institution's record of investing
in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and
. a service test, to evaluate the institution's delivery of services
through its branches, ATMs and other offices.
The CRA requires the FDIC to provide a written evaluation of an
institution's CRA performance utilizing a four-tiered descriptive rating system
and requires public disclosure of an institution's CRA rating. Cambridgeport
Bank received a "satisfactory" rating in its CRA examination conducted by the
FDIC on October 27, 1997.
Safety and Soundness Standards. Pursuant to the requirements of FDICIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the FDIC, has adopted guidelines
establishing general
95
<PAGE>
standards relating to internal controls, information and internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
asset quality, earnings, and compensation, fees and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal stockholder.
In addition, the FDIC adopted regulations to require a bank that is given
notice by the FDIC that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the FDIC. If, after being so notified,
a bank fails to submit an acceptable compliance plan or fails in any material
respect to implement an accepted compliance plan, the FDIC may issue an order
directing corrective and other actions of the types to which a significantly
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDICIA. If a bank fails to comply with such an order, the FDIC
may seek to enforce such an order in judicial proceedings and to impose civil
monetary penalties.
Prompt Corrective Action. FDICIA also established a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC, as well as the other federal banking regulators, adopted regulations
governing the supervisory actions that may be taken against undercapitalized
institutions. The regulations establish five categories, consisting of "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The FDIC's regulations
defines the five capital categories as follows: an institution will be treated
as "well capitalized" if its ratio of total capital to risk-weighted assets is
at least 10%, its ratio of Tier 1 capital to risk-weighted assets is at least
6%, its ratio of Tier 1 capital to total assets is at least 5%, and it is not
subject to any order or directive by the FDIC to meet a specific capital level.
An institution will be treated as "adequately capitalized" if its ratio of total
capital to risk-weighted assets is at least 8%, its ratio of Tier 1 capital to
risk-weighted assets is at least 4%, and its ratio of Tier 1 capital to total
assets is at least 4% (3% if the bank receives the highest rating under the
Uniform Financial Institutions Rating System) and it is not a well-capitalized
institution. An institution that has total risk-based capital of less than 8%,
Tier 1 risk-based-capital of less than 4% or a leverage ratio that is less than
4% (or less than 3% if the institution is rated a composite "1" under the
Uniform Financial Institutions Rating System) would be considered to be
"undercapitalized." An institution that has total risk-based capital of less
than 6%, Tier 1 capital of less than 3% or a leverage ratio that is less than 3%
would be considered to be "significantly undercapitalized," and an institution
that has a tangible capital to assets ratio equal to or less than 2% would be
deemed to be "critically undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The FDIC is required to monitor closely the condition of an
96
<PAGE>
undercapitalized bank and to restrict the growth of its assets. An
undercapitalized bank is required to file a capital restoration plan within 45
days of the date the bank receives notice that it is within any of the three
undercapitalized categories, and the plan must be guaranteed by any parent
holding company. The aggregate liability of a parent holding company is limited
to the lesser of:
. an amount equal to the five percent of the bank's total assets at the
time it became "undercapitalized," and
. the amount that is necessary (or would have been necessary) to bring
the bank into compliance with all capital standards applicable with
respect to such bank as of the time it fails to comply with the plan.
If a bank fails to submit an acceptable plan, it is treated as if it were
"significantly undercapitalized." Banks that are significantly or critically
undercapitalized are subject to a wider range of regulatory requirements and
restrictions.
The FDIC has a broad range of grounds under which it may appoint a receiver
or conservator for an insured depositary bank. If one or more grounds exist for
appointing a conservator or receiver for a bank, the FDIC may require the bank
to issue additional debt or stock, sell assets, be acquired by a depository bank
holding company or combine with another depository bank. Under FDICIA, the FDIC
is required to appoint a receiver or a conservator for a critically
undercapitalized bank within 90 days after the bank becomes critically
undercapitalized or to take such other action that would better achieve the
purposes of the prompt corrective action provisions. Such alternative action
can be renewed for successive 90-day periods. However, if the bank continues to
be critically undercapitalized on average during the quarter that begins 270
days after it first became critically undercapitalized, a receiver must be
appointed, unless the FDIC makes certain findings that the bank is viable.
Loans to a Bank's Insiders. A bank's loans to its executive officers,
directors, any owner of 10% or more of its stock (each, an "insider") and any of
certain entities affiliated to any such person (an insider's related interest)
are subject to the conditions and limitations imposed by Section 22(h) of the
Federal Reserve Act and the FRB's Regulation O thereunder. Under these
restrictions, the aggregate amount of the loans to any insider and the insider's
related interests may not exceed the loans-to-one-borrower limit applicable to
national banks, which is comparable to the loans-to-one-borrower limit
applicable to Cambridgeport Bank's loans. See "Massachusetts Banking Regulation
- -- Loans-to-One Borrower Limitations." All loans by a bank to all insiders and
insiders' related interests in the aggregate may not exceed the bank's
unimpaired capital and unimpaired retained earnings. With certain exceptions,
loans to an executive officer, other than loans for the education of the
officer's children and certain loans secured by the officer's residence, may not
exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the
bank's capital and unimpaired retained earnings. Regulation O also requires
that any proposed loan to an insider or a related interest of that insider be
approved in advance by a majority of the Board of Directors of the bank, with
any interested director not participating in the voting, if such loan, when
aggregated with any existing loans to that insider
97
<PAGE>
and the insider's related interests, would exceed either (1) $500,000 or (2) the
greater of $25,000 or 5% of the bank's unimpaired capital and retained earnings.
Generally, such loans must be made on substantially the same terms as, and
follow credit underwriting procedures that are not less stringent than, those
that are prevailing at the time for comparable transactions with other persons.
An exception is made for extensions of credit made pursuant to a benefit or
compensation plan of a bank that is widely available to employees of the bank
and that does not give any preference to insiders of the bank over other
employees of the bank.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
Federal Reserve System
Under FRB regulations, Cambridgeport Bank is required to maintain non-
interest-earning reserves against its transaction accounts (primarily NOW and
regular checking accounts). The FRB regulations generally require that reserves
of 3% must be maintained against aggregate transaction accounts of $46.5 million
or less (subject to adjustment by the FRB) and an initial reserve of $1.4
million plus 10% (subject to adjustment by the FRB between 8% and 14%) against
that portion of total transaction accounts in excess of $46.5 million. The
first $4.9 million of otherwise reservable balances (subject to adjustments by
the FRB) are exempted from the reserve requirements. Cambridgeport Bank is in
compliance with the foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the FRB, the effect
of this reserve requirement is to reduce Cambridgeport Bank's interest-earning
assets.
Holding Company Regulation
Federal Regulation. After the conversion, Port Financial Corp. will be
regulated as a bank holding company. Bank holding companies are subject to
examination, regulation and periodic reporting under the BHCA, as administered
by the FRB. The FRB has adopted capital adequacy guidelines for bank holding
companies on a consolidated basis substantially similar to those of the FDIC for
Cambridgeport Bank. As of December 31, 1998, Port Financial Corp.'s total
capital and Tier 1 capital ratios for Port Financial Corp. would, on a pro forma
basis, exceed these minimum capital requirements. See "Regulatory Capital
Compliance."
Regulations of the FRB provide that a bank holding company must serve as a
source of strength to any of its subsidiary banks and must not conduct its
activities in an unsafe or unsound manner. Under the prompt corrective action
provisions of FDICIA, a bank holding company parent of an undercapitalized
subsidiary bank would be directed to guarantee, within limitations,
98
<PAGE>
the capital restoration plan that is required of such an undercapitalized bank.
See "--Federal Banking Regulation -- Prompt Corrective Action" above. If the
undercapitalized bank fails to file an acceptable capital restoration plan or
fails to implement an accepted plan, the Federal Reserve Board may prohibit the
bank holding company parent of the undercapitalized bank from paying any
dividend or making any other form of capital distribution without the prior
approval of the FRB.
As a bank holding company, Port Financial Corp. will be required to obtain
the prior approval of the FRB to acquire all, or substantially all, of the
assets of any bank or bank holding company. Prior FRB approval will be required
for Port Financial Corp. to acquire direct or indirect ownership or control of
any voting securities of any bank or bank holding company if, after giving
effect to such acquisition, it would, directly or indirectly, own or control
more than 5% of any class of voting shares of such bank or bank holding company.
A bank holding company is required to give the FRB prior written notice of
any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, will be equal to 10% or more of the company's consolidated net worth.
The FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the FRB, that has received a composite "1" or "2" rating at its
most recent bank holding company inspection by the FRB, and that is not the
subject of any unresolved supervisory issues.
In addition, a bank holding company, which does not qualify as a financial
holding company under the Gramm-Leach-Bliley Financial Services Modernization
Act, is generally prohibited from engaging in, or acquiring direct or indirect
control of any company engaged in non-banking activities. One of the principal
exceptions to this prohibition is for activities found by the FRB to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the principal activities that the FRB has determined
by regulation to be so closely related to banking as to be a proper incident
thereto are:
. making or servicing loans;
. performing certain data processing services;
. providing discount brokerage services;
. acting as fiduciary, investment or financial advisor;
. leasing personal or real property;
99
<PAGE>
. making investments in corporations or projects designed primarily to
promote community welfare; and
. acquiring a savings and loan association.
Bank holding companies that do qualify as a financial holding company may engage
in activities that are financial in nature or incidental thereto. Bank holding
companies may qualify to become a financial holding company if each of its
depository institution subsidiaries is "well capitalized," "well managed," has
at least a "satisfactory" CRA rating at its most recent examination and the bank
holding company has filed a certification with the FRB that it elects to become
a financial holding company.
Under the FDIA, depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law would have potential
applicability if Port Financial Corp. ever acquired as a separate subsidiary a
depository institution in addition to Cambridgeport Bank.
Massachusetts Regulation.
Under the Massachusetts banking laws, a company owning or controlling two
or more banking institutions, including a savings bank, is regulated as a bank
holding company. The term "company" is defined by the Massachusetts banking
laws similarly to the definition of "company" under the BHCA. Each
Massachusetts bank holding company must:
. Obtain the approval of the Massachusetts Board of Bank Incorporation
before engaging in certain transactions, such as the acquisition of
more than 5% of the voting stock of another banking institution; and
. Must register, and file certain reports, with the Division and is
subject to examination by the Division.
Port Financial Corp. will become a Massachusetts bank holding company if they
acquire a second banking institution and hold and operate it separately from
Cambridgeport Bank.
Acquisition of Port Financial Corp.
Under federal law, no person may acquire control of Port Financial Corp. or
Cambridgeport Bank without first obtaining, as summarized below, approval of
such acquisition of control by the FRB.
Federal Restrictions. Under the federal Change in Bank Control Act (the
"CBCA"), any person (including a company), or group acting in concert, seeking
to acquire 10% or more of
100
<PAGE>
the outstanding shares of Port Financial Corp.'s common stock will be required
to submit prior notice to the FRB, unless the FRB has found that the acquisition
of such shares will not result in a change in control of Port Financial Corp.
Under the BHCA, the FRB has 60 days within which to act on such notices, taking
into consideration certain factors, including the financial and managerial
resources of the acquiror, the convenience and needs of the communities served
by Port Financial Corp. and Cambridgeport Bank, and the anti-trust effects of
the acquisition. Under the BHCA, any company would be required to obtain prior
approval from the FRB before it may obtain "control," within the meaning of the
BHCA, of Port Financial Corp. The term "control" is defined generally under the
BHCA to mean the ownership or power to vote 25% more of any class of voting
securities of an institution or the ability to control in any manner the
election of a majority of the institution's directors.
Massachusetts Restrictions. Under the Massachusetts banking laws, the
prior approval of the Division is required before any person may acquire a
Massachusetts bank holding company, such as Port Financial Corp. For this
purpose, the term "person" is defined broadly to mean a natural person or a
corporation, company, partnership, or other forms of organized entities. The
term "acquire" is defined differently for an existing bank holding company and
for other companies or persons. A bank holding company will be treated as
"acquiring" a Massachusetts bank holding company if the bank holding company
acquires more than 5% of any class of the voting shares of the bank holding
company. Any other person will be treated as "acquiring" a Massachusetts bank
holding company if it acquires ownership or control of more than 25% of any
class of the voting shares of the bank holding company.
TAXATION
Federal
General. The following discussion is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
Cambridgeport Bank or Port Financial Corp. For federal income tax purposes, we
report income on the basis of a taxable year ending December 31, using the
accrual method of accounting, and we are generally subject to federal income
taxation in the same manner as other corporations. Following the conversion,
Cambridgeport Bank and Port Financial Corp. will constitute an affiliated group
of corporations and, therefore, will be eligible to report their income on a
consolidated basis. Cambridgeport Bank and Cambridgeport Mutual Holding Company
are not currently under audit by the Internal Revenue Service ("IRS").
Distributions. To the extent that we (Cambridgeport Bank) make "non-
dividend distributions" to stockholders, such distributions will be considered
to result in distributions from our unrecaptured tax bad debt reserve, i.e., our
reserve as of December 31, 1987 (our "base year reserve"), to the extent thereof
and then from our supplemental reserve for losses on loans, and an amount based
on the amount distributed will be included in our income. Non-dividend
distributions include distributions in excess of our current and accumulated
earnings and profits,
101
<PAGE>
distributions in redemption of stock and distributions in partial or complete
liquidation. Dividends paid out of our current or accumulated earnings and
profits will not be included in our income.
The amount of additional income created from a non-dividend distribution is
equal to the lesser of our base year reserve and supplemental reserve for losses
on loans or an amount that, when reduced by the tax attributable to the income,
is equal to the amount of the distribution. Thus, in certain situations,
approximately one and one-half times the non-dividend distribution would be
includible in gross income for federal income tax purposes, assuming a 34%
federal corporate income tax rate. We do not intend to pay dividends that would
result in the recapture of any portion of our bad debt reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code"), imposes a tax ("AMT") on alternative minimum taxable
income ("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net
operating loss carryovers of which we currently have none. AMTI is also
adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. We have not been subject to AMT during the past five years.
Elimination of Dividends. Port Financial Corp. may exclude from its income
100% of dividends received from Cambridgeport Bank as a member of the same
affiliated group of corporations.
State
We file Massachusetts Financial Institution income tax returns. Generally,
the income of financial institutions in Massachusetts, which is calculated based
on federal taxable income, subject to certain adjustments, is subject to
Massachusetts tax. We are not currently under audit with respect to our
Massachusetts income tax returns and our state tax returns have not been audited
for the past five years.
Port Financial Corp. will be required to file a Massachusetts income tax
return and will generally be subject to a state income tax rate that is the same
tax rate as the tax rate for financial institutions in Massachusetts. However,
the use of Brighton Investments Corp., a Massachusetts Security Corporation and
a wholly owned subsidiary of Port Financial Corp., Port Financial Corp. will be
taxed at a rate that is currently lower than income tax rates for savings
institutions in Massachusetts.
102
<PAGE>
MANAGEMENT
Shared Management Structure
Port Financial Corp.'s directors and executive officers will be the same as
Cambridgeport Bank's. Although it has no current plans to do so, Cambridgeport
Bank may choose to appoint additional directors in the future. We expect that
Port Financial Corp. and Cambridgeport Bank will continue to have common
executive officers until there is a business reason to establish separate
management structures.
To date, Cambridgeport Bank has compensated its directors and executive
officers for their services to the bank. Port Financial Corp. has not paid any
additional compensation to these people for their additional services to the
holding company. We expect to continue this practice in the case of executive
officers after the conversion until we have a business reason to establish
separate compensation programs. Until then, we expect Port Financial Corp. to
reimburse Cambridgeport Bank for a part of the compensation paid to each
executive officer that is proportionate to the amount of time which he or she
devotes to performing services for Port Financial Corp.
Directors
Composition of our Boards. We have nine directors. Each belongs to one of
three classes with staggered three-year terms of office. Classes One, Two and
Three have directors whose terms expire in 2001, 2002 and 2003. At each of the
annual shareholder meetings of Port Financial Corp., the shareholders elect
directors to fill the seats of the directors whose terms are expiring in that
year and any vacant seats. Directors of Cambridgeport Bank are elected by Port
Financial Corp. as its sole stockholder.
Who Our Directors Are. The following table states our directors' names,
their ages as of their birthdays in 1999, the years when they began serving as
directors and the years when their current terms of office as directors will
expire:
Bank Company
Director Director Term
Name Age Since Since Expires
---- --- ----- ----- -------
Paul R. Corcoran, Jr. 67 1972 2000 2002
Daniel C. Crane, Esq. 49 1986 2000 2003
Samuel C. Fleming 59 1993 2000 2001
William Goldberg, Esq. 70 1977 2000 2002
Robert D. Happ 59 1997 2000 2001
James B. Keegan 58 1985 2000 2003
Jane L. Lundquist 46 1999 2000 2001
Joseph F. O'Connor 70 1979 2000 2002
Rudolph R. Russo 72 1974 2000 2003
103
<PAGE>
Our Directors' Backgrounds. The business experience for the past five
years of each of our directors is as follows:
Paul R. Corcoran, Jr. is the owner and President of The Harvard Shop, Inc.,
a retail specialty store which sells college insignia merchandise. He has held
the office of Clerk of Cambridgeport Bank since 1990.
Daniel C. Crane, Esq. has served as Chief Bar Counsel for the Board of Bar
Overseers of the Supreme Judicial Court of Massachusetts since September, 1999.
Prior to this position, he was an attorney in private practice for over twenty
years. He has served on the boards of directors of a number of charitable and
professional organizations, including service as president of the Massachusetts
Bar Association. He currently serves as Chair of the Audit Committee of the
Bank, a position he has held for the last five years.
Samuel C. Fleming has been the Board Chairman and Chief Executive Officer
of Decision Resources, Inc., an international health care research and
consulting company since 1990. From 1967 to 1990, Mr. Fleming held various
positions at Arthur D. Little, Inc., most recently as Senior Vice President,
Member of the Corporate Management Committee and Chairman of Arthur D. Little
Decision Resources, which he founded in the mid-1970s. Mr. Fleming received a
B.Ch.B. from Cornell University and an M.B.A. from Harvard Business School. In
addition to Cambridgeport Bank, he serves as a Director of CareGroup, Inc. and
as a Trustee of Cornell University and the Standish Ayer & Wood Investment
Trust.
William Goldberg, Esq. has been an attorney with the Goldberg Law Office in
Cambridge, Massachusetts since 1954.
Robert D. Happ is a director for Net Optix. He retired in June, 1994 from
his position as Regional Managing Partner of KPMG Peat Marwick.
James B. Keegan has served as the President and Chief Executive Officer of
Cambridgeport Bank since 1984. Prior to this position, he was the Executive
Vice President of the Bank for one year. Before joining Cambridgeport Bank, Mr.
Keegan held positions in various financial institutions, including Rochester
Savings Bank, First Pennsylvania Bank and New England Merchants National Bank.
Mr. Keegan earned his undergraduate degree from Harvard College and his MBA from
the Harvard Business School.
Jane L. Lundquist has been the Executive Vice President of Cambridgeport
Bank since 1996. Prior to this position, she served as the Senior Vice President
from 1987 to 1996. As Executive Vice President, she is currently the Senior
Officer of Cambridgeport Bank for the Consumer Banking Department, which
includes mortgage lending, consumer lending, branch banking and telebanking. She
also manages several administrative areas such as Human Resources, Marketing,
Community Relations and Auditing (administrative reporting only). Prior to
Cambridgeport Bank, Ms. Lundquist worked at Braxton Associates, a strategic
management consulting firm, and at Arthur Andersen. Ms. Lundquist holds a
business degree from the University of North Carolina and an MBA from the
University of Virginia.
104
<PAGE>
Joseph F. O'Connor is Consultant to the Charles Stark Draper Laboratory,
Inc., a nonprofit research company and Secretary of that corporation. He
retired as Vice-President of Administration in 1994. He also serves as a
director of the Delta Dental Corporation of Massachusetts, Inc., a nonprofit
dental insurance company. He is also Chairman of the Board of Denta Quest
Investment Corp., a wholly owned subsidiary of Delta Dental.
Rudolph R. Russo has 50 years of experience in all phases of real estate
including brokering, appraising, investing, developing and consulting. He also
served as Chairman of the Board of Assessors for the City of Cambridge from 1969
to 1982. He has been involved with Cambridgeport Bank since 1977 and has been a
director since 1994.
Meetings of the Board of Directors and Its Committees
Our Boards of Directors meet on a monthly basis and may hold additional
special meetings. During 1999, the Board of Directors of Cambridgeport Bank
held 12 regular meetings and three special meetings. The Board of Directors of
Port Financial Corp. did not meet in 1999.
The Boards of Directors of Cambridgeport Bank and Port Financial Corp.
maintain Executive, Audit, Compensation, Credit and Nominating Committees with
identical compositions.
The Executive Committees consist of Messrs. Keegan, Corcoran, Fleming,
Goldberg, Lundquist and Russo, with Mr. Keegan serving as Chair. The Executive
Committees meet as needed with the full power of the Board of Directors. The
Executive Committee of Cambridgeport Bank met 22 times during 1999.
The Audit Committees consist of Messrs. Crane, Happ and O'Connor, with Mr.
Crane serving as Chair. These Committees review the annual audit prepared by
the independent accountants, recommend the appointment of accountants and review
the work of the internal auditors. The Audit Committee of Cambridgeport Bank
met four times during 1999.
The Compensation Committees consist of Messrs. Corcoran, Fleming, Happ,
Keegan, O'Connor, and Ms. Lundquist with Mr. Corcoran serving as Chair. These
Committees provide advice and recommendations to the Board in the areas of
employee salaries and benefit programs. The Compensation Committee of
Cambridgeport Bank met one time during 1999.
The Credit Committees consist of Messrs. Russo and Keegan and Ms. Lundquist
and certain officers of Cambridgeport Bank, with Mr. Keegan as the Chair. The
Credit Committee of Cambridgeport Bank met 22 times during 1999.
The Nominating Committees consist of Messrs. Crane, Fleming and Keegan,
with Mr. Crane as the Chair. These Committees nominate individuals for election
to the Board of Directors. The Nominating Committee of Cambridgeport Bank met
one time during 1999.
105
<PAGE>
Director Compensation
Meeting Fees. Cambridgeport Bank's practice has been to pay a fee of $500
to each of its non-employee directors for attendance at each board meeting and
each committee meeting and to pay each non-employee director an annual retainer
of $10,000. Cambridgeport Bank paid fees totaling $[ ] to its non-
employee directors for the year ended December 31, 1999.
Effective as of the conversion, non-employee directors of Cambridgeport
Bank will receive an annual retainer of $5,000 and non-employee directors of
Port Financial Corp. will receive an annual retainer of $5,000. Directors of
Cambridgeport Bank will receive a $500 fee for any board or committee meeting
attended and, similarly, directors of Port Financial Corp. will receive a $500
fee for any board or committee meeting attended. However, only one board or
committee meeting fee will be paid to a director for any joint meeting of the
boards of Cambridgeport Bank and Port Financial Corp. or any joint meeting of
any committees of the boards.
Mr. Corcoran receives an additional annual retainer of $10,000 for his
service as Clerk of Cambridgeport Bank. In addition, Cambridgeport Bank pays
Mr. Russo $70 per hour for special assignments.
Directors' Emeritus Consultation Plan. Directors of Port Financial Corp.
who retire from service on the board of Port Financial Corp. within four years
from the conversion may elect to participate in the Directors' Emeritus
Consultation Plan by agreeing to provide consulting services to Port Financial
Corp. for a period of 12 to 36 months. A retiring director who elects to
provide consulting services will receive a fee of $1,000 per month and will be
designated as a director emeritus. A director emeritus will provide the
consulting services agreed upon and may attend meetings of the board of Port
Financial Corp., but will have no power or right to vote at such meetings.
EXECUTIVE OFFICERS
Executive Officers Who are Not Directors
Charles Jeffrey serves as Senior Vice President and Chief Financial Officer of
Cambridgeport Bank, a position he has held since July of 1998. From 1994 to
1997, he served as President of the Massachusetts Division of Albank, FSB
located in Ludlow, Massachusetts. His background also includes 15 years at Bank
of America where he held positions in commercial lending, operations, and
finance.
Sandra Uhlig joined Cambridgeport Bank in September of 1999 and serves as
Senior Vice President of Business Banking. She is responsible for developing
small business lending capability and serves as a senior loan officer. Ms.
Uhlig formerly served as Senior Vice President of the Small Business Lending
Center of BankBoston from 1994 until June, 1999 and
106
<PAGE>
as Senior Vice President, Manager of the Business Lending Center at U.S. Trust
from June, 1999 until joining Cambridgeport Bank.
Executive Officer Compensation
Summary Compensation Table. The following table provides information about
the compensation paid for 1999 to the Bank's Chief Executive Officer and to the
other most highly compensated executive officers whose annual salary and bonus
for 1999 was at least $100,000.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------
Name and Other Annual All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($)/(a)/ Compensation/(b)/
------------------ ---- ---------- -------- --------------------- -----------------
<S> <C> <C> <C> <C> <C>
James B. Keegan,
President and Chief 1999 --
Executive Officer
Jane L. Lundquist, 1999 --
Executive Vice-President
</TABLE>
_______________________
(a) Cambridgeport Bank provides its executive officers with certain non-cash
benefits and perquisites, such as the use of employer-owned or leased
automobiles. Management of the Bank believes that the aggregate value of
these benefits for 1998 did not, in the case of any executive officer,
exceed $50,000 or 10% of the aggregate salary and annual bonus reported
for him or her in the Summary Compensation Table.
(b) Includes the following components: (1) employer matching contributions to
the Cambridgeport Bank 401(k) Plan: Mr. Keegan, $[ ]; and Ms. Lundquist,
$[ ]; and (2) the premium cost for life insurance coverage provided by
Cambridgeport Bank: Mr. Keegan, $[ ]; and Ms. Lundquist $[ ].
Employment Agreements
Port Financial Corp. and Cambridgeport Bank have jointly entered into
employment agreements with Mr. Keegan to secure his services as President and
Chief Executive Officer, and Ms. Lundquist to secure her services as Executive
Vice President. For purposes of Port Financial Corp.'s obligations, the
employment agreements have rolling three-year terms beginning November 1, 1999
which by decision of the executive or joint decision of Port Financial Corp. and
Cambridgeport Bank may be converted to a fixed three-year term. For purposes of
Cambridgeport Bank's obligations the employment agreements have fixed terms of
three years beginning November 1, 1999 and may be renewed annually after a
review of the executive's performance. These agreements provide for minimum
annual salaries of $375,000 and $220,000, respectively, discretionary cash
bonuses, and participation on generally applicable terms and conditions in other
compensation and fringe benefit plans. They also guarantee customary corporate
indemnification and errors and omissions insurance coverage throughout the
employment term and for six years after termination.
Port Financial Corp. and Cambridgeport Bank may terminate each executive's
employment, and each executive may resign, at any time with or without cause.
However, in the event of termination during the term without cause, they will
owe the executive severance
107
<PAGE>
benefits generally equal to the value of the cash compensation and fringe
benefits that the executive would have received if he had continued working for
an additional three years. The same severance benefits would be payable if the
executive resigns during the term following: a loss of title, office or
membership on the board of directors; material reduction in duties, functions or
responsibilities; involuntary relocation of the executive's principal place of
employment to a location over 25 miles in distance from Cambridgeport Bank's
principal office in Cambridge, Massachusetts and over 25 miles from the
executive's principal residence; or other material breach of contract by Port
Financial Corp. or Cambridgeport Bank which is not cured within 30 days. For 60
days after a change in control, each executive may resign for any reason and
collect severance benefits as if he or she had been discharged without cause.
The employment agreements also provide certain uninsured death and disability
benefits.
If Port Financial Corp. or Cambridgeport Bank experiences a change in
ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by section
280G of the Internal Revenue Code, a portion of any severance payments under the
employment agreements might constitute an "excess parachute payment" under
current federal tax laws. Federal tax laws impose a 20% excise tax, payable by
the executive, on excess parachute payments. Under the employment agreements,
Cambridgeport Bank and Port Financial Corp. would reimburse the executive for
the amount of this excise tax and would make an additional gross-up payment so
that, after payment of the excise tax and all income and excise taxes imposed on
the reimbursement and gross-up payments, the executive will retain approximately
the same net-after tax amounts under the employment agreement that he or she
would have retained if there were no 20% excise tax. The effect of this
provision is that Cambridgeport Bank and Port Financial Corp., rather than the
executive, bears the financial cost of the excise tax. Neither Port Financial
Corp. nor Cambridgeport Bank could claim a federal income tax deduction for an
excess parachute payment, excise tax reimbursement payment or gross-up payment.
Change of Control Agreements
Cambridgeport Bank and Port Financial Corp. will jointly enter into two-
year change of control agreements with Mr. Jeffrey and four non-executive
officers. The term of these agreements is perpetual until Cambridgeport Bank
gives notice of non-extension, at which time the term is fixed for two years.
Generally, Cambridgeport Bank may terminate the employment of any officer
covered by these agreements, with or without cause, at any time prior to a
change of control without obligation for severance benefits. However, if
Cambridgeport Bank or Port Financial Corp. signs a merger or other business
combination agreement, or if a third party makes a tender offer or initiates a
proxy contest, it could not terminate an officer's employment without cause
without liability for severance benefits. The severance benefits would
generally be equal to the value of the cash compensation and fringe benefits
that the officer would have received if he or she had continued working for an
additional two years. Cambridgeport Bank would pay the same severance benefits
if the officer resigns after a change of control following a loss of title,
office
108
<PAGE>
or membership on the Board of Directors, material reduction in duties, functions
or responsibilities, involuntary relocation of his or her principal place of
employment to a location over 25 miles from Cambridgeport Bank's principal
office on the day before the change of control and over 25 miles from the
officer's principal residence or other material breach of contract which is not
cured within 30 days. These agreements also provide certain uninsured death and
disability benefits.
If Cambridgeport Bank or Port Financial Corp. experiences a change in
ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by section
280G of the Internal Revenue Code, a portion of any severance payments under the
change of control agreements might constitute an "excess parachute payment"
under current federal tax laws. Any excess parachute payment would be subject
to a federal excise tax payable by the officer and would be non-deductible by
Cambridgeport Bank and Port Financial Corp. for federal income tax purposes.
The change of control agreements do not provide a tax indemnity.
Similar change of control agreements providing severance benefits equal to
one year's compensation and benefits are in effect for 20 non-executive officers
of Cambridgeport Bank.
Severance Agreement
We have agreed to provide Ms. Uhlig, who joined us in September of 1999,
with a severance benefit in the event we elect to discontinue her employment
without cause within the first three years of her employment with us. The
severance benefit payable under this agreement would be equal to the greater of
$140,000 or Ms. Uhlig's base salary in effect as of the date of her termination
of employment.
Benefit Plans
Severance Pay Plan. This plan provides severance benefits to salaried
employees with one year of service who are not parties to individual employment
or change of control agreements and are discharged without cause due to a change
of control. Severance benefits include two weeks' base salary for each year of
service for officers and one week's base salary for each year of service for
non-officer employees. The minimum severance benefit is twelve weeks' base
salary for officers and two weeks' base salary for non-officers. The maximum
severance benefit payable under the plan is 52 weeks' base salary. Employees
entitled to severance also receive continued employer-paid life and health
insurance coverage for up to one year after termination of employment as well as
professional outplacement and job assistance services. These same benefits are
available to an employee who resigns after a change of control following a
material adverse change in title, position or responsibilities, involuntary
relocation to a worksite requiring that the officer move his place of residence
to avoid an unreasonable commute, a reduction in base salary of more than 20%,
or assignment to duties, offices or working space involving unreasonable
personal embarrassment.
109
<PAGE>
Pension Plans. Cambridgeport Bank has adopted the SBERA Pension Plan for
its employees. The SBERA Pension Plan is a tax-qualified plan that covers
substantially all employees who are age 21 and completed at least one year of
service. The following table shows the estimated aggregate benefits payable
under the SBERA Pension Plan upon retirement at age 65 with various years of
service and average compensation combinations.
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------
Average Compensation/(a)/ 15 20 25 30(b) 35(b)
- ------------------------- -- -- -- ----- ----
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 17,274 $ 23,032 $ 28,790 $ 28,790 $ 28,790
$ 120,000 21,324 28,432 35,540 35,540 35,540
$ 140,000 25,374 33,832 42,290 42,290 42,290
$ 160,000 29,424 39,232 49,040 49,040 49,040
$ 200,000 29,424 39,232 49,040 49,040 49,040
$ 400,000 29,424 39,232 49,040 49,040 49,040
$ 600,000 29,424 39,232 49,040 49,040 49,040
</TABLE>
_______________________
(a) Average compensation is average base salary plus bonus, as reported in
the "Salary" and "Bonus" columns of the Summary Compensation Table, for
the highest three consecutive years during the participant's employment
period. Tax laws impose a limit ($160,000 for individuals retiring in
1999) on the average compensation that may be counted in computing
benefits under the SBERA Pension Plan.
(b) The SBERA Pension Plan does not count service in excess of 25 years in
the benefit formula.
The benefits shown in the preceding table are annual benefits payable in the
form of a single life annuity at age 65 and are not subject to any deduction for
Social Security or other offset amounts. An additional benefit equal to 0.6% of
Average Compensation is provided for each year of service credited prior to
April 1, 2000. Mr. Keegan and Ms. Lundquist have 17 and 14 years of such prior
service credit, respectively. At December 31, 1999, the estimated average
compensation and years of service of the executive officers named in the Summary
Compensation Table were: Mr. Keegan: $[ ], 17 years of service; and Ms.
Lundquist: $[ ], 14 years of service.
Mr. Keegan and Ms. Lundquist also are entitled to retirement benefits under
the Cambridgeport Bank 1999 Nonqualified Pension Plan. Under this plan, each
executive is entitled to a monthly retirement benefit equal to the greater of
25% of his or her highest monthly salary or 75% of his or her highest monthly
salary, reduced by his or her monthly retirement benefit under the SBERA Pension
Plan and his or her monthly Social Security benefit. Under the plan, the
executive's highest monthly salary is equal to the executive's average annual
base salary for the three calendar years out of the five calendar years prior to
retirement in which the executive's base salary is the highest, divided by
twelve.
401 (k) Plan. Cambridgeport Bank has adopted the SBERA 401(k) Plan, a
tax-qualified defined contribution plan, for substantially all employees of
Cambridgeport Bank who have attained age 21 and completed at least one year of
service. Eligible employees may contribute from 1% to 15% of annual
compensation to the plan on a pre-tax basis each year, subject to limitations of
the Internal Revenue Code (for 1999 the limit was $10,000). Cambridgeport Bank
makes a matching contribution to the plan equal to 50% of the first three
110
<PAGE>
percent of annual compensation contributed to the plan on a pre-tax basis by a
participant. Effective January 1, 2000, the matching contribution made by
Cambridgeport Bank will increase to 100% of the first three percent of a
participant's annual compensation contributed to the plan on a pre-tax basis.
This plan has an individual account for each participant's contributions
and allows each participant to direct the investment of his or her account. One
permitted investment is Port Financial Corp. common stock. The plan itself is
not an eligible account holder. However, participants who are eligible account
holders may use their subscription rights to purchase stock for their plan
accounts. This plan will purchase common stock for other participants in the
initial offering, to the extent that shares are available to investors who are
not eligible account holders, and after the offering, in open market
transactions. Participants will direct the voting of shares purchased for their
plan accounts.
Officers' Deferred Compensation Plan. Cambridgeport Bank also maintains the
Cambridgeport Bank Officers' Deferred Compensation Plan, a non-qualified plan,
in order to provide restorative payments to certain executives whose employer
matching contributions under the 401(k) Plan are limited by legal limitations
applicable to tax-qualified plans. The Officers' Deferred Compensation Plan also
offers eligible executives the opportunity to defer the receipt of a portion of
their income in a manner that defers the taxation of such income.
Employee Stock Ownership Plan. This plan is a tax-qualified plan that
covers substantially all employees who have at least one year of service and
have attained age 21 and will take effect at the completion of the conversion.
Port Financial Corp. intends to lend this plan enough money to purchase 8%
of the shares issued to investors. The plan may purchase all or part of these
shares from Port Financial Corp. to the extent that shares are available after
filling the subscriptions of eligible account holders. Alternatively, the plan
may purchase all or part of these shares in private transactions or on the open
market after completion of the conversion to the extent that shares are
available for purchase on reasonable terms. We have not determined whether such
funds would be available to the plan or that such purchase would be made
directly from Port Financial Corp. in the offering, or after completion of the
conversion. We expect to make such determination immediately prior to the
expiration date for submitting orders in the offering. This determination would
be made based on prevailing market conditions. For this reason, we cannot assure
you that the employee stock ownership plan will purchase shares in the offering
after the conversion, or that such purchases will occur during any particular
time period or at any particular price.
Although contributions to this plan will be discretionary, Cambridgeport
Bank intends to contribute enough money each year to make the required principal
and interest payments on the loan from Port Financial Corp. It is expected that
this loan will be for a term of 30 years and will call for level annual payments
of principal and interest. The plan will initially pledge the shares it
purchases as collateral for the loan and hold them in a suspense account.
111
<PAGE>
The plan will not distribute the pledged shares right away. Instead, it
will release a portion of the pledged shares annually. Assuming the plan repays
its loan as scheduled over a 30-year term, we expect that 1/30th of the shares
will be released annually in years 2000 through 2030. The plan will allocate the
shares released each year among the accounts of participants in proportion to
their compensation for the year. For example, if a participant's compensation
for a year represents 1% of the total compensation of all participants for the
year, the plan would allocate to that participant 1% of the shares released for
the year. Participants direct the voting of shares allocated to their accounts.
Shares in the suspense account will usually be voted in a way that mirrors the
votes which participants cast for shares in their individual accounts.
This plan may purchase additional shares in the future, and may do so using
borrowed funds, cash dividends, periodic employer contributions or other cash
flow.
ESOP Restoration Plan. Port Financial Corp. has also established the ESOP
Restoration Plan of Port Financial Corp. in order to provide restorative
payments to certain executives who are prevented from receiving the full
benefits contemplated by the ESOP's benefit formula. The restorative payments
consist of payments in lieu of shares that cannot be allocated to participants
under the ESOP due to the legal limitations imposed on tax-qualified plans and,
in the case of participants who retire before the repayment in full of the
ESOP's loan, payments in lieu of the shares that would have been allocated if
employment had continued through the full term of the loan.
Future Stock Benefit Plans
Stock Option Plan. We intend to implement a stock option plan for our
directors and officers after the conversion. Applicable regulations prohibit us
from implementing this plan until 6 months after the conversion. If we implement
this plan within one year after the conversion, applicable regulations require
that we first obtain the approval of the holders of a majority of the
outstanding shares of Port Financial Corp. We have not decided whether we will
implement this plan before or after the one-year anniversary of the conversion.
We expect to adopt a stock option plan that will authorize the Compensation
Committee to grant options to purchase up to 10% of the shares issued to
investors over a period of 10 years. The Compensation Committee will decide
which directors and officers will receive options and what the terms of those
options will be. However, no stock option will permit its recipient to purchase
shares at a price that is less than the fair market value of a share on the date
the option is granted, and no option will have a term that is longer than 10
years. If we implement a stock option plan before the first anniversary of the
conversion, applicable regulations will require that we observe the following
restrictions:
. We must limit the total number of shares that are optioned to outside
directors to 30% of the shares authorized for the plan.
112
<PAGE>
. We must also limit the number of shares that are optioned to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are optioned to any executive officer to 25% of
the shares that are authorized for the plan.
. We must not permit the options to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of stockholder
approval of the plan.
. We must not permit accelerated vesting for any reason other than
death or disability.
After the first anniversary of the conversion, we may amend the plan to change
or remove these restrictions. If we adopt a stock option plan within one year
after the conversion, we expect to amend the plan later to remove these
restrictions and to provide for accelerated vesting in cases of retirement and
change of control.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases.
We expect the stock option plan will permit the Compensation Committee to
grant either incentive stock options that qualify for special federal income tax
treatment or non-qualified stock options that do not qualify for special
treatment. Incentive stock options may be granted only to employees and will not
create federal income tax consequences when they are granted. If they are
exercised during employment or within three months after termination of
employment, the exercise will not create federal income tax consequences either.
When the shares acquired on exercise of an incentive stock option are resold,
the seller must pay federal income taxes on the amount by which the sales price
exceeds the purchase price. This amount will be taxed at capital gains rates if
the sale occurs at least two years after the option was granted and at least one
year after the option was exercised. Otherwise, it is taxed as ordinary income.
Non-qualified stock options may be granted to either employees or non-
employees such as directors, consultants and other service providers. Incentive
stock options that are exercised more than three months after termination of
employment are treated as non-qualified stock options. Non-qualified stock
options will not create federal income tax consequences when they are granted.
When they are exercised, federal income taxes must be paid on the amount by
which the fair market value of the shares acquired by exercising the option
exceeds the exercise price. When the shares acquired on exercise of a non-
qualified stock option are resold, the seller must pay federal income taxes on
the amount by which the sales price exceeds the purchase price plus the amount
included in ordinary income when the option was exercised. This amount will be
taxed at capital gains rates, which will vary depending upon the time that has
elapsed since the exercise of the option.
When a non-qualified stock option is exercised, Port Financial Corp. and
Cambridgeport Bank may be allowed a federal income tax deduction for the same
amount that the option holder includes in his or her ordinary income. When an
incentive stock option is exercised, there is no
113
<PAGE>
tax deduction unless the shares acquired are resold sooner than two years after
the option was granted or one year after the option was exercised.
Management Recognition Plan. We intend to implement a management
recognition plan for our directors and officers after the conversion. Applicable
regulations prohibit us from implementing this plan until 6 months after the
conversion. If we implement this plan within one year after the conversion, the
regulations require that we first obtain the approval of the holders of a
majority of the outstanding shares of Port Financial Corp. We have not decided
whether we will implement this plan before or after the one-year anniversary of
the conversion.
We expect to adopt a management recognition plan that will authorize the
Compensation Committee to make restricted stock awards of up to 4% of the shares
issued to investors. The Compensation Committee will decide which directors and
officers will receive restricted stock and what the terms of those awards will
be. If we implement a management recognition plan before the first anniversary
of the conversion, applicable regulations will require that we observe the
following restrictions:
. We must limit the total number of shares that are awarded to outside
directors to 30% of the shares authorized for the plan.
. We must also limit the number of shares that are awarded to any one
outside director to 5% of the shares authorized for the plan and the
number of shares that are awarded to any executive officer to 25% of
the shares that are authorized for the plan.
. We must not permit the awards to become vested at a more rapid rate
than 20% per year beginning on the first anniversary of stockholder
approval of the plan.
. We must not permit accelerated vesting for any reason other than
death or disability.
After the first anniversary of the conversion, we may amend the plan to change
or remove these restrictions. If we adopt a management recognition plan within
one year after the conversion, we expect to amend the plan later to remove these
restrictions and to provide for accelerated vesting in cases of retirement and
change of control. We expect that any other amendment to this plan (whether
adopted before or after the first anniversary of the plan's initial effective
date) will be subject to stockholder approval if it would change the class of
people eligible to receive benefits, change the price they must pay for stock
which they acquire under the plan, or increase the number of shares available
under the plan or increase the maximum amount of stock that may be acquired by
any one person under the plan.
We may obtain the shares needed for this plan by issuing additional shares
or through stock repurchases.
Restricted stock awards under this plan may feature employment restrictions
that require continued employment for a period of time for the award to be
vested. They may feature
114
<PAGE>
restrictions that require the achievement of specified corporate or individual
performance goals for the award to be vested. Or, they may feature a combination
of employment and performance restrictions. Awards are not vested unless the
specified employment restrictions and performance goals are met. However,
pending vesting, the award recipient may have voting and dividend rights. When
an award becomes vested, the recipient must include the current fair market
value of the vested shares in his income for federal income tax purposes. Port
Financial Corp. and Cambridgeport Bank may be allowed a federal income tax
deduction in the same amount. Depending on the nature of the restrictions
attached to the restricted stock award, Port Financial Corp. and Cambridgeport
Bank may have to recognize a compensation expense for accounting purposes
ratably over the vesting period or in a single charge when the performance
conditions are satisfied.
Limitations on Federal Tax Deductions for Executive Officer Compensation
As a private entity, Cambridgeport Bank has been subject to federal tax
rules which permit it to claim a federal income tax deduction for a reasonable
allowance for salaries or other compensation for personal services actually
rendered. Following the conversion, federal tax laws may limit this deduction
to $1 million each tax year for each executive officer named in the summary
compensation table in Port Financial Corp.'s proxy statement for that year.
This limit will not apply to non-taxable compensation under various broad-based
retirement and fringe benefit plans, to compensation that is paid in "qualified
performance-based compensation" under applicable law or to compensation that is
paid in satisfaction of commitments that arose before the conversion. Port
Financial Corp. and Cambridgeport Bank expect that the Compensation Committee
will take this deduction limitation into account with other relevant factors in
establishing the compensation levels of their executive officers and in setting
the terms of compensation programs. Currently, none of our executives officers
receive annual compensation expected to exceed this limit. However, there is no
assurance that all compensation paid to our executive officers will be
deductible for federal income tax purposes. To the extent that compensation paid
to any executive officer is not deductible, the net after-tax cost of providing
the compensation will be higher and the net after-tax earnings of Port Financial
Corp. and Cambridgeport Bank will be reduced.
Certain Transactions with Directors/Trustees and Executive Officers
We do not make loans to our executive officers. However, we do make loans
to our trustees/directors and non-executive officers. These loans bear interest
at the same rate as loans offered to non-trustee/director borrowers and have the
same underwriting terms that apply to non-trustee/director borrowers.
115
<PAGE>
Proposed Purchases of Common Stock by Management
The following table presents, for each of our directors and executive
officers, the amount of stock they wish to purchase in the offering. We have
assumed that a sufficient number of shares will be available to satisfy their
subscriptions. The amounts include shares that may be purchased through
individual retirement accounts and by associates of the trustees and executive
officers. Collectively our trustees and executive officers expect to purchase a
total of 111,500 shares, or approximately 1.08% of shares we sell in the
offering (assuming the sale of 10,350,000 shares of common stock). These shares
do not include shares expected to be issued under any stock benefit plans of
Port Financial Corp. If all shares issuable under such stock benefit plans were
issued to directors and executive officers of Port Financial Corp., directors
and executive officers of Port Financial Corp. would own 2,388,500 shares, or
23.08% of the shares sold in the offering (assuming the sale of 10,350,000
shares of the common stock).
<TABLE>
<CAPTION>
Number Percent of
Name Amount of shares Shares Sold
- -------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Directors and Executive Officers:
Paul R. Corcoran, Jr. $ 5,000 500 0.01%
Daniel C. Crane, Esq. 100,000 10,000 0.10
Samuel C. Fleming 50,000 5,000 0.05
William Goldberg, Esq. 100,000 10,000 0.10
Robert D. Happ 100,000 10,000 0.10
Charles Jeffrey 100,000 10,000 0.10
James B. Keegan 250,000 25,000 0.24
Jane L. Lundquist 110,000 11,000 0.16
Joseph F. O'Connor 100,000 10,000 0.10
Rudolph R. Russo 200,000 20,000 0.19
----------- ---------
Total to be purchased by directors and $1,115,000 111,500 1.08%
executive officers =========== =========
</TABLE>
116
<PAGE>
THE CONVERSION AND THE OFFERING
- --------------------------------------------------------------------------------
The Board of Directors of Cambridgeport Bank and the Board of Trustees of
Cambridgeport Mutual Holding Company have adopted and the Commissioner of the
Division of Banks of the Commonwealth of Massachusetts and the Corporators of
Cambridgeport Mutual Holding Company have approved the plan of conversion,
subject to the satisfaction of certain conditions.
Approval by the Commissioner does not constitute an endorsement of the
conversion by the Commissioner.
- --------------------------------------------------------------------------------
General
On October 19, 1999, Cambridgeport Mutual Holding Company's Board of
Trustees unanimously adopted the plan of conversion pursuant to which
Cambridgeport Mutual Holding Company will convert to Port Financial Corp., a
stock holding company. This conversion from mutual to stock form includes the
offering by Port Financial Corp. of 100% of its shares to qualifying depositors
of Cambridgeport Bank, tax qualified employee plans of Cambridgeport Bank and
Management in a subscription offering and to certain other persons in a direct
community offering and/or syndicated community offering. Under the terms of the
plan of conversion, Port Financial Corp. will own all of the stock of
Cambridgeport Bank. The conversion will be effected as described under "--Tax
Aspects" or in any other manner that is permitted by the Division and the FRB
and is consistent with the intent of the plan of conversion.
Cambridgeport Mutual Holding Company has requested approval from the
Federal Reserve Bank of Boston to become bank holding company and to acquire
Cambridgeport Bank. The plan of conversion was approved by the Division, subject
to, among other things, approval of the plan of conversion by the corporators of
Cambridgeport Mutual Holding Company. Corporators are individuals that
constitute a governing body for Massachusetts-chartered mutual savings banks and
mutual holding companies. Under Massachusetts law, each mutual savings bank must
have at least 25 corporators who generally are residents of the communities in
which the savings bank conducts its business. Corporators serve for a term of
ten years and, by law, are required to approve certain transactions of the
mutual holding company, including any proposed conversion. Depositors do not
have voting rights with respect to Massachusetts-chartered mutual savings banks.
Cambridgeport Mutual Holding Company held a special meeting of corporators
for this purpose on [ ], 2000. At such meeting, the plan of conversion was
approved by an affirmative vote of a majority of Cambridgeport Mutual Holding
Company's corporators and a majority of Cambridgeport Mutual Holding Company's
independent corporators. An independent corporator is a person who is not an
employee, officer, trustee or significant borrower of Cambridgeport Mutual
Holding Company or Cambridgeport Bank.
117
<PAGE>
The aggregate price of the shares of common stock to be issued in the
conversion will be within the offering range, subject to a 15% increase. The
offering range has been established by the Board of Trustees to be between $76.5
million and $103.5 million and is based upon an independent appraisal of the
estimated pro forma market value of the common stock of Port Financial Corp. The
appraisal was prepared by RP Financial, a consulting firm experienced in the
valuation and appraisal of banks and other financial institutions. All shares of
common stock to be issued and sold pursuant to the conversion will be sold at
the same price ($10.00) per share. The independent appraisal will be affirmed
or, if necessary, updated at the termination of the offering. See "-- How We
Determined the Offering Range and the $10.00 Price Per Share" for additional
information as to the determination of the estimated pro forma market value of
the common stock.
- --------------------------------------------------------------------------------
The following is a brief summary of pertinent aspects of the conversion. The
summary is qualified in its entirety by reference to the provisions of the plan
of conversion. A copy of the plan is available from Cambridgeport Bank upon
request and is available for inspection at the offices of Cambridgeport Bank
and at the Division of Banks. The plan is also filed as an exhibit to the
Registration Statement of which this prospectus is a part, copies of which may
be obtained from the SEC. See "Where You Can Find Additional Information."
- --------------------------------------------------------------------------------
Reasons for the Conversion
The conversion is intended to provide an additional source of capital not
available to us as a mutual institution. Funds raised in the offering will
allow Cambridgeport Bank to serve better the needs of our local community
through:
. increased lending (especially to support the emphasis of business
banking);
. opportunistic branch expansion;
. diversification of products;
. increasing delivery systems, including the introduction of Internet
banking; and
. marketing to customers disenfranchised by recent consolidations in
the banking industry.
The conversion is also intended to provide an additional source of capital
to Port Financial Corp. in order to allow it to:
. finance acquisitions of other financial institutions or other
businesses related to banking;
118
<PAGE>
. pay dividends to stockholders; and
. repurchase shares of our common stock.
After the conversion, Port Financial Corp. will have the ability to issue
additional shares of common stock to raise capital or to support mergers or
acquisitions, although no additional capital issuance and no mergers or
acquisitions are planned or contemplated at the present time. In addition,
stock ownership by officers and other employees has proven to be an effective
performance incentive and an effective means of attracting and retaining
qualified personnel. We also believe that the conversion will provide local
customers and other residents with an opportunity to become equity owners of
Port Financial Corp., and thereby participate in possible stock price
appreciation and cash dividends. This is consistent with our objective of being
a locally-owned financial institution. We believe that, through expanded local
stock ownership, current customers and non-customers who purchase common stock
will seek to enhance the financial success of Cambridgeport Bank through
consolidation of their banking business and increased referrals to Cambridgeport
Bank.
The proceeds from the sale of common stock of Port Financial Corp. will be
invested and used for leveraging in order to enhance our profitability and
facilitate growth. Additionally, our stronger capital position after the
offering will enhance operating flexibility, support desired expansion and
provide a cushion for absorbing unanticipated losses. Cambridgeport Bank will
receive approximately 50% of the net proceeds of the conversion as equity
capital, to be used initially to invest in short-term investments and adjustable
rate mortgage-backed securities, then later for making loans within our market
area. Port Financial Corp. will also use a portion of the cash proceeds from
the conversion to extend a loan to the ESOP, for use in purchasing shares of
common stock issued pursuant to the conversion. The remainder of the proceeds
will be retained by Port Financial Corp. to repurchase common stock, pay
dividends to stockholders or for other general purposes. See "How We Intend to
Use the Proceeds from the Offering" for a description of our intended use of
proceeds.
After considering the advantages and risks of the conversion, as well as
applicable fiduciary duties, the Board of Trustees of Cambridgeport Mutual
Holding Company unanimously approved the conversion as being in the best
interests of Cambridgeport Mutual Holding Company, Cambridgeport Bank, our
depositors and the communities that we serve. The plan of conversion was
subsequently approved by the corporators of Cambridgeport Mutual Holding Company
on [ ], 2000.
Effects of the Conversion
General. Each depositor of Cambridgeport Bank has both a deposit account in
Cambridgeport Bank and a pro rata ownership interest in the equity of
Cambridgeport Mutual Holding Company based upon the balance in the depositor's
account. This interest may only be realized in the event of a liquidation of
Cambridgeport Mutual Holding Company. However, this ownership interest is tied
to the depositor's account and has no tangible market value separate
119
<PAGE>
from such deposit account. Any depositor who opens a deposit account obtains a
pro rata ownership interest in the equity of Cambridgeport Mutual Holding
Company without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his or her account receives the balance in the
account but receives nothing for his or her ownership interest in the equity of
Cambridgeport Mutual Holding Company, which is lost to the extent that the
balance in the account is reduced. Consequently, depositors of Cambridgeport
Bank have no way to realize the value of their ownership interest in
Cambridgeport Mutual Holding Company, except in the unlikely event that
Cambridgeport Mutual Holding Company is liquidated. In such event, the
depositors of record at that time would share pro rata in any residual retained
earnings and reserves after other claims, including claims of depositors to the
amounts of their deposits, are paid.
When a mutual institution converts to stock form, permanent non-
withdrawable capital stock is created to represent the ownership of the
institution's equity and the former pro rata ownership of depositors is
thereafter represented exclusively by their liquidation rights. Such capital
stock is separate and apart from deposit accounts and cannot be and is not
insured by the FDIC or any other governmental agency. Certificates are issued
to evidence ownership of the capital stock. The stock certificates are
transferable, and, therefore, the stock may be sold or traded with no effect on
any deposit account the seller may hold in the institution.
Continuity. While the conversion is being accomplished, and after its
completion, the routine business of Cambridgeport Bank of accepting deposits and
making loans will continue without interruption. Cambridgeport Bank will
continue to be subject to regulation by the Division and the FDIC. After the
conversion, Cambridgeport Bank will continue to provide services for depositors
and borrowers under current policies by its management and staff.
The Board of Directors of Cambridgeport Bank currently consists of nine
members, who also serve as trustees of Cambridgeport Mutual Holding Company.
After the conversion, these nine directors will continue to serve on the Board
of Directors of Cambridgeport Bank and will become the new Board of Directors of
Port Financial Corp.
There will be no change in our offices or staff as part of the conversion.
The officers of Port Financial Corp. will be the current executive officers of
Cambridgeport Bank. See "Management."
Deposit Accounts and Loans. The conversion will not affect any deposit
accounts or borrower relationships with Cambridgeport Bank. All deposit
accounts in Cambridgeport Bank will continue to be insured up to the legal
maximum by the Federal Deposit Insurance Corporation and the Depositors
Insurance Fund of the Mutual Savings Central Fund, Inc. in the same manner as
such deposit accounts were insured immediately before the conversion. The
conversion will not change the interest rate or the maturity of deposits at
Cambridgeport Bank.
Furthermore, all loans of Cambridgeport Bank will retain the same status
that they had prior to the conversion. The amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
conversion.
120
<PAGE>
Voting Rights of Depositors. After the conversion, direction of
Cambridgeport Bank will continue to be under the control of the Board of
Directors of Cambridgeport Bank. Port Financial Corp., as the holder of all of
the outstanding common stock of Cambridgeport Bank, will have exclusive voting
rights with respect to any matters concerning Cambridgeport Bank requiring
stockholder approval, including the election of directors of Cambridgeport Bank.
After the conversion, the holders of the common stock of Port Financial
Corp. will have exclusive voting rights with respect to any matters concerning
Port Financial Corp. These voting rights will be exclusive except to the extent
Port Financial Corp. in the future issues additional common stock or preferred
stock with voting rights. Each holder of common stock will be entitled to vote
on any matters to be considered by Port Financial Corp.'s stockholders,
including the election of directors of Port Financial Corp., subject to the
restrictions and limitations set forth in Port Financial Corp.'s Articles of
Organization discussed below.
Depositors' Rights if We Liquidate. In the unlikely event of a complete
liquidation of Cambridgeport Mutual Holding Company prior to the completion of
the conversion, each depositor would receive a pro rata share of any assets of
Cambridgeport Bank remaining after payment of expenses and satisfaction of
claims of all creditors. Each depositor's pro rata share of such liquidating
distribution would be in the same proportion as the value of such depositor's
deposit account was to the total value of all deposit accounts in Cambridgeport
Bank at the time of liquidation.
Upon a complete liquidation of Port Financial Corp. after the conversion,
all persons who had liquidation rights with respect to Cambridgeport Mutual
Holding Company will continue to have such rights solely with respect to Port
Financial Corp. However, except as described below, a depositor's claim would
be solely for the amount of the balance in such depositor's deposit account plus
accrued interest. Such depositor would not have an interest in the value or the
assets of Port Financial Corp. above that amount. Instead, the holders of Port
Financial Corp.'s common stock would be entitled to any assets remaining upon a
liquidation of Port Financial Corp.
Liquidation Rights. At the completion of the conversion, Port Financial
Corp. will establish a liquidation account for the benefit of eligible account
holders and supplemental eligible account holders who continue to maintain
deposit accounts with Cambridgeport Bank following the conversion. The amount
of the liquidation account will be equal to the net worth of Cambridgeport
Mutual Holding Company as set forth in the most recent consolidated statement of
financial condition contained in this prospectus. In the unlikely event of a
complete liquidation of Port Financial Corp., and only in such event, each such
account holder will be entitled to receive a liquidating distribution from the
liquidation account in the amount of the then-adjusted account balances for such
person's deposit accounts then held following all liquidation payments to
creditors.
The initial account balance for each eligible account holder and
supplemental eligible account holder will be determined by multiplying the
opening balance in the liquidation account by a fraction, the number of which is
the amount of qualifying deposits or held by such eligible
121
<PAGE>
account holder or supplemental eligible account holder on the July 31, 1998 or
the September 30, 1999, respectively, and the denominator of which is the
aggregate amount of all qualifying deposits on such dates.
If, however, on the last day of any fiscal year of Port Financial Corp.
commencing after the July 31, 1998 or September 30, 1999, as the case may be,
the deposit balance in any deposit account of an eligible account holder or
supplemental eligible account holder is less than either (i) the amount of
qualifying deposits of such eligible account holder on July 31, 1998 or
September 30, 1999, as the case may be, or (ii) the deposit balance in such
deposit account at the close of business on the last day of any previous fiscal
year of Port Financial Corp. commencing after the July 31, 1998 or the September
30, 1999, then such eligible account holder's or supplemental eligible account
holder's account balance would be reduced in an amount equal to the reduction in
such liquidation deposit balance, and such account balance will cease to exist
if such deposit account is closed. In addition, no interest in the liquidation
account would ever be increase despite any subsequent increase in the deposit
balances of any eligible account holder or supplemental eligible account holder.
Port Financial Corp. will not be required to set aside funds for the
purpose of establishing the liquidation account, and the creation and
maintenance of the account will not operate to restrict the use or application
of any of the equity accounts of Port Financial Corp., except that Port
Financial Corp. shall not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect of such a transaction would be to cause its
equity to be reduced below the amount required for the liquidation account.
Any assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders are satisfied would be
distributed to the stockholders of Port Financial Corp. who would be entitled to
receive a pro rata share of Port Financial Corp.'s assets, following payment of
all debts, liabilities and claims of greater priority of or against Port
Financial Corp. including the rights of depositors in the liquidation account of
Cambridgeport Bank, if any.
Tax Aspects. Although the conversion may be effected in any manner
approved by the Division that is consistent with the purposes of the plan of
conversion and applicable law, regulations and policies, it is intended that the
conversion will be effected by changing the charter of Cambridgeport Mutual
Holding Company to that of a stock holding company under the name of Port
Financial Corp. The Conversion is intended to be a reorganization under Code
section 368(a)(1)(F). After the conversion, Port Financial Corp. will own 100%
of the issued and outstanding stock of Cambridgeport Bank. There will be no
change in the structure of Cambridgeport Bank, which will retain all of its
historical tax attributes.
Under the plan of conversion, consummation of the conversion is conditioned
upon, among other things, the prior receipt by Cambridgeport Bank and
Cambridgeport Mutual Holding Company of either a private letter ruling from the
IRS and from the Massachusetts taxing authorities or an opinion of Thacher
Proffitt & Wood as to the federal income tax consequences and from Arthur
Andersen LLP as to the Massachusetts income tax consequences
122
<PAGE>
of the conversion to Cambridgeport Bank, Cambridgeport Mutual Holding Company,
Port Financial Corp., Eligible Account Holders and Supplemental Eligible Account
Holders. In Revenue Procedure 99-3, 1999-1 I.R.B. 103, the IRS announced that it
will not rule on whether a transaction qualifies as a reorganization under Code
section 368(a)(1)(F), but that it will rule on significant sub-issues that must
be resolved to determine whether the transaction qualifies under either of that
Code section.
Based in part upon certain representations of Cambridgeport Bank and
Cambridgeport Mutual Holding Company, Thacher Proffitt & Wood has issued its
opinion regarding certain federal income tax consequences of the conversion.
With regard to the conversion, Thacher Proffitt & Wood has opined that:
(1) the conversion will constitute a reorganization under Code section
368(a)(1)(F);
(2) none of Cambridgeport Bank, Cambridgeport Mutual Holding Company or
Port Financial Corp. will recognize gain or loss as a result of the
conversion; and
(3) Eligible Account Holders and Supplemental Eligible Account Holders
will not recognize gain or loss upon their receipt of nontransferable
Subscription Rights to purchase shares of Port Financial Corp.,
provided the amount to be paid for such shares is equal to fair
market value of such shares.
Unlike private rulings of the IRS, an opinion of counsel is not binding on
the IRS and the IRS could disagree with conclusions reached in the opinion. If
there is a disagreement, we can not guarantee that the IRS would not prevail in
a judicial or administrative proceeding.
Arthur Andersen LLP has opined, subject to the limitations and
qualifications in its opinion, that, for purposes of the Massachusetts corporate
income tax, the conversion will not become a taxable transaction to
Cambridgeport Bank, Cambridgeport Mutual Holding Company, Port Financial Corp.,
the stockholders of Port Financial Corp. or the depositors of Cambridgeport
Bank.
Accounting Consequences. The conversion will be accounted for in a manner
similar to a pooling-of-interests under generally accepted accounting
principles. Accordingly, the carrying value of our assets, liabilities, and
capital will be unaffected by the conversion and will be reflected in the Port
Financial Corp.'s and Cambridgeport Bank's consolidated financial statements
based on their historical amounts.
123
<PAGE>
How We Determined the Offering Range and the $10.00 Price Per Share
Pursuant to regulations of the Commissioner, the plan of conversion
requires that the purchase price of the common stock must be based on the
appraised pro forma market value of the common stock, as determined on the basis
of an independent valuation. Cambridgeport Mutual Holding Company has retained
RP Financial to make the independent valuation. RP Financial's fees for its
services in making such appraisal are estimated to be $65,000. Port Financial
Corp. will indemnify RP Financial and its employees and affiliates against
losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as appraiser, except where RP
Financial's liability results from its negligence or bad faith.
An appraisal has been made by RP Financial in reliance upon the information
contained in this prospectus, including the financial statements. RP Financial
also considered the following factors, among others:
. the present and projected operating results and financial condition
of Cambridgeport Mutual Holding Company, and the economic and
demographic conditions in Cambridgeport Bank's existing market area;
. historical, financial and other information relating to Cambridgeport
Bank;
. a comparative evaluation of the operating and financial statistics of
Cambridgeport Mutual Holding Company with those of other similarly
situated savings associations and savings institutions located in New
England;
. the aggregate size of the offering of the common stock;
. the impact of the conversion on Cambridgeport Mutual Holding
Company's equity and earnings potential;
. the proposed dividend policy of Port Financial Corp.; and
. the trading market for securities of comparable institutions and
general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised Cambridgeport
Mutual Holding Company that, in its opinion, dated October 8, 1999, the
estimated pro forma market value of the common stock of Port Financial Corp.
ranged from a minimum of $76.5 million to a maximum of $103.5 million with a
midpoint of $90.0 million (the estimated valuation range).
The Board of Trustees of Cambridgeport Mutual Holding Company held a
meeting to review and discuss the appraisal report prepared by RP Financial.
Representatives of RP Financial participated in the meeting to explain the
contents of the appraisal report. The Board of Trustees reviewed the methods
that RP Financial used to determine the pro forma market
124
<PAGE>
value of the common stock and the appropriateness of the assumptions that RP
Financial used in determining this value. The Board of Trustees determined that
the common stock will be sold at $10.00 per share, which is the price most
commonly used in stock offerings involving converting savings institutions.
The Board of Trustees has approved the independent appraisal of RP
Financial, LC. which established an estimated valuation range of $76.5 million
to $103.5 million, with a midpoint of $90.0 million. Port Financial Corp.
expects to issue between 7,650,000 and 10,350,000 shares of common stock. The
estimated valuation range and the offering range may be amended with the
approval of the Division and the FRB (if required), due to subsequent
developments in the financial condition of Cambridgeport Mutual Holding Company
or Cambridgeport Bank or market conditions generally.
- --------------------------------------------------------------------------------
The valuation prepared by RP Financial is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
such shares. RP Financial did not independently verify the financial statements
and other information provided by Cambridgeport Mutual Holding Company, nor did
RP Financial value independently the assets or liabilities of Cambridgeport
Mutual Holding Company. The valuation considers Cambridgeport Mutual Holding
Company as a going concern and should not be considered as an indication of the
liquidation value of Cambridgeport Mutual Holding Company. Moreover, because
such valuation is necessarily based upon estimates and projections, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing such shares in the conversion will thereafter be able to
sell such shares at prices at or above the purchase price.
- --------------------------------------------------------------------------------
The maximum of the estimated valuation range may be increased up to 15% and
the number of shares of common stock to be issued in the conversion may be
increased to 11,902,500 shares due to regulatory considerations, changes in the
market and general financial and economic conditions without the resolicitation
of subscribers. See "-- Limitations on Common Stock Purchases" as to the method
of distribution and allocation of additional shares that may be issued in the
event of an increase in the estimated valuation range.
We may not sell any shares of common stock unless RP Financial confirms to
Cambridgeport Bank, Port Financial Corp., the Division and the FRB that, to the
best of its knowledge, nothing of a material nature has occurred which, taking
into account all relevant factors, would cause RP Financial to conclude that the
appraisal report is incompatible with its estimate of the pro forma market value
of the common stock upon the conclusion of the offering.
If RP Financial concludes that the pro forma market value of the common
stock is either more than 15% above the maximum of the estimated valuation range
or less than the minimum of the estimated valuation range, Cambridgeport Bank
and Port Financial Corp., after consulting with the Division and the FRB, may:
125
<PAGE>
(1) terminate the plan of conversion and return all subscription funds
promptly, paying interest at Cambridgeport Bank's passbook savings
rate of interest and cancel all account withdrawal authorizations;
(2) establish a new estimated valuation range and either:
(a) hold new subscription and community offerings; or
(b) provide subscribers the opportunity to change or cancel their
orders (a "resolicitation"); or
(3) take such other actions as permitted by the Division and the FRB in
order to complete the conversion.
If a resolicitation is commenced, unless an affirmative response is received
from a subscriber within a designated period of time, all funds will be promptly
returned to the subscriber and account withdrawal authorizations canceled as
described above.
A copy 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 Cambridgeport Bank.
Subscription Offering and Subscription Rights
In accordance with the plan of conversion, rights to subscribe for the
purchase of common stock have been granted to the following persons in the
following order of priority:
(1) Eligible Accounts Holders. Depositors with deposits in Cambridgeport
Bank with balances aggregating $50 or more ("qualifying deposit") as
of July 31, 1998.
(2) Supplemental Eligible Account Holders. Depositors with qualifying
deposits in Cambridgeport Bank on September 30, 1999, other than those
depositors who would otherwise qualify as Eligible Account Holders and
except for officers, directors and their associates; and
(3) Tax-qualified employee stock benefit plans of Cambridgeport Bank,
including the ESOP.
(4) Employees, officers, directors, trustees and corporators of
Cambridgeport Bank or Cambridgeport Mutual Holding Company, who do not
qualify in the preceding categories.
All subscriptions received will be subject to the availability of common stock
after satisfaction of all subscriptions of all subscribers having prior rights
in the subscription offering and to the
126
<PAGE>
maximum and minimum purchase limitations set forth in the plan of conversion and
as described below under "-- Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each eligible account holder will
receive, as first priority and without payment, non-transferable rights to
subscribe for common stock in an amount of up to $1,000,000. See "--
Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions
by eligible account holders, shares first will be allocated so as to permit each
subscribing eligible account holder to purchase a number of shares sufficient to
make such eligible account holder's total allocation equal to the lesser of 100
shares or the number of shares subscribed for. Thereafter, unallocated shares
will be allocated among the remaining eligible account holders whose
subscriptions remain unfilled in the proportion that the amount of their
respective qualifying deposit bears to the total amount of qualifying deposits
of all eligible account holders whose subscriptions remain unfilled. However, no
fractional shares shall be issued.
To ensure a proper allocation of stock, each eligible account holder must
list on his or her stock order form all deposit accounts in which such eligible
account holder had an ownership interest at July 31, 1998. Failure to list an
account or providing incorrect information could result in the loss of all or
part of an allocation than if all accounts had been disclosed. The subscription
rights of eligible account holders who are also directors, trustees, corporators
or executive officers of Cambridgeport Bank or Cambridgeport Mutual Holding
Company or their associates will be subordinated to the subscription rights of
other eligible account holders to the extent attributable to increased deposits
in the one-year period preceding July 31, 1998.
Priority 2: Supplemental Eligible Account Holders. To the extent that
there are shares remaining after satisfaction of the subscriptions by eligible
account holders, each supplemental eligible account holder will receive, as a
second priority and without payment, non-transferable rights to subscribe for
common stock in an amount of up to $1,000,000. See "-- Limitations on Common
Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions
by supplemental eligible account holders, available shares first will be
allocated among subscribing supplemental eligible account holders so as to
permit each supplemental eligible account holder to purchase a number of shares
sufficient to make such supplemental eligible account holder's total allocation
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated among the remaining
supplemental eligible account holders whose subscriptions remain unfilled in the
proportion that the amount of their respective qualifying deposit bears to the
total amount of qualifying deposits of all supplemental eligible account holders
whose subscriptions remain unfilled. However, no fractional shares shall be
issued.
To ensure proper allocation of stock, each supplemental eligible account
holder must list on his or her stock order form all deposit accounts in which
such supplemental eligible account holder had an ownership interest at September
30, 1999. Failure to list an account or providing incorrect information could
result in the loss of all or part of an allocation.
127
<PAGE>
Priority 3: The Tax-Qualified Employee Benefit Plans. On a third priority
basis, the tax-qualified employee benefit plans, including the ESOP, will
receive, as a third priority and without payment therefor, non-transferable
subscription rights to purchase up to 8% of the common stock to be issued in the
offering. As a tax-qualified employee benefit plan, the ESOP intends to
purchase 8% of the shares to be issued in the offering, or 612,000 shares, based
on the issuance of 7,650,000 shares at the minimum of the offering range or
828,000 shares based on the issuance of 10,350,000 at the maximum of the
offering range. Subscriptions by the ESOP will not be aggregated with shares of
common stock purchased directly by or which are otherwise attributable to any
other participants in the subscription and community offerings, including
subscriptions of any of Cambridgeport Bank's trustees, officers, employees or
associates thereof. In the event that the total number of shares offered is
increased to more than 10,350,000 shares, the ESOP will have a first priority
right to purchase any such shares up to an aggregate of 8% of the shares issued
in the offering. It has not been determined whether the ESOP will subscribe for
shares in the offering or purchase shares in private transactions or on the open
market after completion of the offering.
Priority 4: Employees, Officers, Directors, Trustees and Corporators of
Cambridgeport Bank or Cambridgeport Mutual Holding Company. On a fourth priority
basis, each employee, officer, director, trustee and corporator of Cambridgeport
Bank or the Cambridgeport Mutual Holding Company who is not eligible in the
preceding priority categories shall receive non-transferable subscription rights
to subscribe for common stock in an amount up to $1,000,000; subject to a
maximum purchase limitation of 30% of the total shares sold in the conversion.
See "-- Limitations on Common Stock Purchases."
Expiration Date for the Subscription Offering. The subscription offering
will expire at 10:00 a.m., Massachusetts time, on [ ], 2000, unless we extend
this period for up to 45 days. We may further extend this period for additional
60 day periods with the approval of the Division and, if necessary, the FRB.
Subscription rights which have not been exercised prior to the expiration date,
as extended, will become void.
If all shares have not been subscribed for by the expiration date, as
extended, all funds delivered to Port Financial Corp. will be returned promptly
with interest at our passbook savings rate and all withdrawal authorizations
will be canceled. If an extension beyond [ ], 2000 is granted, Port Financial
Corp. will notify subscribers of the extension of time and of their rights to
change or cancel their orders. Each extension may not exceed 60 days, and all
extensions, in the aggregate, may not last beyond [ ]. We presently intend to
terminate the direct community offering as soon as we have received orders for
all shares available for purchase in the offering.
Persons in Non-qualified States or Foreign Countries. We 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 pursuant to the
plan of conversion reside. However, we are not required to offer stock in the
subscription offering to any person who resides in a foreign country.
128
<PAGE>
Direct Community Offering and Syndicated Community Offering
Direct Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions received in the subscription
offering, Port Financial Corp. may offer shares for sale pursuant to the plan of
conversion in a direct community offering to the public with preference given to
natural persons residing in the cities and towns of Cambridge, Arlington,
Bedford, Belmont, Boston, Braintree, Brookline, Burlington, Canton, Dedham,
Dover, Framingham, Lexington, Lincoln, Medford, Milton, Natick, Needham, Newton,
Norwood, Quincy, Randolph, Sherbourne, Somerville, Stoneham, Walpole, Waltham,
Watertown, Wayland, Wellesley, Weston, Westwood, Weymouth, Winchester and
Woburn, and possibly to the general public. The term "residents" includes
persons who occupy a dwelling within these cities and towns and establish an
ongoing physical presence within it, together with an indication that such
presence is not merely transitory in nature. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters shall be in these cities and towns. We may utilize depositor loan
records or such other evidence provided to it to make a determination as to
whether a person is a resident. In all cases, the determination of resident
status will be made by us in our sole discretion. Stock sold in the direct
community offering will be offered and sold in a manner to achieve the widest
distribution of the stock. No person may purchase more than $1,000,000 of
common stock in the direct community offering. Orders accepted in the direct
community offering will be filled to a maximum of 2% of the total offering and
thereafter remaining shares will be allocated on an equal number of shares per
order until all orders have been filled.
The direct community offering, if any, may commence concurrently with or
subsequent to the commencement of the subscription offering and shall terminate
no later than 45 days after the expiration of the subscription offering unless
extended by Port Financial Corp., with the approval of the Division and the FRB,
if necessary.
Syndicated Community Offering. If any stock remains unsold in the
subscription and direct community offerings, we may use the services of broker-
dealers to sell such shares on a best efforts basis in a syndicated community
offering to be managed by Ryan, Beck & Co. No person may purchase more than
$1,000,000 of common stock in the syndicated community offering.
Orders in this offering will be filled to a maximum percentage (to be
determined by us and not to exceed 2% or the purchase limitations of the plan)
of the total number of shares until all orders have been filled. Ryan, Beck &
Co. has not selected any particular broker-dealers to participate in a
syndicated community offering. Neither Ryan, Beck & Co. 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, Ryan, Beck & Co.
has agreed to use its best efforts in the sale of shares in any syndicated
community offering.
The syndicated community offering may commence during the direct community
offering or after the direct community offering is terminated. The syndicated
community offering will
129
<PAGE>
terminate no more than 45 days following the expiration of the subscription
offering unless extended by Port Financial Corp. with the approval of the
Division and FRB. Such extensions may not be beyond [ ].
------------------------------------------------------------------------------
The opportunity to subscribe for shares of common stock in the direct
community offering or syndicated community offering is subject to our right,
in our sole discretion, to accept or reject any order in whole or in part
either at the time of receipt of an order or as soon as practicable following
the expiration date. If we reject a subscription in part, the subscriber will
not have the right to cancel the remainder of the subscription.
------------------------------------------------------------------------------
If for any reason a syndicated community offering of unsubscribed shares
cannot be effected or is not deemed advisable, we will seek to make other
arrangements, subject to the approval of the Division and the FRB and to
compliance with applicable state and federal securities laws.
Marketing Arrangements
Ryan, Beck & Co. Inc. We have engaged Ryan, Beck & Co. as financial and
marketing agent in connection with the offering of the common stock. Ryan, Beck
& Co. has agreed to use its best efforts to assist us with the solicitation of
subscriptions for shares of common stock in the offering.
Ryan, Beck & Co. will receive fees for services provided in connection with
the offering equal to $1,000,000. If there is a syndicated community offering,
we will pay Ryan, Beck & Co. a fee equal to 1.0% of the aggregate purchase price
of common stock sold in the syndicated community offering which fee, along with
fees payable by us to any other broker-dealers, will not exceed 6.0% of the
aggregate purchase price of the common stock sold in the syndicated community
offering. Ryan, Beck & Co. will also be reimbursed for its reasonable out-of-
pocket expenses, including legal fees of up to $55,000.
Directors, Officers and Employees. Directors and executive officers of
Port Financial Corp. and Cambridgeport Bank may participate in the solicitation
of offers to purchase common stock. Other employees of Cambridgeport Bank may
participate in the offering in ministerial capacities or provide clerical work
in effecting a sales transaction. Such other employees have been instructed not
to solicit offers to purchase common stock or provide advice regarding the
purchase of common stock. Port Financial Corp. will rely on Rule 3a4-1 under
the Exchange Act, and sales of common stock will be conducted within the
requirements of Rule 3a4-1, so as to permit directors, officers and employees to
participate in the sale of common stock. No director, officer or employee of
Port Financial Corp. or Cambridgeport Bank will be compensated in connection
with his or her participation by the payment of commissions or other
remuneration based either directly or indirectly on transactions in common
stock.
130
<PAGE>
Procedure for Purchasing Shares in Subscription and Direct Community Offerings
Use of Order Forms. To purchase shares in the subscription offering and the
direct community offering, an executed order form with the required payment for
each share subscribed for, or with appropriate authorization for withdrawal from
a subscriber's deposit accounts at Cambridgeport Bank (which must be given by
completing the appropriate blanks on the stock order form), must be received by
Cambridgeport Bank by 10:00 a.m., Massachusetts time, on the indicated
expiration date unless extended. You must submit your order form by mail or
overnight courier to the indicated address, or may drop off your order forms at
our main office. Stock order forms which are not received by such time or are
executed defectively or are received without full payment (or correct withdrawal
instructions) are not required to be accepted. In addition, we are not obligated
to accept orders submitted on photocopied or facsimiled order forms. We have the
power to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that we will do so. Once received, an executed order
form may not be modified, amended or rescinded without our consent unless the
conversion has not been completed within 45 days of the end of the subscription
offering or we conduct a resolicitation of subscribers for some other reason. If
resolicitation is commenced, subscribers will have an opportunity to change or
cancel their orders. Unless an affirmative response is received from a
subscriber within a designated timeframe, all funds will be promptly returned to
the subscriber with interest at Cambridgeport Bank's passbook-savings rate and
all account withdrawal authorizations will be canceled.
In order to ensure that eligible account holders and supplemental eligible
account holders are properly identified as to their stock purchase eligibility,
depositors must list on the stock order form all deposit accounts as of the
applicable eligibility record date giving all names on each account and the
account numbers.
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the expiration date for the offering, in accordance with Rule 15c2-8 of the
Exchange Act, no prospectus will be mailed later than five days prior to such
date or hand delivered any later than two days prior to such date. Execution of
the stock order form will confirm receipt or delivery in accordance with Rule
15c2-8. Order forms will only be distributed when preceded or accompanied by a
prospectus.
Payment for Shares. Payment for subscriptions may be made by personal
check, bank check, money order or by authorization of withdrawal from your
current non-transaction deposit accounts maintained at Cambridgeport Bank.
Interest will be paid on payments made by check, bank check or money order at
our passbook savings rate of interest 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 will remain in the account and continue to accrue interest at the
contractual rates until completion or termination of the conversion, but a hold
immediately will be placed on such funds, thereby making them unavailable to the
depositor.
131
<PAGE>
Cambridgeport Bank will waive any applicable penalties for early withdrawal
from certificates of deposit. If the remaining balance in a certificate account
is reduced below the applicable minimum balance requirement at the time that the
funds are transferred under the authorization, the certificate will be canceled
at the time of the withdrawal, without penalty, and the remaining balance will
be converted into a statement savings account and will earn interest at the
passbook savings rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes. Rather, the ESOP may pay for such shares of common stock
subscribed for at the purchase price upon completion of the offering; provided,
that there is in force from the time of its subscription until such time, a loan
commitment acceptable to Port Financial Corp. from an unrelated financial
institution or from Port Financial Corp. to lend to the ESOP the aggregate
purchase price of the shares for which it subscribed. Port Financial Corp.
intends to provide such a loan to the ESOP.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of common stock in the subscription and community offerings, provided
that such IRAs are not maintained at Cambridgeport Bank. Persons with IRAs
maintained at Cambridgeport Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of common stock in the
subscription and community offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, trustees and ten percent stockholders who
use self-directed IRA funds to purchase shares of common stock in the
subscription and community offerings make such purchases for the exclusive
benefit of the IRAs. Assistance on how to transfer IRAs maintained at
Cambridgeport Bank can be obtained from the Stock Information Center.
Depositors interested in using funds in an IRA to purchase common stock should
contact the Stock Information Center as soon as possible.
Certificates representing shares of common stock purchased will be mailed
to purchasers to the addresses specified in properly completed order forms, as
soon as practicable following completion of the offering. Any certificates
returned as undeliverable will be disposed of in accordance with applicable law.
Stock Information Center
If you have any questions regarding the offering or the conversion, please
call the Stock Information Center at [ ], from 9:00 a.m. to 4:00 p.m.,
Massachusetts time, Monday through Friday.
132
<PAGE>
Restrictions on Transfer of Subscription Rights and Shares of Common Stock
Regulations prohibit any person with subscription rights from transferring
or entering into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the plan of
conversion or the shares of common stock to be issued upon their exercise. Such
rights may be exercised only by the person to whom they are granted and only for
such person's account. Each person exercising such subscription rights will be
required to certify that such person is purchasing shares solely for such
person's own account and that such person has no agreement or understanding
regarding the sale or transfer of such shares. The regulations also prohibit
any person from offering or making an announcement of an offer or an intent to
make an offer to purchase such subscription rights or shares of common stock
prior to the completion of the conversion.
------------------------------------------------------------------------------
We will pursue any and all legal and equitable remedies (including forfeiture)
in the event we become aware of the transfer of subscription rights and will
not honor orders known by us to involve the transfer of such rights.
------------------------------------------------------------------------------
Limitations on Common Stock Purchases
The plan of conversion includes the following limitations on the number of
shares of common stock which may be purchased during the conversion:
(1) No subscription for fewer than 25 shares will be accepted;
(2) No fractional shares will be allocated or issued;
(3) Eligible account holders and supplemental eligible account holders,
may subscribe for and purchase common stock in the subscription
offering in an amount up to $1,000,000.
(4) The tax-qualified employee benefit plans are permitted to purchase up
to 8% of the shares of common stock issued in the offering and, as a
tax-qualified employee benefit plan, the ESOP intends to purchase 8%
of the shares of common stock issued in the offering;
(5) The employees, officers, directors, trustees and corporators of
Cambridgeport Bank or Cambridgeport Mutual Holding Company and their
associates in the aggregate, excluding purchases by the tax-qualified
employee benefit plans, may purchase up to 30% of the shares of stock
issued in the offering. Each employee, officer, director, trustee or
corporator who does not qualify as an eligible account holder or
supplemental eligible account holder will be subject to the same
purchase limitations as eligible account holders and supplemental
eligible account holders; and
133
<PAGE>
(6) Persons purchasing shares of common stock in the direct community
offering or the syndicated community offering, may purchase common
stock in an amount up to $1,000,000, subject to increase as described
below.
(7) Except for the tax-qualified employee benefit plans, the maximum
amount of shares of common stock purchased in all categories of the
offering by any person, together with associates of, and groups of
person acting in concert with, such person, shall not exceed
$2,000,000, subject to increase as described below.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the $1,000,000 and $2,000,000 maximum amounts
may be altered by Cambridgeport Mutual Holding Company, in its sole discretion
and without further notice to or solicitation of subscribers or other
prospective purchasers, to the following amounts: (i) increased to a maximum of
5% of the shares offered in the offering, exclusive of an increase in the total
number of shares issued due to an increase in the offering range of up to 15%
(i.e., up to 517,500 shares), or (ii) decreased to not less than one-tenth of a
percent (.10%) of the number of shares of stock offered in the conversion. If
the purchase limitations are increased, subscribers for the maximum amount will
be given the opportunity to increase their subscriptions up to the then
applicable limit. Requests to purchase additional shares of common stock under
this provision will be determined by and in the sole discretion of the Board of
Directors of Cambridgeport Bank and the Board of Trustees of Cambridgeport
Mutual Holding Company and, if necessary, allocated on a pro rata basis giving
priority in accordance with the priorities set forth in the plan of conversion
and described herein.
If we sell more than 10,350,000 shares, the additional shares will be
allocated in accordance with the priorities and procedures described in "--
Subscription Offering and Subscription Rights" and "--Direct Community Offering
and Syndicated Community Offering."
The term "associate" of a person is defined to mean:
(1) any corporation or organization (other than Port Financial Corp.,
Cambridgeport Mutual Holding Company, Cambridgeport Bank or a
majority-owned subsidiary of Cambridgeport Bank) of which such person
is a director, officer or partner or is directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities;
(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; and
(3) any relative or spouse of such person, or any relative of such spouse,
who has the same home as such person or who is a director or officer
of Port Financial Corp., Cambridgeport Mutual Holding Company,
Cambridgeport Bank or any subsidiary of Cambridgeport Bank or Port
Financial Corp. or any affiliate thereof; and
134
<PAGE>
(4) any person "acting in concert" with any of the persons or entities
specified in clauses (1) through (3) above; provided, however, that
any tax-qualified or non-tax-qualified employee plan will not be
deemed to be an associate of any director, trustee or officer of
Cambridgeport Bank, Cambridgeport Mutual Holding Company or Port
Financial Corp., for purposes of aggregating total shares that may be
acquired or held by directors, trustees and officers and their
associates
We have the sole discretion to determine whether prospective purchasers are
"associates" or "acting in concert." Trustees, directors and officers are not
treated as associates of each other solely by virtue of holding such positions.
We have the right in our sole discretion to reject any order submitted by a
person whose representations we believe to be false or who we otherwise believe,
either alone or acting in concert with others, is violating or circumventing, or
intends to violate or circumvent, the terms and conditions of the plan of
conversion.
Certain Restrictions on Purchase or Transfer of Shares After the Conversion
All shares of common stock purchased in connection with the conversion by
an officer, director, trustee or corporator of Cambridgeport Bank, Cambridgeport
Mutual Holding Company or Port Financial Corp. will be subject to a restriction
that the shares not be sold for a period of one year following the date of
purchase, except in the event of the death or the Commissioner's declaration of
incompetence of such officer, director, trustee or corporator. Each certificate
for restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that the transfer agent
for Port Financial Corp. is to disregard any such attempted transfer. The
directors and executive officers of Port Financial Corp. and Cambridgeport Bank
will also be subject to the federal insider trading rules and any other
applicable requirements of the federal securities laws.
Purchases of outstanding shares of common stock of Port Financial Corp. by
directors, trustees, corporators or officers of Port Financial Corp. or
Cambridgeport Bank (and any person who was a director, corporator or officer of
Cambridgeport Bank; a trustee, corporator or officer of Cambridgeport Mutual
Holding Company or a director or officer of Port Financial Corp. at any time
after the date on which the Board of Directors of Cambridgeport Bank and the
Board of Directors of Cambridgeport Mutual Holding Company adopted the plan of
conversion), and their associates during the three-year period following
conversion may be made only through a broker or dealer registered with the SEC,
except with the prior written approval of the Division. This restriction does
not apply, however, to negotiated transactions involving more than 1% of the
outstanding common stock, or purchases of common stock made and held by any tax-
qualified or non-tax-qualified employee plan of Cambridgeport Bank. In
addition, for a period of three years following the conversion, no officer,
director, trustee or corporator of Cambridgeport Bank, Cambridgeport Mutual
Holding Company, Port Financial Corp. or any of their associates may, without
prior written approval from the Commissioner, purchase capital stock of Port
Financial Corp.
135
<PAGE>
Interpretation, Amendment and Termination
All interpretations of the plan of conversion by the Board of Trustees of
Cambridgeport Mutual Holding Company will be final, subject to the authority of
the Division and FRB. The plan of conversion provides that, if deemed necessary
or desirable by the Board of Trustees of Cambridgeport Mutual Holding Company,
the plan of conversion may be substantively amended by a majority vote of the
Board of Trustees as a result of comments from regulatory authorities or
otherwise, at any time prior to the date material is sent to the corporators for
approval of the plan. Amendment of the plan of conversion thereafter requires a
majority vote of the Board of Trustees and the approval of the Commissioner.
The plan of conversion shall be terminated if the conversion is not completed
within 24 months from the date on which the Board of Trustees of Cambridgeport
Mutual Holding Company approves the plan. The plan of conversion may be
terminated by a majority vote of the Board of Trustees of Cambridgeport Mutual
Holding Company at any time prior to the date of the special meeting of
corporators called to consider this plan, and thereafter by such a vote with the
approval of the Commissioner.
RESTRICTIONS ON ACQUISITION OF PORT FINANCIAL CORP.
AND CAMBRIDGEPORT BANK
General
The plan of conversion provides for Cambridgeport Mutual Holding Company to
convert from mutual form to Port Financial Corp., a stock holding company which
will own 100% of the stock of Cambridgeport Bank. See "The Conversion and The
Offering -- General." Certain provisions in Port Financial Corp.'s Articles of
Organization and Bylaws and in its benefit plans and agreements entered into in
connection with the conversion, together with provisions of the Massachusetts
General Laws ("MGL") and certain governing regulatory restrictions, may have
anti-takeover effects.
Port Financial Corp.'s Articles of Organization and Bylaws
Port Financial Corp.'s Articles of Organization and Bylaws contain a number
of provisions, relating to corporate governance and certain rights of
stockholders, that might discourage future takeover attempts. As a result,
stockholders who might desire to participate in such transactions may not have
an opportunity to do so. In addition, such provisions will also render the
removal of the Board of Directors or management of Port Financial Corp. more
difficult.
------------------------------------------------------------------------------
The following description is necessarily general and qualified by reference to
the Articles of Organization and Bylaws. See "Where You Can Find Additional
Information" as to how to review a copy of these documents.
------------------------------------------------------------------------------
136
<PAGE>
Directors. Certain provisions of Port Financial Corp.'s Articles of
Organization and Bylaws will impede changes in control of the Board of
Directors. Port Financial Corp.'s Articles of Organization provide that the
Board of Directors will be divided into three classes, with directors in each
class elected for three-year staggered terms except for the initial directors.
Thus, it would take two annual elections to replace a majority of Port Financial
Corp.'s Board. Port Financial Corp.'s Articles of Organization provide that the
size of the Board of Directors may be increased or decreased only by a majority
vote of the Board. The Articles of Organization also provide that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. Finally, the Articles
of Organization and Bylaws impose certain notice and information requirements in
connection with the nomination by stockholders of candidates for election to the
Board of Directors or the proposal by stockholders of business to be acted upon
at an annual meeting of stockholders.
The Articles of Organization provide that a director may only be removed
for cause by the affirmative vote of either two-thirds of the authorized Board
of Directors of Port Financial Corp., or 80% of the shares eligible to vote. In
the absence of these provisions, the vote of the holders of a majority of the
shares of Port Financial Corp. could remove the entire Board, with or without
cause, and replace it with persons of such holders' choice.
Restrictions on Call of Special Meetings. The Articles of Organization
provide that a special meeting of stockholders may be called by a majority of
the authorized Board of Directors of Port Financial Corp. or the affirmative
vote of a majority of the disinterested directors then in office, or, upon
written application, by stockholders holding at least 80% of the capital stock
entitled to vote at the meeting.
Votes of Stockholders. The Articles of Organization prohibit cumulative
voting for the election of directors. No cumulative voting means that the
directors, officers and employees of Cambridgeport Bank and the former trustees,
officers and employees of Cambridgeport Mutual Holding Company will have, as
holders of the majority (up to 30%) of the outstanding stock of Port Financial
Corp., the power to elect all directors of Port Financial Corp. to be elected at
that meeting. This could prevent public stockholder representation on Port
Financial Corp.'s Board of Directors. In addition, the Articles of Organization
also provides that any action required or permitted to be taken by the
stockholders of Port Financial Corp. may be taken only at an annual or special
meeting and prohibits stockholder action by written consent in lieu of a
meeting.
Authorization of Preferred Stock. The Articles of Organization authorize
one million shares of serial preferred stock, par value $0.01 per share. Port
Financial Corp. is authorized to issue preferred stock from time to time in one
or more series subject to applicable provisions of law, and the Board of
Directors is authorized to fix the designations, and relative preferences,
limitations, voting rights, if any, including without limitation, offering
rights of such shares (which could be multiple or as a separate class). In the
event of a proposed merger, tender offer or other attempt to gain control of
Port Financial Corp. that the Board of Directors does not
137
<PAGE>
approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede that completion of the transaction. An effect of the possible issuance of
preferred stock, therefore may be to deter a future attempt to gain control of
Port Financial Corp. The Board of Directors has no present plan or understanding
to issue any preferred stock.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders. The Articles of Organization requires the approval of the holders
of at least 80% of Port Financial Corp.'s outstanding shares of voting stock to
approve certain "Business Combinations" and related transactions.
The vote of at least 80% of the stockholders is required in connection with
any transaction involving an Interested Stockholder except in cases where the
proposed transaction has been approved in advance by a majority of those members
of Port Financial Corp.'s Board of Directors who are unaffiliated with the
Interested Stockholder and were directors prior to the time when the Interested
Stockholder became an Interested Stockholder. However, if the proposed
transaction meets certain conditions set forth in the Articles of Organization
designed to afford the stockholders a fair price in consideration for their
shares, approval of only a majority of the outstanding shares of voting stock
would be sufficient.
The term "Interested Stockholder" is defined to include, among others, any
individual, corporation, partnership or other entity (other than Cambridgeport
Bank, Port Financial Corp. or its subsidiary or any employee benefit plan
maintained by Port Financial Corp. or its subsidiary) which owns beneficially or
controls, directly or indirectly, more than 5% of the outstanding shares of
voting stock of Port Financial Corp.
A "Business Combination" means:
(1) any merger or consolidation of Port Financial Corp. or any of its
subsidiaries with or into any Interested Stockholder or its affiliate;
(2) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Interested Stockholder or its affiliate of
25% or more of the assets of Port Financial Corp. or combined assets
of Port Financial Corp. and its subsidiary;
(3) the issuance or transfer to any Interested Stockholder or its
affiliate by Port Financial Corp. (or any subsidiary) of any
securities of Port Financial Corp. in exchange for cash, securities or
other property having an aggregate fair market value equaling or
exceeding 25% of the combined fair market value of the outstanding
common stock of Port Financial Corp. and its subsidiaries, except for
any issuance or transfer pursuant to an employee benefit plan of Port
Financial Corp. or any subsidiary;
(4) the adoption of any plan for the liquidation or dissolution of Port
Financial Corp. proposed by or on behalf of any Interested Stockholder
or its affiliate; and
138
<PAGE>
(5) any reclassification of securities, recapitalization, merger or
consolidation of Port Financial Corp. which has the effect of
increasing the proportionate share of common stock or any class of
equity or convertible securities of Port Financial Corp. owned
directly or indirectly by an Interested Stockholder or its affiliate.
Evaluation of Offers. The Articles of Organization further provides that
the Board of Directors of Port Financial Corp. shall when evaluating any offer
to Port Financial Corp. from another party to:
. make a tender offer or exchange offer for any outstanding equity
security of Port Financial Corp.;
. merge or consolidate Port Financial Corp. with another corporation or
entity; or
. purchase or otherwise acquire all or substantially all of the
properties and assets of Port Financial Corp.;
in connection with the exercise of its judgment in determining what is in the
best interest of Port Financial Corp. and its stockholders, give due
consideration to the extent permitted by law to all relevant factors, including,
without limitation, Port Financial Corp.'s employees, suppliers, creditors and
customers; the economy of the state, region and nation; community and societal
considerations; and the long- and short-term interests of Port Financial Corp.
and its stockholders, including the possibility that these interests will be
best served by the continued independence of Port Financial Corp.
By having these standards in the Articles of Organization of Port Financial
Corp., 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
interests of Port Financial Corp., even if the price offered is significantly
greater than the then market price of any equity security of Port Financial
Corp.
Amendment to Articles of Organization and Bylaws. The Articles of
Organization may be amended by the affirmative vote of 80% of the total votes
eligible to be cast by stockholders, voting together as a single class;
provided, however, that if at least two-thirds of the Directors recommend
approval of the amendment, then such amendment shall require the affirmative
vote of a majority of the total votes eligible to cast by stockholder, voting
together as a single class.
The Bylaws may be amended by the affirmative vote of two-thirds of the
Board of Directors of Port Financial Corp. or the affirmative vote of at least
80% of the total votes eligible to be cast by stockholders, voting together as a
single class. These provisions could have the effect of discouraging a tender
offer or other takeover attempt where the ability to make fundamental changes
through Bylaw amendments is an important element of the takeover strategy of the
acquiror.
139
<PAGE>
Anti-Takeover Effects of Port Financial Corp.'s Articles of Organization, Bylaws
and Benefit Plans Adopted in the Conversion
The provisions described above are intended to reduce Port Financial
Corp.'s vulnerability to takeover attempts and certain other transactions which
have not been negotiated with and approved by members of its Board of Directors.
The provisions of the employment agreements, the management recognition plan and
the stock option plan to be established may also discourage takeover attempts by
increasing the costs to be incurred by Cambridgeport Bank and Port Financial
Corp. in the event of a takeover. See "Management -- Employment Agreements," and
"-- Benefits."
Port Financial Corp.'s Board of Directors believes that the provisions of
the Articles of Organization, Bylaws and benefit plans to be established are in
the best interests of Port Financial Corp. and its stockholders. An unsolicited
non-negotiated 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 Port Financial Corp. 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. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of Port Financial
Corp. and that otherwise is in the best interests of all stockholders.
Regulatory Restrictions
Federal Change in Bank Control Act. Federal law provides that no person,
acting directly or indirectly or through or in concert with one or more other
persons, may acquire control of a bank unless the FDIC has been given 60 days
prior written notice. For this purpose, the term "control" means the acquisition
of the ownership, control or holding of the power to vote 25% or more of any
class of a bank holding company's voting stock, and the term "company" includes
an individual, corporation, partnership, and various other entities, acting
individually or in concert. In addition, an acquiring person is presumed to
acquire control if the person acquires the ownership, control or holding of the
power to vote of 10% or more of any class of the holding company's voting stock
if (a) Port Financial Corp.'s shares are registered pursuant to Section 12 of
the Exchange Act or (b) no other person will own, control or hold the power to
vote a greater percentage of that class of voting securities. The Federal
Reserve Board is authorized by the change in bank control act and its own
regulations to disapprove a proposed transaction on certain specified grounds.
Accordingly, the prior approval of the Federal Reserve Bank would be required
before any person could acquire 10% or more of the Common Stock of Port
Financial Corp.
140
<PAGE>
Federal Bank Holding Company Act. Federal law provides that no company may
acquire control of a bank holding company without the prior approval of the
Federal Reserve. Any company that acquires control becomes a "bank holding
company" subject to registration, examination and regulation by the Federal
Reserve. Pursuant to federal regulations, the term "company" is defined to
include banks, corporations, partnerships, associations, and certain trusts and
other entities, and the term "control" is deemed to exist if a company has
voting control of at least 25% of any class of a bank's voting stock, and may be
found to exist if a company controls in any manner the election of a majority of
the directors of the bank or has the power to exercise a controlling influence
over the management or policies of the bank. In addition, a bank holding company
must obtain Federal Reserve Board approval prior to acquiring voting control of
more than 5% of any class of voting stock of a bank or another bank holding
company. The foregoing restrictions do not apply to the acquisition of stock by
one or more tax-qualified employee stock benefit plans, provided that the plan
or plans do not have beneficial ownership in the aggregate of more than 25
percent of any class of our equity security.
An acquisition of control of a bank that requires the prior approval of the
Federal Reserve Board under the Bank Holding Company Act is not subject to the
notice requirements of the Change in Bank Control Act. Accordingly, the prior
approval of the Federal Reserve Board under the Bank Holding Company Act would
be required (a) before any bank holding company could acquire 5% or more of the
common stock of Port Financial Corp. and (b) before any other company could
acquire 25% or more of the common stock of Port Financial Corp.
The Federal Reserve may prohibit an acquisition of control if:
(1) it would result in a monopoly or substantially lessen competition;
(2) the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or of
the public to permit the acquisition of control by such person.
Massachusetts Banking Law. Massachusetts banking law also prohibits any
"company," defined to include banking institutions as well as corporations, from
directly or indirectly controlling the voting power of 25% or more of the voting
stock of two or more banking institutions without the prior approval of the
Board of Bank Incorporation. Additionally, an out-of-state company which already
directly or indirectly controls voting power of 25% or more of the voting stock
of two or more banking institutions may not also acquire direct or indirect
ownership or control of more than 5% of the voting stock of a Massachusetts
banking institution without the prior approval of the Board of Bank
Incorporation. Finally, for a period of three years following completion of a
conversion to stock form, no person may directly or indirectly offer to acquire
or acquire beneficial ownership of more than 10% of any class of equity security
of a converting mutual holding company without prior written approval of the
Board of Bank Incorporation.
141
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF
PORT FINANCIAL CORP.
General
Port Financial Corp. is authorized to issue thirty million (30,000,000)
shares of common stock having a par value of $.01 per share and five million
(5,000,000) shares of preferred stock having a par value of $.01 per share. Port
Financial Corp. currently expects to sell 10,350,000 shares of common stock (or
11,902,500 shares of common stock in the event of an increase of 15% in the
Estimated Valuation Range) to purchasers of common stock in the offering. Port
Financial Corp. will not issue any shares of preferred stock in the offering.
Except as discussed above in "Restrictions on Acquisition of Port Financial
Corp. and Cambridgeport Bank," each share of Port Financial Corp.'s common stock
will have the same relative rights as, and will be identical in all respects
with, every other share of common stock. Upon payment of the purchase price for
the common stock in accordance with the plan of conversion, all such stock will
be duly authorized, fully paid and non-assessable.
The shares of common stock:
. are not deposit accounts and are subject to investment risk;
. are not insured or guaranteed by the FDIC, or any other government
agency; and
. are not guaranteed by Port Financial Corp. or Cambridgeport Bank.
Common Stock
Dividends. Port Financial Corp. can pay dividends from net profits if, as
and when declared by its Board of Directors. The payment of dividends by Port
Financial Corp. is subject to limitations which are imposed by law. See "Our
Policy Regarding Dividends" and "Regulation of Cambridgeport Bank and Port
Financial Corp." The owners of common stock of Port Financial Corp. will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors out of funds legally available therefor. If Port
Financial Corp. issues preferred stock, the holders of the preferred stock may
have a priority over the holders of the common stock with respect to dividends.
Voting Rights. Upon the effective date of the conversion, the holders of
common stock of Port Financial Corp. will possess exclusive voting rights in
Port Financial Corp. They will elect Port Financial Corp.'s Board of Directors
and act on such other matters as are required to be presented to them under law
or Port Financial Corp.'s Articles of Organization or as are otherwise presented
to them by the Board of Directors. 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. Under certain circumstances, shares in excess of 10% of
Port Financial Corp.'s
142
<PAGE>
common stock may be considered "Excess Shares" and may therefore not be entitled
to vote. See "Restrictions on Acquisition of Port Financial Corp. and
Cambridgeport Bank." If Port Financial Corp. issues preferred stock, holders of
the preferred stock may also possess voting rights. Certain matters, including
the removal of directors, the approval of business combinations and amending the
Articles of Organization or Bylaws, generally requires an 80% stockholder vote.
See "Restrictions on Acquisition of Port Financial Corp. and Cambridgeport
Bank."
Liquidation. In the event of any liquidation, dissolution or winding up of
Cambridgeport Bank, Port Financial Corp., as owner of Cambridgeport Bank's
capital stock, would be entitled to receive, after payment or provision for
payment of all debts and liabilities of Cambridgeport Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to eligible account holders and the
supplemental eligible account holders (see "The Conversion and The Offering --
Effects of the Conversion -- Liquidation Rights"), all assets of Cambridgeport
Bank available for distribution. In the event of liquidation, dissolution or
winding up of Port Financial Corp., the holders of its common stock would be
entitled to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of Port Financial Corp. available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock in the event of the liquidation or
dissolution.
Preemptive Rights; Redemption. Holders of the common stock of Port
Financial Corp. will not be entitled to preemptive rights with respect to any
shares which may be issued. The common stock is not subject to redemption.
Preferred Stock
Port Financial Corp. will not issue any shares of its authorized preferred
stock in the conversion. We may issue with such preferences and designations as
the Board of Directors may from time to time determine. The Board of Directors
can, without stockholder approval, issue preferred stock with voting, dividend,
liquidation and conversion rights which could dilute the voting strength of the
holders of the common stock and may assist management in impeding an unfriendly
takeover or attempted change in control.
LEGAL AND TAX OPINIONS
Thacher Proffitt & Wood, Washington, D.C. will issue its opinion to us of
the legality of the issuance of the common stock being offered and certain
matters relating to the conversion and federal taxation. Certain matters
relating to state taxation will be passed upon for us by Arthur Andersen LLP.,
Boston, Massachusetts. Certain legal matters will be passed upon for Ryan, Beck,
Inc. by Nixon Peabody, LLP., Washington, D.C.
143
<PAGE>
EXPERTS
The consolidated financial statements of Cambridgeport Mutual Holding
Company as of December 31, 1998 and 1997 and for each of the years in the three-
year period ended December 31, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included in this prospectus in reliance upon the authority of
said firm as experts in giving said reports.
RP Financial has consented to the publication in this document of a summary
of its letter to Cambridgeport Mutual Holding Company setting forth its opinion
as to the estimated pro forma market value of Cambridgeport Bank after the
conversion and its opinion setting forth the value of subscription rights and to
the use of its name and statements with respect to it appearing in this
document.
REGISTRATION REQUIREMENTS
Our common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). We will be subject to the
information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. We may not deregister the common stock under the Exchange Act for a period
of at least three years following the conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act and
must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the common stock offered in
this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. You may examine this information without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain copies of this material from the SEC at prescribed
rates. You may obtain information on the operations of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet address
("web site") that contains reports, proxy and information statements and other
information regarding registrants, including Port Financial Corp., that file
electronically with the SEC. The address for this web site is
"http://www.sec.gov."
This document contains a description of the material features of certain
exhibits to the Form S-1. The statements as to the contents of such exhibits,
however, are, of necessity, brief descriptions and are not necessarily complete;
each such statement is qualified by reference to such contract or document.
144
<PAGE>
A copy of Port Financial Corp.'s Articles of Organization and Bylaws, as
well as a copy of the Amended Charter and Amended Bylaws of Cambridgeport Bank,
are available for review at any of our offices. A copy of the plan of conversion
is available from offices of Cambridgeport Bank without charge. You may also
call the S.I.C. Monday through Friday, 9 a.m. to 4 p.m. to request of a copy of
the plan.
Cambridgeport Mutual Holding Company has filed an application for the
establishment of a stock holding company and associated stock issuance with the
Division of Banks of the Commonwealth of Massachusetts. Port Financial Corp. has
filed an application with the Federal Reserve Bank of Boston to become a bank
holding company. This prospectus omits certain information contained in those
applications.
145
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND
DECEMBER 31, 1998 AND 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996 F-4
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) AND THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-36
All schedules are omitted because they are not required or applicable, or the
required information is shown in the financial statements or notes thereto.
F-1
<PAGE>
Report of Independent Public Accountants
To the Audit Committee of
Cambridgeport Mutual Holding Company:
We have audited the accompanying consolidated balance sheets of Cambridgeport
Mutual Holding Company and subsidiary (collectively, the Bank) as of December
31, 1998 and 1997, and the related consolidated statements of operations,
changes in retained earnings 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 consolidated financial position of
Cambridgeport Mutual Holding Company 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.
Boston, Massachusetts
March 2, 1999 (except with respect to
matters discussed in Note 16, as to
which the date is November 15, 1999)
F-2
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------------ ------------------------------------
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
(Unaudited)
ASSETS
CASH AND DUE FROM BANKS $ 13,731 $ 6,988 $ 6,968
OTHER CASH EQUIVALENTS 6,542 3,059 2,226
-------- -------- --------
Total cash and cash equivalents 20,273 10,047 9,194
Certificates of Deposit 5,062 5,900 12,101
Investment Securities Available-for-Sale, at
fair value (Note 2) 133,900 144,829 159,621
Loans Held-for-Sale 386 3,842 1,829
Loans, net (Notes 1 and 3) 537,515 492,548 417,358
Federal Home Loan Bank Stock, at cost (Note 7) 4,452 3,879 3,062
Savings Bank Life Insurance Stock, at cost 1,934 1,934 1,934
Banking Premises and Equipment, net (Note 4) 8,079 5,616 5,786
Accrued Interest Receivable 4,711 4,032 4,474
Other Assets (Notes 5, 8 and 11) 5,501 5,460 4,009
-------- -------- --------
Total assets $721,813 $678,087 $619,368
======== ======== ========
LIABILITIES AND RETAINED EARNINGS
Deposits (Note 6) $592,864 $565,418 $517,798
Federal Home Loan Bank Advances (Note 7) 41,431 27,066 21,604
Mortgagors' Escrow Payments 3,273 2,657 2,559
Accrued Expenses and Other Liabilities (Notes 8 and 11) 5,667 6,858 6,335
-------- -------- --------
Total liabilities 643,235 601,999 548,296
-------- -------- --------
Commitments and Contingencies (Notes 8, 9 and 12)
Retained Earnings (Note 10) 76,054 72,447 68,259
Accumulated Other Comprehensive Income 2,524 3,641 2,813
-------- -------- --------
Total retained earnings 78,578 76,088 71,072
-------- -------- --------
Total liabilities and retained earnings $721,813 $678,087 $619,368
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
---------------------- ----------------------------------
1999 1998 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest on loans $29,886 $27,671 $37,374 $30,304 $23,630
Interest and dividends on investment securities 6,323 7,691 10,023 12,282 10,450
Interest on other cash equivalents 593 564 787 574 2,744
Interest on certificates of deposit 295 366 472 801 917
------- ------- ------- ------- -------
Total interest and dividend income 37,097 36,292 48,656 43,961 37,741
------- ------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits 17,361 18,197 24,318 22,732 20,184
Interest on borrowed funds 1,583 1,161 1,562 822 854
------- ------- ------- ------- -------
Total interest expense 18,944 19,358 25,880 23,554 21,038
------- ------- ------- ------- -------
Net interest income 18,153 16,934 22,776 20,407 16,703
PROVISION FOR POSSIBLE LOAN LOSSES (NOTE 3) 562 1,183 1,760 600 450
------- ------- ------- ------- -------
Net interest income after provision for 17,591 15,751 21,016 19,807 16,253
possible loan losses ------- ------- ------- ------- -------
NONINTEREST INCOME:
Customer service fees 622 495 726 623 621
Gain on sales of investment securities, net - 60 61 727 575
(Note 2)
Gain on sales of loans, net 539 849 1,143 312 357
Loan servicing fee income 309 518 656 995 1,173
Increase in cash surrender value 63 493 657 200 -
Other income 598 236 328 319 494
------- ------- ------- ------- -------
Total noninterest income 2,131 2,651 3,571 3,176 3,220
------- ------- ------- ------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 11) 7,076 7,140 9,489 9,111 7,589
Occupancy and equipment expenses (Note 4 and 2,526 2,615 3,507 3,590 3,215
Note 9)
Curtailment loss on nonqualified pension 578 - - - -
plan (Note 11)
Data processing service fees 1,072 971 1,279 1,198 689
Advertising 890 735 903 843 914
Other noninterest expenses 2,147 2,170 2,864 2,896 3,792
------- ------- ------- ------- -------
Total noninterest expenses 14,289 13,631 18,042 17,638 16,199
------- ------- ------- ------- -------
Income before provision for income taxes 5,433 4,771 6,545 5,345 3,274
PROVISION FOR INCOME TAXES (NOTE 8) 1,826 1,707 2,357 1,679 787
------- ------- ------- ------- -------
Net income $ 3,607 $ 3,064 $ 4,188 $ 3,666 $ 2,487
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Consolidated Statements of Changes in Retained Earnings
for the Nine Months Ended September 30, 1999 (Unaudited) and
for the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Retained Comprehensive Total Retained
Income Earnings Income Earnings
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $62,106 $ 2,446 $64,552
Net income $ 2,487 2,487 - 2,487
Unrealized securities gains, net of $75 tax
expense 243
Less--Reclassification of securities gains
included in net income, net of $138 tax
expense 437
------- ------- ------- -------
Total other comprehensive income (194) - (194) (194)
------- ------- ------- -------
Total comprehensive income $ 2,293
=======
BALANCE, DECEMBER 31, 1996 64,593 2,252 66,845
Net income $ 3,666 3,666 - 3,666
Unrealized securities gains, net of $508 tax
expense 1,060
Less--Reclassification of securities gains
included in net income, net of $228 tax
expense 499
-------
Total other comprehensive income 561 - 561 561
------- ------- ------- -------
Total comprehensive income $ 4,227
=======
BALANCE, DECEMBER 31, 1997 68,259 2,813 71,072
Net income $ 4,188 4,188 - 4,188
Unrealized securities gains, net of $458 tax
expense 867
Less--Reclassification of securities gains
included in net income, net of $22 tax expense 39
-------
Total other comprehensive income 828 - 828 828
------- ------- ------- -------
Total comprehensive income $ 5,016
=======
BALANCE, DECEMBER 31, 1998 72,447 3,641 76,088
Net income $ 3,607 3,607 - 3,607
Unrealized securities losses, net of $681 tax
benefit (1,117)
-------
Total other comprehensive income (1,117) - (1,117) (1,117)
------- ------- ------- -------
Total comprehensive income $ 2,490
=======
BALANCE, SEPTEMBER 30, 1999 (UNAUDITED) $76,054 $ 2,524 $78,578
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31
-------------------- ---------------------------------
1999 1998 1998 1997 1996
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,607 $ 3,064 $ 4,188 $ 3,666 $ 2,487
Adjustments to reconcile net income to
net cash provided by operating
activities-
Provision for possible loan losses 562 1,183 1,760 600 450
Depreciation and amortization 947 1,002 1,353 1,285 1,150
Net gain from sales of investment
securities - (60) (61) (727) (575)
Amortization of premiums on investment
securities, net 115 246 353 800 1,302
Gain on loan sales, net (539) (849) (1,143) (312) (357)
Gain on sales of other real estate
owned, net - - - (25) (31)
Increase in cash surrender value (63) (493) (657) (200) -
Proceeds from sale of loans 40,467 66,654 88,175 27,999 22,221
Loans originated for sale (36,472) (67,790) (90,629) (27,454) (26,822)
(Increase) decrease in other assets 196 54 (523) 387 (496)
(Increase) decrease in accrued interest
receivable (679) (147) 442 452 (1,386)
(Decrease) increase in deferred loan
fees (86) 164 152 (54) (90)
(Decrease) increase in accrued expenses
and other liabilities (1,191) (220) 523 1,782 (2,533)
Provision for prepaid taxes (174) (121) (907) (328) (27)
-------- -------- -------- --------- ---------
Net cash provided by (used in)
operating activities 6,690 2,687 3,026 7,871 (4,707)
-------- -------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and
principal repayment of securities
available-for-sale 37,418 67,760 85,825 159,472 224,960
Purchase of securities available-for-sale (28,402) (54,300) (68,484) (107,948) (275,772)
Proceeds from maturities of certificates
of deposit 1,106 6,603 6,603 4,282 -
Purchase of certificates of deposit (268) (304) (402) (1,499) (3,461)
Net decrease in short-term investments - - - 2,000 34,901
Purchase of FHLB stock (573) (817) (817) - (750)
Proceeds from sales of other real estate
owned - - - 119 242
Purchase of premises and equipment (3,410) (880) (1,252) (1,129) (1,810)
Loan originations, net (44,875) (55,525) (76,836) (113,699) (28,866)
Recoveries of loans previously
charged-off 113 7 10 54 4
Decrease in due from brokers - - - - 165
-------- -------- -------- --------- ---------
Net cash used in investing
activities (38,891) (37,456) (55,353) (58,348) (50,387)
-------- -------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in certificates of
deposit 14,775 13,277 (3,695) 1,504 57,723
Increase in demand deposits, NOW
accounts and savings accounts 12,671 45,592 51,315 16,150 20,238
Increase (decrease) in mortgagors'
escrow payments 616 616 98 5 (462)
Additions to borrowings 14,365 3,220 5,462 20,884 -
Repayment of borrowings - - - - (11,000)
-------- -------- -------- --------- ---------
Net cash provided by financing
activities 42,427 62,705 53,180 38,543 66,499
-------- -------- -------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (NOTE 1) 10,226 27,936 853 (11,934) 11,405
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 10,047 9,194 9,194 21,128 9,723
-------- -------- -------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,273 $ 37,130 $ 10,047 $ 9,194 $ 21,128
======== ======== ======== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 18,873 $ 19,306 $ 25,890 $ 23,569 $ 20,879
======== ======== ======== ========= =========
Cash paid for income taxes $ 2,117 1,563 $ 2,143 $ 1,739 $ 721
======== ======== ======== ========= =========
SUPPLEMENTAL NONCASH INVESTING ACTIVITIES:
Loans securitized into mortgage-backed
investments $ - $ 1,584 $ 1,584 $ 696 $ 5,295
======== ======== ======== ========= =========
Property acquired in settlement of loans $ - - $ - $ - $ 200
======== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Cambridgeport Savings Bank was reorganized into a mutual bank holding company
operating under the name Cambridgeport Mutual Holding Company (the Company)
on August 23, 1994 under the provisions of Massachusetts General Law. A new
Massachusetts savings bank in stock form, known as Cambridgeport Bank, was
chartered as a wholly owned subsidiary of the Company. All deposits of the
Bank are insured by the Federal Deposit Insurance Corporation (FDIC) and the
Depositors Insurance Fund (DIF). The reorganization had no effect on
previously reported consolidated results of operations.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Cambridgeport Bank
(collectively, the Bank). Cambridgeport Bank has two wholly owned
subsidiaries, Temple Investment Corporation and Port Corporation. Temple
Investment Corporation engages in the investment of securities and Port
Corporation is currently inactive. All significant intercompany balances and
transactions have been eliminated in the accompanying consolidated financial
statements.
Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform with the 1998 presentation. Such
reclassifications have no effect on previously reported consolidated net
income.
In the opinion of management, the unaudited consolidated financial statements
presented herein reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. Interim results are not
necessarily indicative of the results to be expected for the entire year.
Use of Estimates
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 disclosures 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.
Actual results could differ from those estimates.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and due from banks, federal funds sold and overnight
deposits with maturities of one day and investments in the highly liquid Bank
Investment fund.
F-7
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Investment Securities
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and are reported at cost,
adjusted for amortization of premiums and accretion of discounts, using the
effective-yield method. Debt and equity securities that are bought and held
principally for the purpose of selling in the near term are classified as
trading and reported at fair value, with unrealized gains and losses included
in earnings. The Bank has no securities classified as trading or held-to-
maturity. Debt and equity securities not classified as either held-to-
maturity or trading are classified as available-for-sale and reported at fair
value, with unrealized gains and losses excluded from earnings and reported
as a separate component of other comprehensive income, which is included in
retained earnings, net of the related taxes. The Bank classifies its
securities based on the Bank's intention at the time of purchase.
Unrealized losses that are determined to be other than temporary declines in
value are charged to operations. When securities are sold, the adjusted cost
of the specific security sold is used to compute gains or losses on the sale.
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of the recorded loan balance or
market value based on prevailing market conditions and commitments from
institutional investors to purchase such loans. The amount by which cost
exceeds market value is reflected in a valuation allowance, with subsequent
increases or decreases in market value charged or credited to the valuation
allowance and reflected in operations in the period in which they occur.
There were no adjustments required for unrealized losses at September 30,
1999, December 31, 1998 and 1997.
Loans, Deferred Fees and the Allowance for Possible Loan Losses
Loans are stated at the amount of unpaid principal, reduced by amounts due to
borrowers on unadvanced loans, net deferred loan fees and the allowance for
possible loan losses.
It is the policy of the Bank to discontinue the accrual of interest on loans
when, in the judgment of management, the ultimate collectibility of principal
or interest becomes doubtful. It is generally the policy of the Bank to
discontinue the accrual of interest on loans delinquent in excess of 90 days.
When a loan is placed on nonaccrual status, all interest previously accrued
is reversed against current-period interest income. Interest received on
nonaccrual loans is either applied against principal or reported as income on
the cash basis based on management's judgment as to the collectibility of
principal.
Deferred loan origination fees and certain deferred loan origination costs
are amortized over the contractual life of the related loan using the
interest method or taken into income at the time the loans
F-8
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
are sold. At September 30, 1999, December 31, 1998 and 1997, the Bank had net
deferred loan fees of approximately $360,000, $446,000 and $294,000,
respectively.
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The allowance is increased by
provisions charged to operations, and realized losses, net of recoveries, are
charged directly to the allowance. The provision and the level of the
allowance are based on management's periodic review of the composition of the
loan portfolio in light of historical experience and prevailing economic
conditions. The allowance is an estimate, and ultimate losses may vary from
current estimates. As adjustments become necessary, they are reported in the
results of operations in the period in which they become known.
Loans are considered impaired when it is probable that the Bank will not be
able to collect principal, interest and fees according to the contractual
terms of the loan agreement. Management considers the paying status, net
worth and earnings potential of a borrower, and the value and cash flow to
the collateral as factors to determine whether a loan will be paid in
accordance with its contractual terms. The amount judged to be impaired is
the difference between the present value of the expected cash flows using as
a discount rate the original contractual effective interest rate and the
recorded investment of the loan. If foreclosure on a collateralized loan is
probable, impairment is measured based on the fair value of the collateral
compared to the carrying value. If appropriate, a valuation reserve is
established to recognize the difference between the carrying value and the
fair value. Impaired loans are charged off when management believes that the
collectibility of the loan's principal is doubtful. The Bank considers
nonaccrual loans, except for smaller balance homogenous residential and
consumer loans, to be impaired. All impaired loans are classified as
nonaccrual.
Loan Servicing
The Bank recognizes a servicing asset or a servicing liability upon the
purchase or origination of mortgages loans and the sale or securitization of
those loans with servicing retained, unless it securitizes the loans, retains
all of the securities and classifies them as debt securities held-to-
maturity. The amount capitalized is based on the allocation of the total
cost of the mortgage loans to the mortgage servicing rights and the loans
without the mortgage servicing rights based on their relative fair values.
The cost of mortgage servicing rights is 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. For purposes of measuring impairment, the rights are
stratified based on predominant risk characteristics including loan type,
maturity date and interest rate. The amount of impairment recognized is the
amount by which the capitalized mortgage servicing rights for a stratum
exceed their fair value.
F-9
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Banking Premises and Equipment
Land is stated at cost. Banking premises, leasehold improvements and
furniture, fixtures and equipment are stated at cost, less accumulated
depreciation and amortization. Construction-in-Progress represents
expenditures at cost and capitalized interest which is calculated using the
average construction costs for the period and the Bank's average borrowing
rate. Depreciation and amortization are primarily computed by use of the
straight-line method over the estimated useful lives of the respective assets
or the terms of the respective leases, if shorter. The cost of maintenance
and repairs is charged to expense as incurred; major expenditures for
betterments are capitalized and depreciated.
Income Taxes
Deferred tax assets and liabilities are computed based on the difference
between the financial statement and income tax bases of assets and
liabilities using currently enacted tax rates. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
Recent Accounting Developments
Effective January 1, 1998, the Bank adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. Under SFAS No. 130, comprehensive income is divided into net
income and other comprehensive income. Other comprehensive income includes
items previously recorded directly to equity, such as unrealized gains and
losses on securities available for sale, minimum pension liability
adjustments and foreign currency items.
Comprehensive income is presented in the statements of changes in retained
earnings. SFAS No. 130 requires only additional disclosures and does not
affect the Bank's financial position or results of operations. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS No. 130.
Effective January 1, 1998, the Bank adopted the provisions of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. Public
entities are required to report financial and descriptive information about
their reportable operating segments. An operating segment is a component of
an entity for which financial information is developed and evaluated by the
entity's chief operating decision maker to assess performance and to make
decisions about resource allocation. Disclosures about operating segments
should generally be based on the information used internally.
F-10
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Effective January 1, 1998, the Bank adopted the provisions of SFAS No. 132,
Employers' Disclosure About Pensions and Other Postretirement Benefits. SFAS
No. 132 revises disclosures only and does not affect the Bank's financial
position or results of operations. Prior year financial statement
disclosures have been revised to conform to the requirement of SFAS No. 132.
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 on 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 income 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 a company must
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133, as amended by SFAS No. 137,
Deferral of the Effective Date of FASB Statement No. 133, is effective for
fiscal years beginning after June 15, 2000. The Bank does not expect that
the adoption of this statement will have a material impact on its financial
position or results of operations.
In October 1998, the FASB issued SFAS No. 134, Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale
by a Mortgage Banking Enterprise. This statement requires that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. The Bank's adoption of this statement on January 1, 1999 did
not have a material impact on the Bank's financial position or results of
operations.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires that
computer software costs associated with internal-use software be expensed as
incurred until certain capitalization criteria are met. The Bank's adoption
of SOP 98-1 on January 1, 1999 did not have a material impact on its
financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of Start-up
Activities. SOP 98-5 requires all costs associated with pre-opening, pre-
operating and organization activities to be expensed as incurred. The Bank's
adoption of SOP 98-5 on January 1, 1999, did not have a material impact on
its financial position or results of operations.
F-11
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(2) INVESTMENT SECURITIES
The amortized cost and fair value of securities classified as available-for-
sale at September 30, 1999 and December 31, 1998 and 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, 1999
Amortized Gross Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
U.S. Treasury and agency obligations $ 59,944 $ - $(1,126) $ 58,818
Other bonds and notes 31,918 67 (93) 31,892
Mortgage-backed securities 36,976 72 (249) 36,799
-------- ------ ------- --------
Total debt securities 128,838 139 (1,468) 127,509
Marketable equity securities and mutual 1,260 5,131 - 6,391
funds -------- ------ ------- --------
Total securities available-for-sale $130,098 $5,270 $(1,468) $133,900
======== ====== ======= ========
<CAPTION>
December 31, 1998
Amortized Gross Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency obligations $ 55,516 $ 398 $(180) $ 55,734
Other bonds and notes 34,156 277 (14) 34,419
Mortgage-backed securities 48,295 517 (100) 48,712
-------- ------ ----- --------
Total debt securities 137,967 1,192 (294) 138,865
Marketable equity securities and mutual 1,262 4,702 - 5,964
funds -------- ------ ----- --------
Total securities available-for-sale $139,229 $5,894 $(294) $144,829
======== ====== ===== ========
<CAPTION>
December 31, 1997
Amortized Gross Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and agency obligations $ 55,064 $ 215 $ (9) $ 55,270
Other bonds and notes 43,037 201 (20) 43,218
Mortgage-backed securities 54,115 404 (176) 54,343
-------- ------ ----- --------
Total debt securities 152,216 820 (205) 152,831
Marketable equity securities and mutual 3,069 3,721 - 6,790
funds -------- ------ ----- --------
Total securities available-for-sale $155,285 $4,541 $(205) $159,621
======== ====== ===== ========
</TABLE>
F-12
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
A schedule of the maturity distribution of debt securities available-for-sale
at December 31, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amortized Percent of
Cost Total Fair Value
--------- ---------- --------------
<S> <C> <C> <C>
One year or less $ 14,006 10.2% $ 14,058
Over 1 year to 5 years 82,181 59.6 82,573
Over 5 years to 10 years 10,801 7.8 11,029
Over 10 years 30,979 22.4 31,205
-------- ----- --------
Total $137,967 100% $138,865
======== ===== ========
</TABLE>
Actual maturities of mortgage-backed securities may differ from contractual
maturities presented because borrowers have the right to prepay obligations
without incurring prepayment penalties.
Proceeds from the sales and maturities of investment securities and related
gross gains and gross losses for the nine months ended September 30, 1999 and
1998 and for years ended December 31, 1998, 1997 and 1996 were as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------------ ----------------------------------------------
1999 1998 1998 1997 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Proceeds from $ - $9,280 $9,280 $61,786 $205,860
sales
Gross gains - 95 95 762 783
Gross losses - 35 34 35 208
</TABLE>
(3) LOANS
The Bank's lending activities are conducted principally in Massachusetts.
The Bank grants single-family and multifamily residential loans, commercial
real estate loans, commercial loans and a variety of consumer loans. In
addition, the Bank grants loans for the construction of residential homes,
multifamily properties and commercial real estate properties. Most loans
granted by the Bank are collateralized by real estate. The ability and
willingness of the single-family residential and consumer borrowers to honor
their repayment commitments is generally dependent on the level of overall
economic activity within the borrowers' geographic areas and real estate
values. The ability and willingness of the commercial real estate,
commercial and construction loan borrowers to honor their repayment
commitments is generally dependent on the health of the real estate economic
sector in the borrowers' geographic areas and the general economy.
F-13
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
The Bank's loan portfolio consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(Unaudited)
Real estate loans-
Residential $276,865 $243,363 $206,574
Home equity lines of credit 59,471 56,502 60,875
Commercial 199,689 188,541 143,719
Construction 991 2,741 1,940
-------- -------- --------
Total real estate loans 537,016 491,147 413,108
Commercial 1,203 724 581
Consumer 6,593 7,310 8,576
-------- -------- --------
Total loans 544,812 499,181 422,265
Less-
Allowance for possible loan losses 7,297 6,633 4,907
-------- -------- --------
Total loans, net $537,515 $492,548 $417,358
======== ======== ========
</TABLE>
An analysis of the allowance for possible loan losses is as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
---------------------------- -------------------------------------------
1999 1998 1998 1997 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Balance, beginning of year $6,633 $4,907 $4,907 $4,269 $4,074
------ ------ ------ ------ ------
Provision for possible loan 562 1,183 1,760 600 450
losses ------ ------ ------ ------ ------
Charge-offs-
Real estate - - - - (229)
Consumer (11) (36) (44) (16) (30)
------ ------ ------ ------ ------
(11) (36) (44) (16) (259)
------ ------ ------ ------ ------
Recoveries-
Real estate 111 5 5 54 -
Consumer 2 2 5 - 4
------ ------ ------ ------ ------
113 7 10 54 4
------ ------ ------ ------ ------
Net (charge-offs)
recoveries 102 (29) (34) 38 (255)
------ ------ ------ ------ ------
Balance, end of period $7,297 $6,061 $6,633 $4,907 $4,269
====== ====== ====== ====== ======
</TABLE>
F-14
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
F-15
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Nonaccrual loans consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
---------------- ----------------------------
1999 1998 1997
---------------- -------------- ------------
<S> <C> <C> <C>
(Unaudited)
Residential real estate $32 $ 289 $ 201
Home equity lines of credit - - 14
--- ----- -----
$32 $ 289 $ 215
=== ===== =====
</TABLE>
If these loans had been paying in accordance with their original contractual
terms, approximately $8,000, $17,000 and $17,000 of additional interest
income would have been recorded in 1998, 1997 and 1996, respectively. There
are no commitments to extend additional credit on these loans.
During 1998 and 1997, the average recorded investment in impaired loans was
$252,000 and $201,000, respectively, and no income was recognized related to
the impaired loans. At December 31, 1998 and 1997, the Bank classified
approximately $289,000 and $215,000 loans, respectively, as impaired. These
impaired loans did not, in the opinion of the Bank's management, require a
related valuation reserve.
In the ordinary course of business, the Bank has granted loans to trustees
and officers at substantially the same terms and conditions as those
prevailing at the time of origination for comparable transactions with other
borrowers. In the opinion of management, these loans do not involve more
than normal risk of collectibility. The aggregate amount of these loans was
approximately $818,000 and $268,000 at December 31, 1998 and 1997,
respectively. None of these loans were on nonaccrual status in 1998 and
1997.
F-16
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(4) BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation and amortization of
banking premises and equipment and their estimated useful lives is as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------------------------ Estimated
1999 1998 1997 Useful Life
------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
(Unaudited)
Land $ 47 $ 47 $ 47
Banking premises and leasehold
improvements 5,808 5,783 5,664 30 years or lease term
Furniture, fixtures and equipment 3,895 3,661 3,544 3-10 years
Construction-in-Progress 3,151 - -
------- ------ ------
12,901 9,491 9,255
Less--Accumulated depreciation and
amortization 4,822 3,875 3,469
------- ------ ------
$ 8,079 $5,616 $5,786
======= ====== ======
</TABLE>
Depreciation and amortization expense of banking premises and equipment for
the nine months ended September 30, 1999 and 1998 amounted to approximately
$947,000 and $1,002,000, respectively, and for the years ended December 31,
1998, 1997 and 1996 amounted to approximately $1,353,000, $1,285,000 and
$1,150,000, respectively, and is included in occupancy and equipment expenses
in the accompanying consolidated statements of operations.
For the nine months ended September 30, 1999, the Bank capitalized
approximately $44,000 in interest expense associated with the construction
costs.
(5) LOAN SERVICING
Loans serviced for other investors amounted to approximately $228,778,000 and
$293,717,000 at December 31, 1998 and 1997, respectively. There were no
formal recourse provisions related to these loans.
During 1998, 1997 and 1996, mortgage servicing rights of approximately
$115,000, $79,000 and $152,000, respectively, were capitalized. Amortization
of mortgage servicing rights for the years ended December 31, 1998, 1997 and
1996 were approximately $203,000, $91,000 and $73,000, respectively. No
adjustment was required in 1998, 1997 and 1996 to write down the assets to
fair value.
F-17
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(6) DEPOSITS
A summary of deposit balances, by type, is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
(Unaudited)
Regular savings accounts $ 54,006 $ 53,560 $ 54,281
NOW accounts 42,977 41,546 35,061
Demand deposit accounts 29,021 28,085 21,041
Money market accounts 142,077 132,219 93,712
--------------- -------------- --------------
Total noncertificate accounts 268,081 255,410 204,095
--------------- -------------- --------------
Term certificates-
Term certificates less than $100,000 264,947 256,097 264,764
Term certificates of $100,000 and over 59,836 53,911 48,939
--------------- -------------- --------------
Total term certificate accounts 324,783 310,008 313,703
--------------- -------------- --------------
Total deposits $592,864 $565,418 $517,798
=============== ============== ==============
</TABLE>
A schedule of the maturity distribution of term certificates with weighted
average interest rates is as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, 1999 1998 1997
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Amount Interest Rate Amount Interest Rate Amount Interest Rate
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Within 1 year $218,530 4.79% $252,594 5.33% $203,196 5.58%
Over 1 to 2 years 94,519 5.20% 46,621 5.41% 89,333 5.93%
Over 2 to 3 years 9,165 5.37% 7,994 5.54% 15,793 5.95%
Over 3 to 5 years 2,569 5.20% 2,799 5.38% 5,381 5.84%
------------ ------------- ------------ ------------- ------------ -------------
$324,783 4.92% $310,008 5.35% $313,703 5.70%
============ ============= ============ ============= ============ =============
</TABLE>
F-18
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(7) FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances are collateralized by a blanket-type
pledge agreement on the Bank's FHLB stock, certain qualified investment
securities, deposits at the FHLB and first mortgages on residential
property. As a member of the FHLB, the Bank is required to invest in stock
of the FHLB at an amount equal to 1% of its outstanding first mortgage
residential loans, .3% of total assets or 5% of its outstanding advances
from the FHLB, whichever is higher. As and when such stock is redeemed, the
Bank will receive from the FHLB an amount equal to the par value of the
stock. The Bank also has access to a preapproved daily line of credit of
$11,003,000. Under this line of credit, the bank advanced $5,849,000 (6%
per annum) at September 30, 1999, $2,423,000 (5.4% per annum) at December
31, 1998 and $1,224,000 (7.05% per annum) at December 31, 1997.
A schedule of the maturity distribution of FHLB advances with weighted
average interest rates is as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, 1999 1998 1997
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Amount Interest Rate Amount Interest Rate Amount Interest Rate
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Within 1 year $22,249 5.85% $ 2,423 5.40% $16,224 5.86%
Over 1 to 5 years - - 6,400 5.75% - -
Over 5 to 10 years 4,740 6.79% 18,243 6.23% 5,380 6.80%
10 years and over 14,442 6.19% - - - -
------- ---- ------- ---- ------- ----
$41,431 6.08% $27,066 6.04% $21,604 6.10%
======= ==== ======= ==== ======= ====
</TABLE>
The Bank may be subject to a substantial penalty upon prepayment of FHLB
advances.
F-19
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(8) INCOME TAXES
The components of the provision for income taxes for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current-
Federal $2,843 $1,723 $ 779
State 421 284 35
------ ------ -----
Total current 3,264 2,007 814
------ ------ -----
Prepaid-
Federal (679) (252) (27)
State (228) (76) -
------ ------ -----
Total prepaid (907) (328) (27)
------ ------ -----
Total $2,357 $1,679 $ 787
====== ====== =====
</TABLE>
The difference between the income tax rate computed by applying the
statutory federal income tax rate of 34% to income before income taxes and
the actual effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from-
State taxes, net of federal benefit 2.7 2.5 0.7
Dividends-received deduction (1.0) (1.3) (9.5)
Tax credits (1.6) (1.9) -
Other, net 1.9 (1.9) (1.2)
---- ---- ----
36.0% 31.4% 24.0%
==== ==== ====
</TABLE>
The Bank does not separately determine its current and deferred tax
provision on an interim basis. The primary items giving rise to the
temporary differences included in the Bank's net deferred tax asset between
year ends are the allowance for possible loan losses, certain unfunded
employee benefit accruals, unrealized gains and losses on available-for-
sale securities, deferred loan origination fees and depreciation. A
valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Bank's
provision for income taxes for nine months ended September 30, 1999 and
1998 and the related effective tax rates were $1,826,000 (33.6%) and
$1,707,000 (35.8%), respectively.
F-20
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
At December 31, the Bank's net deferred tax asset consisted of the following
components (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Deferred Tax Assets:
Allowance for possible loan losses $2,733 $2,035
Supplemental Pension 698 575
Pension 660 680
Depreciation 395 60
Other 357 480
------ ------
4,843 3,830
------ ------
Deferred Tax Liabilities:
Net unrealized gain on securities
available for sale 1,959 1,521
Limited partnership 2,058 1,925
Other 76 103
------ ------
4,093 3,549
------ ------
Net deferred tax assets $ 750 $ 281
====== ======
</TABLE>
In August 1996, Congress passed the Small Business Job Protection Act of
1996. Included in this bill was the repeal of Internal Revenue Code Section
593, which allowed thrift institutions special provisions in calculating bad
debt deductions for income tax purposes. Thrift institutions are viewed as
commercial banks for income tax purposes. The repeal is effective for tax
years beginning after December 31, 1995.
One effect of this legislative change is to suspend the Bank's bad debt
reserve for income tax purposes as of its base year (December 31, 1987). Any
bad debt reserve in excess of the base year amount is subject to recapture
over a six-year time period. The suspended (i.e., base year) amount is
subject to recapture upon the occurrence of certain events, such as a
complete or partial redemption of the Bank's stock or if the Bank ceases to
qualify as a bank for income tax purposes.
At December 31, 1998, the Bank's retained earnings includes approximately
$4,420,000 of bad debt reserves, representing the base year amount, for which
income taxes have not been provided. Since the Bank does not intend to use
the suspended bad debt reserve for purposes other than to absorb the losses
for which it was established, deferred taxes in the amount of $1,800,000 have
not been recorded with respect to such reserve.
F-21
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies that are not reflected in the consolidated financial
statements. On December 30, 1998, the Bank entered into a Master Commitment
to deliver or sell $5,000,000 in residential mortgage loans to a federal
agency on or before December 31, 1999. At September 30, 1999, the
unfulfilled portion that remained to be delivered under this commitment was
approximately $1,029,000.
The Bank acquired a portion of its furniture, fixtures and equipment under
various capital leases that expire through 2002. As of December 31, 1998,
capital lease obligations amounted to approximately $228,000 and are
included in accrued expenses and other liabilities.
The Bank operates branch offices and certain other operations under leases
that are classified as operating leases. The leases contain renewal options
that guarantee the Bank the right to extend the leases for additional
periods and also provide that the Bank shall pay, as additional rent, a
proportionate share of any increase in real estate taxes. At December 31,
1998, future minimum lease payments are as follows:
<TABLE>
<S> <C> <C>
Years ending December 31,
1999 $1,000,000
2000 949,000
2001 834,000
2002 601,000
2003 554,000
Thereafter 2,347,000
----------
Total minimum lease payments $6,285,000
==========
</TABLE>
The operating leases contain renewal options for periods ranging from one
to 15 years, the cost of which is not included above. Rental expense
amounted to approximately $1,061,000, $964,000 and $879,000 for the years
ended December 31, 1998, 1997 and 1996, respectively, and is included in
occupancy and equipment expenses in the accompanying consolidated
statements of operations.
Aggregate reserves (in the form of deposits with the Federal Reserve Bank
and vault cash) of $2,564,000 and $2,976,000 were maintained to satisfy
regulatory requirements at December 31, 1998 and 1997, respectively.
In the ordinary course of business, the Bank is involved in litigation.
Based on its review of current litigation and discussion with legal
counsel, management does not expect that the resolution of such matters
will have a material adverse effect upon the Bank's consolidated financial
condition or results of operations.
F-22
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(10) 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 financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures
of the Bank's assets, liabilities and certain off-balance-sheet items, as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the
Company and the Bank met all capital adequacy requirements to which they are
subject.
As of December 31, 1998, the most recent notification from the Federal
Reserve Bank of Boston relating to the Holding Company classified the Holding
Company's capital as satisfactory, and the most recent notification from the
FDIC relating to the Bank categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, an insured depository institution must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
F-23
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
The Company's and the Bank's actual capital amounts and ratios as of
December 31, 1998 are also presented in the table.
<TABLE>
<CAPTION>
To Be Well-Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------------------------ --------------------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- -------------------- ----------------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Company (consolidated)-
Total capital (to greater than greater than
risk-weighted assets) $79,389 20.54% or equal to $30,752 or equal to 8.0% N/A N/A
Tier 1 capital (to greater than greater than
risk-weighted assets) $72,420 18.74% or equal to $15,376 or equal to 4.0% N/A N/A
Tier 1 capital (to greater than greater than
average assets) $72,420 10.66% or equal to $27,183 or equal to 4.0% N/A N/A
Bank-
Total capital (to greater than greater than greater than greater than
risk-weighted assets) $53,059 14.13% or equal to $30,039 or equal to 8.0% or equal to $37,547 or equal to 10.0%
Tier 1 capital (to greater than greater than greater than greater than
risk-weighted assets) $48,350 12.88% or equal to $15,020 or equal to 4.0% or equal to $22,530 or equal to 6.0%
Tier 1 capital (to greater than greater than greater than greater than
average assets) $48,350 7.37% or equal to $26,234 or equal to 4.0% or equal to $32,793 or equal to 5.0%
</TABLE>
F-24
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
<TABLE>
<CAPTION>
For Capital Adequacy
Actual Purposes
------------------------ --------------------------------------
Amount Ratio Amount Ratio
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
As of December 31, 1997:
Company (consolidated)-
Total capital (to Less than or Less than or
risk-weighted assets) $72,695 20.51% Equal to $28,361 Equal to 8.0%
Tier 1 capital (to Less than or Less than or
risk-weighted assets) $68,222 19.24% Equal to $14,180 Equal to 4.0%
Tier 1 capital (to Less than or Less than or
average assets) $68,222 11.04% Equal to $18,541 Equal to 3.0%
Bank-
Total capital (to Less than or Less than or
risk-weighted assets) $49,496 14.32% Equal to $27,644 Equal to 8.0%
Tier 1 capital (to Less than or Less than or
risk-weighted assets) $45,169 13.07% Equal to $13,822 Equal to 4.0%
Tier 1 capital (to Less than or Less than or
average assets) $45,169 7.62% Equal to $17,781 Equal to 3.0%
<CAPTION>
To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
-------------------------
Amount Ratio
------------ -----------
<S> <C> <C>
(Dollars in Thousands)
As of December 31, 1997:
Company (consolidated)-
Total capital (to
risk-weighted assets) N/A N/A
Tier 1 capital (to
risk-weighted assets) N/A N/A
Tier 1 capital (to
average assets) N/A N/A
Bank-
Total capital (to Less than or Less than or
risk-weighted assets) Equal to $34,555 Equal to 10.0%
Tier 1 capital (to Less than or Less than or
risk-weighted assets) Equal to $20,733 Equal to 6.0%
Tier 1 capital (to Less than or Less than or
average assets) Equal to $29,635 Equal to 5.0%
</TABLE>
(11) EMPLOYEE BENEFITS
The Bank provides pension benefits for eligible employees through the Savings
Banks Employees' Retirement Association's (SBERA) Pension Plan (the Plan).
Each employee reaching the age of 21 and having completed one year of service
becomes a participant. All participants are fully vested after three years
of service.
F-25
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
According to the Plan's actuary and in accordance with SFAS No. 132,
Employers' Disclosures About Pensions and Other Postretirement Benefits, the
following summary sets forth the Plan's funded status and amounts included in
the Bank's consolidated balance sheets as of October 31, 1998 and 1997
(latest available data):
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
(In thousands)
<S> <C> <C>
Benefit obligation at beginning
of year $ 3,851 $ 3,586
Service cost 366 318
Interest cost 279 269
Actuarial gain (35) (5)
Benefits paid (169) (317)
------- -------
Benefit obligation at end of year $ 4,292 $ 3,851
======= =======
Fair value of assets at beginning
of year $ 3,781 $ 3,341
Actual return on plan assets 309 585
Contributions by employer 311 172
Benefits paid (169) (317)
------- -------
Fair value of assets at end of
year $ 4,232 $ 3,781
======= =======
Fair value of assets at end of
year $ 4,232 $ 3,781
Benefit obligation at end of year 4,292 3,851
------- -------
Funded status (60) (70)
Unrecognized net gain (1,253) (1,257)
Unrecognized net asset (266) (288)
------- -------
Net accrued benefit cost $(1,579) $(1,615)
======= =======
</TABLE>
The accumulated benefit obligation (substantially all vested) at October 31,
1998 and 1997 amounts to approximately $2,678,000 and $2,446,000,
respectively, which was less than the fair value of plan assets at that date.
Plan assets are primarily invested in fixed-income and equity securities.
Actuarial assumptions used in determining plan obligations and net pension
expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Discount rate used to calculate projected
benefit obligation 7.3% 7.5% 7.5%
Expected long-term rate of return on plan
assets 8.0 8.0 8.0%
Annual salary increase 5.0 5.0 5.0
</TABLE>
F-26
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
The net pension cost for years ended 1998, 1997 and 1996 included the
following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost benefit earned during the
period $ 366 $ 318 $ 315
Interest cost on projected benefit
obligation 279 269 263
Expected return on plan assets (302) (267) (237)
Amortization of transition asset (22) (22) (22)
Amortization of net gain (47) (36) (9)
----- ----- -----
Net pension cost $ 274 $ 262 $ 310
===== ===== =====
</TABLE>
Effective December 1, 1987, the Bank adopted a nonqualified supplemental
pension plan (the Nonqualified Plan). Certain officers as of December 1,
1987 were eligible for enrollment. In addition, certain officers elected
after December 1, 1987 are eligible for enrollment after five years of
service. The present value of the future payments is presently accrued over
the estimated remaining terms of employment. The Nonqualified Plan is being
funded through a life insurance program, with policy benefits accruing to the
Bank. The cash surrender value of the policies is approximately $3,709,000
at September 30, 1999 and $3,646,000 and $2,277,000 at December 31, 1998 and
1997, respectively, and is included in other assets in the accompanying
consolidated balance sheets. The accrued liability associated with this
Nonqualified Plan is approximately $1,508,000 and $1,369,000 at December 31,
1998 and 1997, respectively, and is included in other liabilities in the
accompanying consolidated balance sheets. Net expense for these supplemental
retirement benefits for the years ended December 31, 1998, 1997 and 1996 was
approximately $126,000, $455,000 and $235,000, respectively, and is included
in salaries and employee benefits in the accompanying consolidated statements
of operations.
Effective May 4, 1999, the Bank terminated the Nonqualified Plan and paid out
the majority of participants. Included in noninterest expense for the nine
months ended September 30, 1999 is a $578,000 curtailment loss associated
with this Nonqualified Plan termination. Effective May 4, 1999, the Bank
adopted a 1999 Nonqualified Pension Plan (the 1999 Nonqualified Plan) for
certain executive officers. The accrued liability associated with this 1999
Nonqualified Plan is approximately $1,624,000 at September 30, 1999 and the
net expense associated with the 1999 Nonqualified Plan for the nine months
ended September 30, 1999 was approximately $76,000 and is included in
salaries and employee benefits in the accompanying consolidated statements of
operations.
The Bank offers an SBERA 401(k) Plan (the 401(k) Plan) for employees. Each
employee reaching the age of 21 and having completed one year of service with
the Bank becomes a participant. Participants are 100% vested in their
accounts. Participating employees are able to contribute up to 15% of their
salary, and the Bank matches 50% of a participant's deferral contribution of
the first 3% of the deferral amount subject to the maximum allowable under
federal regulations. The Bank's matching contribution expense was
approximately $77,000 and $50,000 for the years ended December 31, 1998
F-27
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
and 1997, respectively, and is included in salaries and employee benefits in
the accompanying consolidated statements of operations. The Bank did not make
any matching contributions in 1996.
(12) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISK
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce interest rate risk. These financial instruments primarily include
commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the accompanying
consolidated balance sheets.
The contract amounts of those instruments reflect the extent of involvement
the Bank has in particular classes of financial instruments. The Bank's
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to extend credit is represented by
the contractual amount of those instruments. The Bank uses the same credit
policies in making commitments as it does for on-balance-sheet financial
instruments.
Off-balance-sheet financial instruments whose contract amounts present credit
risk include the following (in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------
1999 1998 1997
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Commitments to originate loans-
Variable $ 35,760 $ 32,366 $ 22,422
Fixed 5,968 9,198 3,840
Unadvanced home equity lines of credit 119,492 106,393 121,832
Unadvanced lines of credit 11,995 5,988 10,706
</TABLE>
Commitments to originate loans and unadvanced lines of credit are agreements
to lend to a customer provided there is no violation of any condition
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case-
by-case basis. The amount of collateral obtained, if deemed necessary by the
Bank upon extension of credit, is based on management's credit evaluation of
the borrower. The collateral supporting these commitments varies and may
include real property, accounts receivable or inventory. The bank originates
primarily residential and commercial real estate loans and, to a lesser
extent, installment loans to customers primarily located in eastern
Massachusetts.
F-28
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(13) FAIR VALUES OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a variety of
valuation techniques. In some cases, fair values represent quoted market
prices for identical or comparable instruments. In other cases, fair values
have been estimated based on assumptions concerning the amount and timing of
estimated future cash flows, assumed discount rates reflecting varying
degrees of risk and future expected-loss assumptions.
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because a market may not readily exist for a
significant portion of the Bank's financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments,
and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these
estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax implications of
unrealized gains and losses can also have a significant effect on the fair
value of the financial instruments that could have been realized as of
December 31, 1998 and 1997 or that will be realized in the future.
The following methods and assumptions were used by the Bank in estimating
fair values of the Bank's financial instruments.
Cash and Cash Equivalents
The balance sheet carrying amounts for cash and cash equivalents approximate
fair value due to the short maturities of those instruments.
Certificates of Deposit and Investment Securities
Fair value for investment securities and certificates of deposit are based on
published market prices, if available. If published market prices are not
available, fair values are based on quotations received from securities
dealers for comparable securities.
F-29
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Loans Held-for-Sale
For loans held-for-sale, fair value is based on prevailing market conditions
and commitments from institutional investors to purchase such loans.
Loans
The fair values of loans are estimated for loan portfolios of similar
characteristics. Loans are segregated by type, by fixed- and adjustable-rate
interest terms, and by performing and nonperforming status.
For variable-rate loans tied to the Bank's prime rate, which reprice
frequently and entail no significant change in credit risk, fair values are
based on the carrying values. The estimated fair values of all other loans
are estimated based on discounted cash flow analyses using interest rates
currently offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair
value.
FHLB and Savings Bank Life Insurance Stock
The carrying amount reported in the accompanying consolidated balance sheets
approximates fair value. If redeemed, the Company will receive an amount
equal to the par value of the stock.
Mortgage Servicing Rights
The fair value is estimated by discounting the future cash flows through the
estimated maturity of the underlying mortgage loans.
Deposit Liabilities
The fair value of deposits does not include the value of the Bank's long-term
relationships with its depositors, nor do they reflect the value associated
with possessing this relatively inexpensive source of funds, which may be
available for a considerable length of time. The fair value of
noncertificate deposits is equal to the amount payable on demand at the
reporting date. The fair values of certificates of deposit are estimated by
discounting the contractual future cash flows at rates currently offered for
certificates of deposit with similar remaining maturities. No consideration
has been given to determine the deposit premium associated with a core
deposit intangible.
Borrowings
The fair value of the Bank's borrowings are estimated using discounted cash
flow analyses based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
F-30
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Off-Balance-Sheet Instruments
The fair values of commitments are estimated using the fees charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. The
Bank's commitments for unused lines of credit are at floating rates, which
approximate current market rates. The fair value of the commitments to
extend credit and for unused lines of credit at December 31, 1998 and 1997
were deemed immaterial to the SFAS No. 107 disclosure and have been excluded.
Certain assets are excluded from disclosure requirements, including banking
premises and equipment, the intangible value of the Bank's portfolio of loans
serviced for others and the intangible value inherent in the Bank's deposit
relationships among others. Accordingly, the aggregate fair value amounts
presented below do not represent the underlying value of the Bank.
The estimated fair values of the Bank's financial instruments at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
(In thousands)
<S> <C> <C> <C> <C>
Financial assets-
Cash and cash equivalents $ 10,047 $ 10,047 $ 9,194 $ 9,194
Certificates of deposit 5,900 6,054 12,101 12,246
Investment securities 144,829 144,829 159,621 159,621
Loans held-for-sale 3,842 3,842 1,829 1,864
Loans, net 492,548 502,029 417,358 424,212
Federal Home Loan Bank stock 3,879 3,879 3,062 3,062
Savings Bank Life Insurance stock 1,934 1,934 1,934 1,934
Mortgage servicing rights 284 284 372 372
Financial liabilities-
Noncertificate deposits 255,410 255,410 204,095 204,095
Certificate deposits 310,008 310,584 313,703 314,155
FHLB Advances 27,066 27,567 21,604 21,763
</TABLE>
F-31
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
(14) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The Balance Sheets of the Company are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------------
1999 1998 1997
------------------ --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 5,285 $ 2,626 $ 1,486
Investment securities available-for-sale, 24,041 25,955 24,978
at fair value
Investment in subsidiary 50,499 48,867 45,590
Other assets 481 320 324
------- ------- -------
Total assets $80,306 $77,768 $72,378
======= ======= =======
LIABILITIES AND RETAINED EARNINGS:
Accrued expenses and other liabilities $ 1,728 $ 1,680 $ 1,306
Retained earnings 78,578 76,088 71,072
------- ------- -------
Total liabilities and retained earnings $80,306 $77,768 $72,378
======= ======= =======
</TABLE>
F-32
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
The Statements of Operations of the Company are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
----------------- -------------------------
1999 1998 1998 1997 1996
-------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and dividends on investment
securities $1,166 $1,166 $1,557 $1,445 $1,205
------ ------ ------ ------ ------
NONINTEREST INCOME:
Net gain on sales of investment securities - - - - 7
------ ------ ------ ------ ------
NONINTEREST EXPENSE:
Other operating expenses 34 34 46 57 74
------ ------ ------ ------ ------
Total noninterest expense 34 34 46 57 74
------ ------ ------ ------ ------
Income before provision for income taxes
and equity in undistributed net income of
subsidiary 1,132 1,132 1,511 1,388 1,138
------ ------ ------ ------ ------
PROVISION FOR INCOME TAXES 368 370 495 451 348
------ ------ ------ ------ ------
Income before equity in undistributed net
income of subsidiary 764 762 1,016 937 790
EQUITY IN UNDISTRIBUTED NET INCOME OF
SUBSIDIARY 2,843 2,302 3,172 2,729 1,697
------ ------ ------ ------ ------
Net income $3,607 $3,064 $4,188 $3,666 $2,487
====== ====== ====== ====== ======
</TABLE>
F-33
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
The Statements of Cash Flows of the Company are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,607 $ 3,064 $ 4,188 $ 3,666 $ 2,487
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net gain from sales of investment securities - - - - (7)
Net amortization of premiums on investment 17 9 12 23 101
securities
Equity in undistributed earnings of (2,843) (2,302) (3,172) (2,729) (1,697)
subsidiary
Net increase (decrease) on other liabilities 2 76 (3) 11 (397)
Net (decrease) increase in other assets (161) (91) 4 59 (190)
------- ------- ------- -------- --------
Net cash provided by operating activities 622 756 1,029 1,030 297
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and 6,000 6,500 8,500 28,168 50,176
principal repayments of securities
available-for-sale
Purchase of securities available-for-sale (3,963) (6,389) (8,389) (28,389) (51,105)
------- ------- ------- -------- --------
Net cash provided by (used in) investing 2,037 111 111 (221) (929)
activities ------- ------- ------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH 2,659 867 1,140 809 (632)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, 2,626 1,486 1,486 677 1,309
BEGINNING OF YEAR ------- ------- ------- -------- --------
CASH AND CASH EQUIVALENTS, $ 5,285 $ 2,353 $ 2,626 $ 1,486 $ 677
END OF PERIOD ======= ======= ======= ======== ========
</TABLE>
(15) BUSINESS SEGMENTS
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for reporting segments of a business
enterprise. Operating segments are components of an enterprise which are
evaluated regularly by the chief operating decision maker in deciding how to
F-34
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
allocate resources and in assessing performance. The Company's chief
operating decision maker is the President and Chief Executive Officer. The
adoption of SFAS No. 131 did not have a material effect on the Company's
primary financial statements, but did result in the disclosure of segment
information contained herein. The Company has identified its reportable
operating business segment as community banking based on products and
services provided to the customer. The Company's community banking business
segments consist of commercial banking and retail banking. The community
banking business segment derives its revenues from a wide range of banking
services, including lending activities, acceptance of demand, saving and time
deposits, mortgage lending and sales, as well as servicing income from
investors. Non-reportable operating segments of the Company's operations
which do not have similar characteristics to the community banking operations
and do not meet the quantitative thresholds requiring disclosure are included
in the Other category in the disclosure of business segments below. These
non-reportable segments include Parent Company financial information.
Consolidation adjustments are included in the consolidation adjustments
category. The consolidated adjustments reflect certain eliminations of cash
and Parent Company investments in subsidiaries.
The accounting policies used in the disclosure of business segments are the
same as those described in the summary of significant accounting policies.
<TABLE>
<CAPTION>
Community Other Consolidation Consolidated
Banking Adjustments
(Dollars in Thousands)
December 31, 1998:
- -----------------
<S> <C> <C> <C> <C>
Investment securities $118,874 $25,955 $ - $144,829
available-for-sale, at fair value
Loans, net 492,548 - - 492,548
Total assets 650,658 77,768 (50,339) 678,087
Total deposits 568,075 - - 568,075
Total liabilities 601,792 1,680 (1,473) 601,999
Total retained earnings 48,866 76,088 (48,866) 76,088
Total interest and dividend income 47,099 1,557 - 48,656
Total interest expense 25,880 - - 25,880
Net interest income 21,219 1,557 - 22,776
Provision for possible loan losses 1,760 - - 1,760
Total noninterest income 3,571 - - 3,571
Total noninterest expense 17,996 46 - 18,042
Net income 3,172 1,016 - 4,188
</TABLE>
F-35
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
<TABLE>
<CAPTION>
Community Other Consolidation Consolidated
Banking Adjustments
(Dollars in Thousands)
December 31, 1997:
- -----------------
<S> <C> <C> <C> <C>
Investment securities $134,643 $24,978 $ - $159,621
available-for-sale, at fair value
Loans, net 417,358 - - 417,358
Total assets 593,800 72,378 (46,810) 619,368
Total deposits 520,357 - - 520,357
Total liabilities 548,210 1,306 (1,220) 548,296
Total retained earnings 45,590 71,072 (45,590) 71,072
Total interest and dividend income 42,516 1,445 - 43,961
Total interest expense 23,554 - - 23,554
Net interest income 18,962 1,445 - 20,407
Provision for possible loan losses 600 - - 600
Total noninterest income 3,176 - - 3,176
Total noninterest expense 17,581 57 - 17,638
Net income 2,729 937 - 3,666
</TABLE>
(16) SUBSEQUENT EVENT (UNAUDITED)
In February 1999, the Bank entered into an agreement with a developer for the
construction of a new administrative center. The Bank expects to incur
approximately $16 million in the construction of the building and the
purchase of land. Temple Realty LLC was established in February 1999 as a
wholly owned subsidiary of the Bank for the purpose of holding the new
administrative center. At the completion of the project, which is estimated
to be in 2000, certain administrative and operating departments are expected
to be located in this building. The Bank expects to occupy 60% of the new
building and lease out the remaining portion. The current building serving
as the main office will continue to include administrative offices and a
retail branch with the remaining space subleased to other tenants. Based on
the current estimate of fair value for the existing corporate headquarters
and the benefits associated with continued utilization by the Bank and other
tenants, no impairment write-down of the carrying amount of the building is
anticipated.
F-36
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
Notes to Consolidated Financial Statements
September 30, 1999 and 1998 (Unaudited) and
December 31, 1998, 1997 and 1996
(Continued)
Stock Conversion
On October 19, 1999, the Board of Trustees of the Company adopted a Plan of
Conversion (the Conversion) pursuant to which the Company will convert to a
stock form of ownership and offer for sale 100% of its common stock in a
subscription offering initially to bank depositors, employee benefit plans of
the Company and certain other eligible subscribers. Any shares of stock not
sold in the subscription offering are expected to be sold to the public by
underwriters.
As part of the Conversion, the Bank will establish a liquidation account in
an amount equal to the net worth of the Bank as of the date of the latest
consolidated balance sheet appearing in the final prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders and supplemental eligible account holders who maintain their accounts
at the Bank after the Conversion. The liquidation account will be reduced
annually to the extent that such account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will
not restore an account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible account holder will be
entitled to receive balances for accounts then held.
Subsequent to the Conversion, the Company may not declare or pay dividends on
and may not repurchase any of its common stock if the effect thereof would
cause its capital to be reduced below applicable regulatory capital
maintenance requirements or if such declaration, payment or repurchase would
otherwise violate regulatory requirements.
F-37
<PAGE>
You should rely only on the information contained in this document or that to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document does not constitute an offer to
sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Cambridgeport Bank or Port Financial Corp. may
change after the date of this prospectus. Delivery of this document and the
sales of shares made hereunder does not mean otherwise.
Port Financial Corp.
(Proposed Stock Holding Company for Cambridgeport Bank)
Up to 11,902,500 Shares of Common Stock
______
Prospectus
______
Ryan, Beck & Co.
[ ], 2000
Until the later of _____, 2000 or 25 days after commencement of the offering,
all dealers effecting transactions in 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.(1)
Massachusetts Commissioner of Banks registration fee(2)............. 5,000
SEC registration fee(2)............................................. 33,100
NASD filing fee(2).................................................. 12,403
NASDAQ National Market Listing Fee(2)............................... 76,625
Printing, postage and mailing....................................... 500,000
Legal fees and expenses............................................. 200,000
Accounting fees and expenses........................................ 175,000
Appraiser's fees and expenses (including business plan)............. 65,000
Marketing fees, selling commissions, and
underwriter's expenses (including counsel fees).................... 1,055,000
Conversion agent fees and expenses.................................. 5,000
Certificate printing................................................ 10,000
Blue Sky fees and expenses (including fees of counsel).............. 5,000
Miscellaneous....................................................... 25,872
TOTAL............................................................... 2,168,000
- ---------------
(1) All expenses are estimated except where otherwise indicated.
(2) Based upon the issuance of 11,902,500 shares at $10.00 per share.
Item 14. Indemnification of Directors and Officers.
Section 67 of the Massachusetts Business Corporation Law ("MBCL") sets
forth certain circumstances under which directors, officers, employees and
agents may be indemnified against liability which they may incur in their
capacity as such. Section 67 of the MBCL provides as follows:
"Indemnification of Directors, Officers, Employees, etc."--Indemnification
of directors, officers, employees and other agents of a corporation and
persons who serve at its request as directors, officers, employees or other
agents of another organization or who serve at its request in any capacity
with respect to any employee benefit plan, may be provided by it to
whatever extent shall be specified in or authorized by (i) the articles of
organization or (ii) a by-law adopted by the stockholders or (iii) a vote
adopted by the
II-1
<PAGE>
holders of a majority of the shares of stock entitled to vote on the
election of directors. Except as the articles of organization or by-laws
otherwise require, indemnification of any persons referred to in the
preceding sentence who are not directors of the corporation may be provided
by it to the extent authorized by the directors. Such indemnification may
include payment by the corporation of expenses incurred in defending a
civil or criminal action or proceeding in advance of the final disposition
of such action or proceeding, upon receipt of an undertaking by the person
indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under this section which undertaking may be
accepted without reference to the financial ability of such person to make
repayment. Any such indemnification may be provided although the person to
be indemnified is no longer an officer, director, employee or agent of the
corporation or of such other organization or no longer serves with respect
to any such employee benefit plan.
No indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in
the best interest of the corporation or to the extent that such matter
relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit
plan.
The absence of any express provision for indemnification shall not limit
any right of indemnification existing independently of this section. A
corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or other agent of
the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or other agent of another organization or
with respect to any employee benefit plan against any liability incurred by
him in any such capacity, or arising out of his status as such, whether or
not the corporation would have the power to indemnify him against such
liability.
The Company's Articles of Organization provide for the indemnification of
directors, officers, employees and other agents of the Company. Under Article
VI "Other Lawful Provisions," Section 6.7 entitled "Indemnification" states the
following policies and procedures of the Company on indemnification:
The Company will indemnify and hold harmless, to the fullest extent
authorized by the Massachusetts Business Corporation Law, anyone involved
or threatened to be made a party in an action, suit or proceeding by reason
of his or her service for the Company or at the request of the Company 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; 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 him or her in connection with such action, suit or proceeding;
provided, however that such action, suit or proceeding was authorized by
the Board of Directors of the Company (except for proceedings to enforce
rights to indemnification).
The right to indemnification includes the advancement of expenses incurred
in defending any such action, suit or proceeding, for any director or
officer at the level of Vice President or above, and in the discretion of
the Board of Directors for any other officer or employee.
The Company may, to the extent authorized by the Board of Directors, grant
rights to indemnification and the advancement of expenses to any employee
of agent of the Company; the Company may also enter into specific
agreements, commitments or arrangements for indemnification on any terms
not prohibited by law which it deems to be appropriate.
The rights to indemnification and to the advancement of expenses shall not
be exclusive of any other right which any person may have or hereafter
acquire under any statute, the Company's Articles, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise.
II-2
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Not Applicable.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits. (Filed herewith unless otherwise noted)
1.1 Engagement Letter dated May 19, 1999, between Cambridgeport Bank and
Ryan, Beck & Co., Inc.
1.2 Form of Agency Agreement, between Cambridgeport Bank and Ryan, Beck &
Co., Inc.
2.1 Plan of Conversion and Stock Issuance Plan of Cambridgeport Mutual
Holding Company (including the Amended and Restated Charter and Bylaws
of Cambridgeport Bank)
3.1 Articles of Organization of Port Financial Corp.
3.2 Bylaws of Port Financial Corp.
3.3 Amended and Restated Charter of Cambridgeport Bank
3.4 Amended and Restated Bylaws of Cambridgeport Bank
4.1 Articles of Organization of Port Financial Corp. (See Exhibit 3.1)
4.2 Bylaws of Port Financial Corp. (See Exhibit 3.2)
4.3 Form of Stock Certificate of Port Financial Corp.
5.1 Form of Opinion of Thacher Proffitt & Wood regarding legality of
securities to be registered
8.1 Form of Opinion of Thacher Proffitt & Wood regarding federal tax
matters
8.2 Form of Opinion of Arthur Andersen LLP regarding state and local tax
matters*
8.3 Letter from RP Financial, LC. regarding subscription rights
10.1 Form of Employee Stock Ownership Plan of Port Financial Corp.
10.2 Form of ESOP Restoration Plan of Port Financial Corp.
10.3 Form of Employment Agreement, between James Keegan and Port
Financial Corp.
10.4 Form of Employment Agreement, between Jane Lundquist and Port
Financial Corp.
10.5 Form of Trust Agreement under the Cambridgeport Bank Nonqualified
Pension Plans and Supplemental Executive Retirement Plan
10.6 Form of 1999 Nonqualified Pension Plan of Cambridgeport Bank and
Amendment thereto
10.7 Form of Directors' Emeritus Consultation Plan of Port Financial
Corp.
10.8 Form of Officers' Deferred Compensation Plan of Cambridgeport Bank
10.9 Severance Agreement between Sandra M. Uhlig and Cambridgeport Bank
21.1 Subsidiaries of the Registrant
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and 8.1
to this Registration Statement)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of RP Financial, LC.
24.1 Powers of Attorney (included in Signature Page of this Registration
Statement)
27.1 Financial Data Schedule (only filed in electronic format)
99.1 Appraisal Report of RP Financial, LC. (filed in paper format only)
99.2 Draft marketing materials to be used in connection with the
offering*
- -------------------------
*To be filed by amendment.
(b) Financial Statement Schedules.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
II-3
<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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification by the Registrant 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 Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth
of Massachusetts on November 16, 1999.
Port Financial Corp.
/s/ James B. Keegan
--------------------------------------
By: James B. Keegan
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James B. Keegan, as their true and lawful
attorney-in-fact in any and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities to sign the Form S-1 Registration Statement and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent 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 he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or either one of his or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder, 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/ James B. Keegan President, Chief Executive November 16, 1999
- ------------------------------ Officer and Director
James B. Keegan
/s/ Charles Jeffrey Chief Accounting Officer, November 16, 1999
- ------------------------------ Vice President and
Charles Jeffrey Treasurer
/s/ Paul R. Corcoran, Jr. Director and Clerk November 16, 1999
- ------------------------------
Paul R. Corcoran, Jr.
/s/ Daniel C. Crane, Esq. Director November 16, 1999
- ------------------------------
Daniel C. Crane, Esq.
/s/ Samuel C. Fleming Director November 16, 1999
- ------------------------------
Samuel C. Fleming
/s/ William Goldberg, Esq. Director November 16, 1999
- ------------------------------
William Goldberg, Esq.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Robert D. Happ Director November 16, 1999
- ------------------------------
Robert D. Happ
/s/ Jane L. Lundquist Executive Vice President and November 16, 1999
- ------------------------------ Director
Jane L. Lundquist
/s/ Joseph F. O'Connor Director November 16, 1999
- ------------------------------
Joseph F. O'Connor
/s/ Rudolph R. Russo Director November 16, 1999
- ------------------------------
Rudolph R. Russo
</TABLE>
II-7
<PAGE>
EXHIBIT 1.1
Ryan, Beck & Co.
Excellence in Investment Banking
220 South Orange Avenue
Livingston. New Jersey 07039-5817
Telephone (973) 597-6000
Facsimile: (973) 597-1258
Corporate Finance Department
CONFIDENTIAL
------------
May 19, 1999
VIA FEDERAL EXPRESS
- -------------------
Mr. James B. Keegan
President & Chief Executive Officer
Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, MA 02139
Re: Stock Conversion Subscription Enhancement and Administrative Services
---------------------------------------------------------------
Dear Mr. Keegan:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck,
Cambridgeport MHC (the "MHC") and Cambridgeport Bank, (the "Institution") in
connection with the proposed full or partial conversion of the Institution from
the mutual to the capital stock form of organization.
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc. was organized in 1946 and is one of the nation's leading,
investment bankers for financial institutions. The firm is a registered broker-
dealer with the Securities and Exchange Commission, a member of the National
Association of Securities Dealers, Inc., Securities Industry Association and a
member of the Securities Investor Protection Corporation. Ryan, Beck's financial
institutions group is one of the largest such, groups devoted to financial
institution matters in the country. Moreover, Ryan, Beck, is one of the largest
market makers in bank and thrift stocks.
2. PLAN OF CONVERSION
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 2
The MHC presently owns 100 percent of the outstanding stock of the Institution.
The MHC and the institution are presently considering several alternative
courses of action. The first alternative involves a full conversion whereby the
MHC will convert from the mutual to the stock form of organization (the
"Conversion") pursuant to applicable regulations and form a holding company (the
"Company"). The other alternatives involve a partial conversion whereby the MHC
will form a down stream middle tier holding company (the "Company") for the
purpose of selling up to 49% of its shares to the depositors and others (the
"Reorganization"). The MHC may or may not contribute its net assets to the
Company prior to the Reorganization. If the MHC does not contribute its net
assets to the Company prior to the Reorganization, that form of organization
will be referred to as the "Bank Only MHC Scenario", the other alternative will
be known as the "Consolidated MHC Scenario." Accordingly, the Institution's
Board of Directors will adopt a plan of conversion (the "Plan") and, if
necessary, convene a meeting of the Institution's corporators and/or depositors
as soon as practicable to obtain approval of the Plan in accordance with
applicable federal and state regulations. The Institution's Plan contemplates a
Subscription and Community Offering (the "Offerings").
In connection with the Institution's Conversion or Reorganization, Ryan, Beck
proposes to act as selling agent, financial advisor, and conversion manager to
the Institution with respect to the proposed transaction and the offering of the
shares of common stock of the Company (the "Common Stock") in the Offerings.
Specific terms of the services contemplated hereunder shall be set forth in a
definitive agency agreement (the "Definitive Agreement") between Ryan, Beck and
the Institution to be executed on the date the offering document is declared
effective by the appropriate regulatory authorities. The purchase price of the
Common Stock offered in the Offerings will be that price which is established by
an independent appraisal in accordance with applicable regulations and mutual y
acceptable to the parties hereto.
The Institution may also retain Ryan, Beck to assist it with respect to specific
acquisition matters. In connection therewith, the parties will execute a
separate Financial Advisory Agreement with respect to the services To be
rendered by Ryan, Beck.
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning and financial advice is essential to
-----------------
a successful conversion. Ryan, Beck serves as your financial advisor and
lead coordinator of the marketing and logistic efforts necessary to prepare
for an offering. Our actions are intended to clearly define
responsibilities and timetables, while avoiding costly surprises. We assume
responsibility for the initial preparation of marketing materials saving
you time and legal expense. Moreover, as your investment banker, Ryan, Beck
will evaluate the financial, marketing and regulatory issues involved in
the Offerings. Our specific responsibilities include:
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 3
- Review and advise with respect to the Plan;
- Advise with respect To acquisition strategy,
- Review and provide input with respect to the Business Plan to be
prepared in connection with the Reorganization;
- Review and advise with respect to the proposed stock benefit plans;
- Review and advise on the possibility of forming a charitable foundation;
- Assist in any discussions with regulators regarding the proposed
transaction;
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offerings including direct mall,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting data processing
assistance, printer and other professionals;
- Develop an operating plan for the Stock Sale Center (the "Center");
- Provide a list of equipment and supplies needed for the Center;
- Draft marketing materials including letters, brochures, slide show
script and advertisements; and
- Assist in arranging market-makers for post-reorganization trading.
b. Administrative Services and Conversion Center Management Ryan, Beck
--------------------------------------------------------
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators Securities and.
Exchange Commission and NASD is essential. Ryan, Beck's experience in
managing, many thrift conversions will minimize the burden on your
management and disruption to normal banking, business. At the same time,
our legal, accounting and regulatory background ensures that details are
attended to in a professional fashion. A conversion requires accurate and
timely record keeping and reporting. Furthermore, customer inquiries must
be handled professionally and accurately. The Conversion Center centralizes
all data and work relating to the Offerings.
Ryan, Beck will supervise and administer the Conversion Center. Guy Malaby
will be the on-site manager at the Conversion Center. We will train
Conversion Center staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include the following:
- Provide experienced onsite registered representatives to minimize
disruption of day-to-day business;
- Identify and organize space for the Center, the focal point of sales and
proxy solicitation activity;
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 4
- Administer the Center. All substantive stock and proxy related matters
will be handled by employees of Ryan, Beck
- Organize and implement all proxy solicitation efforts;
- Prepare procedures for processing proxies, stock orders and cash, and
for handling requests for information;
- Ryan, Beck will outsource all reorganization agent/data
processing/transfer agent functions. Ryan, Beck recommends outsourcing
such services to Chase/Mellon Shareholder Services or a mutually
agreeable third parry vendor. The cost of such services will be borne by
the Institution and are subject to separate agreement
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Institution's directors, officers and employees about
the Reorganization and Offerings, their roles and relevant securities
laws;
- Train branch managers and customer-contact employees on the
proper response to stock purchase inquiries,
- Train and supervise Center staff assisting with proxy and order
processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
- Design and implement procedures for handling IRA and Keogh orders; and
- Provide post-offering subscriber assistance and management of the pro-
ration process.
C. Securities Marketing Services Ryan, Beck uses various sales techniques
-----------------------------
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution. Our specific actions include:
- Assign licensed registered representatives from our staff to work at the
Center To solicit orders on behalf of the Institution from eligible
prospects who have been targeted as likely and desirable stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects,
- Respond to inquiries concerning the Offerings and investment
opportunities;
- Organize, coordinate and participate in community informational meetings
(if needed). These meetings are intended to both relieve customer
anxiety and attract potential investors. The meetings generate
widespread publicity for the Offerings while providing local exposure of
the Institution and promoting favorable stockholder relations;
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 5
- Supervise and conduct a telemarketing campaign to identify prospects
from among the Institution's customer base:
- Continually advise management on market conditions and the community's
responsiveness to the Offerings; and
- If appropriate and at the request of the Institution and the Holding
Company, arrange a syndicated community Offerings involving a selling
group of selected broker-dealers acting on a "best efforts" basis to
assist in selling stock during the Offerings. In so doing, prepare
broker "fact sheets" and arrange "road shows" for the purpose of
stimulating interest in the stock and informing the brokerage community
of the particulars of the Offerings; and
- Coordinate efforts to maximize after-market support and institutional
sponsorship.
4. COMPENSATION
a. For its services hereunder, the Holding Company and/or the Institution will
pay to Ryan, Beck the following compensation in connection with the
Reorganization:
(1) An advisory and management fee of $100,000 in connection with the
advisory, administrative and proxy solicitation services set forth in
section 3.a. and 3.b. hereof (the "Management Fee");
(2) An additional fee will be paid to Ryan, Beck for the Securities
Marketing Services set forth in section 3(c). The amount of such fee
will be determined as follows:
(i) in the case of the Bank Only MHC Scenario, $350,000;
(ii) in the case of the Consolidated MHC Scenario, $450,000;
(iii) in the case of the Conversion transaction, $900,000; and
(3) For stock sold by a group of NASD member firms (which will include
Ryan, Beck) under a selected dealers' agreement (the "Selling Group")
a fee equal to one percent (1.0%), which fee along with the fee
payable directly by the Institution to selected dealers (including
Ryan, Beck) shall not exceed six percent (6.00%) in the aggregate.
Ryan, Beck will not commence sales of the stock through members of the
Selling Group without the specific prior approval of the Institution.
Such fees (less the amount of any advance payments) are to be paid to Ryan, Beck
at the closing of the Offerings. As advance payments, the institution will pay
Ryan, Beck $50,000 upon execution of this letter and $50,000 upon commencement
of the Offerings, each of which will be offset against total compensation due
hereunder at Closing. If, pursuant to a resolicitation undertaken by the
Institution, Ryan, Beck is required to provide significant additional services,
or expend significant additional time, the parties shall mutually agree to the
dollar amount of the additional compensation due.
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 6
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offerings are not consummated by June 30, 2000; (iii) Ryan, Beck terminates
this relationship because there has been a material adverse change in the
financial condition or operations of the Institution since March 31, 1999;
or (iv) immediately prior to commencement of the Offerings, Ryan, Beck
terminates this relationship because in its opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors, there has been a failure to satisfactorily disclose
all relevant information in the disclosure documents or the existence of
market conditions which might render the sale of the shares by the
Institution hereby contemplated inadvisable; Ryan, Beck shall not be
entitled to the fees set forth above under subparagraph (a), but in
addition to reimbursement of its reasonable out-of-pocket expenses as set
forth in paragraph 7 below, shall be entitled to receive for its advisory
and administrative services a fec of $100,000.
5. MARKET MAKING AND RESEARCH
Ryan, Beck agrees to enlist its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Conversion.
Ryan, Beck will provide research coverage at an appropriate time after closing.
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities, and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare a prospectus and any other necessary disclosure documents relating
to the offering of the Common Stock in conformance with applicable rules and
regulations. As the Institution's financial advisor, Ryan, Beck, will, in
conjunction with counsel, conduct an examination of the relevant documents and
records of the Institution and will make such other reasonable investigation as
deemed necessary and appropriate under the circumstances. The Institution agrees
to make all such documents, records and other information deemed necessary by
Ryan, Beck, or its counsel, available to them upon reasonable request. Ryan,
Beck's counsel will prepare, subject to the approval of the Institution's
counsel, the Definitive Agreement. Ryan, Beck's counsel shall be selected by
Ryan, Beck, subject to the approval of the Institution which will not
unreasonably be withheld.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue legal fees, expenses for
appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary personnel expenses and the preparation of stock
certificates. In the
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 7
event Ryan, Beck incurs such expenses on behalf of the Institution, the
Institution shall pay or reimburse Ryan, Beck for such reasonable fees and
expenses regardless of whether the Conversion is successfully completed. Ryan,
Beck will not incur any single expense of more than $1,000, pursuant to this
paragraph without the prior approval of the Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck, for more than $55,000 in legal
fees. The parties acknowledge, however, that such cap may be exceeded in the
event of a simultaneous acquisition by CambridgePort or any material delay in
the Offerings which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than that set forth
in the original Prospectus filing. We will provide you with a detailed
accounting of all reimbursable expenses to be paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, Ryan, Beck will make available for
a period of one year following the completion of the Conversion, advisory
services through the Ryan, Beck Strategic Advisory Services ("STARS") program.
If the Institution elects to avail itself of the STARS program, Ryan, Beck will
meet with the Institution at its request. Ryan, Beck also will provide opinions
and recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy
Capital, Asset & Liability Structure & Management
Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 8
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan Analysis and Advisory
Stockholder & Investor Relations Presentations & Programs
Fairness Opinions
Scanning of Potential Acquisition Candidates Based on Published Statement
Information
(This screening does nor extend to any in-depth merger and acquisition
analyses or studies which are available under Ryan, Beck's normal fee
schedule, and does not include retention of Ryan, Beck by the
Institution for any specific merger/acquisition situation.)
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee and hourly charges for the STARS program for the first
year. The Institution also will reimburse Ryan, Beck's reasonable out-of-pocket
expenses incurred in conjunction with the performance of these services, Such
out-of-pocket expenses shall include travel (coach class only), legal and other
miscellaneous expenses. Ryan, Beck will not incur any single expense in excess
of $1,000 pursuant to this paragraph without the prior approval of the
Institution.
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction.
10. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to attorneys' fees, arising solely out of
the engagement described herein, except that such indemnification shall not
apply to Ryan, Beck.'s own bad faith, willful misconduct or gross negligence.
11. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in Boston, MA before
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 9
one or three arbitrators, each of whom shall be knowledgeable in the field of
securities law and investment banking. Such arbitration shall otherwise be
conducted in accordance with the rules then obtaining of the American
Arbitration Association. The parties hereto agree to share equally the
responsibility for all fees of the arbitrators, abide by any decision rendered
as final and binding, and waive the right to appeal the decision or otherwise
submit the dispute to a court of law for a jury or non-jury trial. The parties
hereto specifically agree that neither party may appeal or subject the award or
decision to any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
12. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
wich all NASD requirements applicable to it in connection with its Participation
as contemplated herein in the Conversion. Ryan, Beck is and will remain through
completion of the Conversion a member in a good standing of the NASD and will
comply with all applicable NASD requirements.
13. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect To the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 10 regarding Indemnification; and (iv)
as set forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors (i) no material adverse change in the financial
condition or operation of the Institution: (ii) satisfactory disclosure of
all relevant information in the disclosure documents and a determination
that the sale of stock is reasonable given such disclosures; (iii) no
market conditions which might render the sale of the shares by the
Institution hereby contemplated inadvisable; and (iv) agreement that the
price established by the independent appraiser is reasonable in the then
prevailing market conditions;
<PAGE>
Ryan, Beck & Co.
Cambridgeport Bank
May 19, 1999
Page 10
(c) Until such time as the Institution files its registration statement, it may
terminate this agreement upon thirty (30) days written notice. Upon the
expiration of such 30 day notice period and the payment of any outstanding
Invoices for out-of-pocket expenses, this agreement shall be terminated.
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $50,000. We look forward to working with
you.
RYAN, BECK & CO., INC.
By: /s/ Ben A. Plotkin
----------------------------------
Ben A. Plotkin
President and Chief Executive Officer
Accepted and Agreed to This 24/th/ Day of May, 1999
CAMBRIDGEPORT BANK
By: /s/ James B. Keegan
----------------------------------
James B. Keegan
President and Chief Executive Officer
<PAGE>
EXHIBIT 1.2
PORT FINANCIAL CORP.
(a Massachusetts-chartered Stock Corporation)
Up to 10,350,000 Shares
(Subject to Increase Up to 11,902,500 Shares)
COMMON STOCK ($.01 Par Value)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
----------------
November 17, 1999
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, NJ 07039-5817
Ladies and Gentlemen:
Port Financial Corp., a Massachusetts-chartered stock corporation (the
"Holding Company"), Cambridgeport Mutual Holding Company, a Massachusetts-
chartered mutual savings bank holding company (the "MHC"), in formation, and
Cambridgeport Bank, a Massachusetts-chartered stock savings bank (the "Bank")
(collectively, the "Primary Parties") hereby confirm, jointly and severally,
their agreement with Ryan, Beck & Co., Inc. (the "Agent"), as follows:
Section 1. The Offering. The Bank, in accordance with the Plan of
------------
Conversion of Cambridgeport Mutual Holding Company to Stock Holding Company and
Stock Issuance adopted October 19, 1999(the "Plan"), intends to convert from a
Massachusetts-chartered holding company to a Massachusetts-chartered stock form
corporation which will offer stock on a priority basis to (i) qualifying
depositors; (ii) Tax-Qualified Employee Plans of the Bank; and (iii) management.
Pursuant to the Plan, the Holding Company is offering up to 10,350,000 shares of
common stock, par value $.01 per share (the "Common Stock") (subject to an
increase up to 11,902,500 shares), in a subscription offering (the "Subscription
Offering"), and, if necessary, (i) a direct community offering (the "Community
Offering") and/or (ii) syndicated community offering ("Syndicated Community
Offering").
Pursuant to the Plan, the Holding Company will offer and sell shares
of its Common Stock (the "Shares") in the Subscription Offering, Community
Offering, and Syndicated Community Offering (the "Offerings") so that, upon
completion of the Offerings, the purchasers of Shares in the Offerings will own
100% of the outstanding Common Stock of Holding Company. The Holding Company
will issue the Shares at a purchase price of $10.00 per share (the "Purchase
Price"). If the number of Shares is increased or decreased in accordance with
the Plan, the term "Shares" shall mean such greater or lesser number, where
applicable.
<PAGE>
Pursuant to the Plan, in the Subscription Offering, the Company will
offer the Shares in descending order of priority to: (1) the Bank's depositors
with aggregate account balances of $50 or more on July 31, 1998 (the "Eligible
Account Holders"), subject to the allocation procedures and purchase limitations
set forth in the Plan; (2) the Bank's depositors with aggregate account balances
of $50 or more on September 30, 1999 (the "Supplemental Eligible Account
Holders"); (3) the Tax-Qualified Employee Stock Benefit Plans (as such term is
defined in the Plan); and (4) management. The Holding Company may offer Shares
offered but not subscribed for in the Subscription Offering, in the Community
Offering on a priority basis to the natural persons residing within the Bank's
Community Reinvestment Act assessment area which consist of cities and towns of
Cambridge, Arlington, Bedford, Belmont, Boston, Braintree, Brookline,
Burlington, Canton, Dedham, Dover, Framingham, Lexington, Lincoln, Medford,
Milton, Natick, Needham, Newton, Norwood, Quincy, Randolph, Sherbourne,
Somerville, Stoneham, Walpole, Waltham, Watertown, Wayland, Wellesley, Weston,
Westwood, Weymouth, Winchester and Woburn, and then to the general public. In
the event a Community Offering is held, it may be held at any time during or
immediately after the Subscription Offering. Depending on market conditions,
Shares not subscribed for in the Subscription Offering or purchased in the
Community Offering may be offered in the Syndicated Community Offering to
eligible members of the general public on a best efforts basis, as described in
subsection 4(c) below.
The Holding Company has filed with the U.S. Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (File No.
_____________) in order to register the Shares under the Securities Act of 1933,
as amended (the "1933 Act"), and has filed such amendments thereto as have been
required to the date hereof (the "Registration Statement"). The prospectus, as
amended, included in the Registration Statement at the time it initially became
effective is hereinafter called the "Prospectus," except that if any prospectus
is filed by the Holding Company pursuant to Rule 424(b) or (c) of the
regulations of the Commission under the 1933 Act differing from the prospectus
included in the Registration Statement at the time it initially becomes
effective, the term "Prospectus" shall refer to the prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said prospectus is filed with the
Commission and shall include any supplements and amendments thereto from and
after their dates of effectiveness or use, respectively.
In connection with the Conversion, the Bank filed with the Federal
Deposit Insurance Corporation (the "FDIC"), pursuant to Part 303 of Title 12, of
the Code of Federal Regulations (the "Federal Regulations"), a Notice of
Conversion and an Interagency Merger Application for approval of the merger of
an interim savings bank with and into the Bank, and has filed amendments thereto
as required by the FDIC (as so amended, the "Conversion Notice and
Application"). The Holding Company has filed with the Board of Governors of the
Federal Reserve System (the "FRB") its application on Form FRY-3 (the "Holding
Company Application") to become a bank holding company under the Bank Holding
Company Act of 1956, as amended, and the regulations promulgated thereunder
("BHCA").
Section 2. Appointment of Agent. Subject to the terms and
--------------------
conditions of this Agreement, the Primary Parties hereby appoint the Agent to
consult with, advise and assist the
2
<PAGE>
Primary Parties with the solicitation of subscriptions and purchase orders for
the Shares in connection with the sale of the Shares in the Offerings.
On the basis of the representations and warranties of the Primary
Parties contained in, and subject to the terms and conditions of, this
Agreement, the Agent accepts such appointment and agrees to use its best efforts
to assist the Primary Parties with the solicitation of subscriptions and
purchase orders for the shares and agrees to consult with and advise the Primary
Parties as to the matters set forth in Section 3 of the letter agreement (the
"Letter Agreement"), dated May 19, 1999, between the Bank and Agent (a copy of
which is attached hereto as Exhibit A). It is acknowledged by the Primary
---------
Parties that the Agent shall not be obligated to purchase any Shares and shall
not be obligated to take any action which is inconsistent with any applicable
law, regulation, decision or order. The appointment of the Agent to provide
services hereunder shall terminate upon consummation of the Offerings.
If requested by the Bank or the Holding Company, Agent may also
assemble and manage a selling group of broker-dealers that are members of the
National Association of Securities Dealers, Inc. ("NASD") to participate in the
solicitation on a "best efforts" basis of purchase orders for the Shares (the
"Assisting Brokers") under a selected dealers' agreement ("Selected Dealers'
Agreement"), the form of which is set forth as Exhibit B to this Agreement. The
Agent will distribute the Shares among dealers in the Syndicated Community
Offering in a fashion which best meets the distribution objectives of the Bank
and the Plan. The Agent will not commence the Syndicated Community Offering
without the prior approval of the Primary Parties.
Section 3. Refund of Purchase Price. In the event that the
------------------------
Conversion is not consummated for any reason, including but not limited to the
inability to sell 7,650,000 Shares during the Offerings (including any permitted
extension thereof) or such other minimum number of Shares as shall be
established consistent with the Plan and the Conversion Regulations, this
Agreement shall terminate and any persons who have subscribed for any of the
Shares shall have refunded to them the full amount which has been received from
such person, together with interest as provided in the Prospectus.
Section 4. Fees. In addition to the expenses specified in Section 9
----
hereof, as compensation for the Agent's services under this Agreement, the Agent
has received or will receive the following fees from the Primary Parties:
(a) Fees for services of $1,000,000 due at Closing. The first $50,000
of such fee was paid upon execution of the Letter Agreement, and the remaining
$50,000 will be due upon the commencement of the Offering. Each of these
payments will be offset against the fee for services of $1,000,000 or, if this
Agreement is terminated pursuant to Section 14 hereof prior to the commencement
of the Offering, such fees of $100,000 are due immediately upon such
termination.
(b) If any of the Shares remain available after the Subscription
Offering and Community Offering, at the request of the Bank, the Agent will seek
to form a group of
3
<PAGE>
approved broker-dealer firms in accordance with Section 2 for purposes of the
Syndicated Community Offering. Pursuant to this subsection 4(c), the Agent will
be paid a fee of 1%. The Holding Company fees to the Agent will not exceed 6% of
the aggregate dollar amount of the Shares sold pursuant to this subsection 4(c)
in the Syndicated Community Offering. Of such fee, the Agent will retain at
least 1% of the aggregate dollar amount of the shares sold pursuant to this
subsection 4(c) as a management fee, and will pass on to the Assisting Brokers,
which may include the Agent, the remainder of such fee relating to the Shares
sold by such Assisting Brokers pursuant to this subsection 4(c).
In the event that the Holding Company and/or the Bank are required to
resolicit subscribers for Shares in the Subscription Offering and Community
Offering and the Agent is required to provide significant additional services in
connection with such a resolicitation, the Primary Parties and the Agent shall
mutually agree to the dollar amount of additional compensation due to the Agent
and the Primary Parties shall pay such amount, if any. Until any agreement
called for by this paragraph is reached, the Agent shall not incur expenses
relating to any resolicitation in an amount that would cause the total expenses
incurred by the Agent, that are reimbursable by the Bank pursuant to Section 9
hereof, to be greater than those permitted without the prior written consent of
the Holding Company or the Bank, which consent shall not be unreasonably
withheld.
Section 5. Closing. If the minimum number of Shares permitted to be
-------
sold in the Conversion on the basis of the most recently updated Appraisal (as
defined in Section 6(h)) are subscribed for at or before the termination of the
Offerings, and the other conditions to the completion of the Conversion are
satisfied, the Holding Company agrees to issue the Shares on the Closing Date
(as hereinafter defined) against payment therefor by the means authorized by the
Plan and to deliver certificates evidencing ownership of the Shares in such
authorized denominations and registered in such names as may be indicated on the
subscription order forms directly to the purchasers thereof as promptly as
practicable after the Closing Date. The closing (the "Closing") shall be held at
the offices of Thacher Proffitt & Wood ("Thacher Proffitt"), New York, NY, or at
such other place as shall be agreed upon among the Primary Parties and the
Agent, at 10:00 a.m., Eastern Standard Time, on the business day selected by the
Holding Company, which business day shall be no less than two business days
following the giving of prior notice by the Holding Company to the Agent or at
such other time as shall be agreed upon by the Primary Parties and the Agent. At
the Closing, the Primary Parties shall deliver to the Agent by wire transfer in
same-day funds the commissions, fees and expenses owing to the Agent as set
forth in Sections 4 and 9 hereof and the opinions required hereby and other
documents deemed reasonably necessary for the Agent shall be executed and
delivered to effect the sale of the Shares as contemplated hereby and pursuant
to the terms of the Prospectus; provided, however, that all fees and expenses to
which the Agent is entitled under this Section 4 and 9 hereof shall be due and
payable upon receipt by the Company or the Bank of a written accounting therefor
setting forth in reasonable detail the expenses incurred by the Agent. The hour
and date upon which the Holding Company shall release the Shares for delivery in
accordance with the terms hereof is referred to herein as the "Closing Date."
4
<PAGE>
Section 6. Representations and Warranties of the Primary Parties.
-----------------------------------------------------
The Primary Parties jointly and severally represent and warrant to the Agent
that:
(a) The Bank and the Holding Company have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, and, as of the Closing Date, the Bank, the MHC and Holding Company
will have all such power, authority, authorizations, approvals and orders as may
be required to carry out the provisions and conditions hereof and to issue and
sell the Shares as provided herein and as described in the Prospectus. The
consummation of the Conversion, the execution, delivery and performance of this
Agreement and the Letter Agreement and the consummation of the transactions
contemplated herein have been duly and validly authorized by all necessary
corporate action on the part of the Bank (except for the approval of the Bank's
depositors necessary for the consummation of the Conversion) and, as of the
Closing Date, will have been duly and validly authorized by all necessary
corporate action on the part of the MHC and the Holding Company. This Agreement
has been validly executed and delivered by the Primary Parties, and is a valid,
legal and binding obligation of the Primary Parties, in each case enforceable in
accordance with its terms, except as the legality, validity, binding nature and
enforceability thereof may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization, conservatorship, receivership or other similar laws relating to
or affecting the enforcement of creditors' rights generally, (ii) general equity
principles regardless of whether such enforceability is considered in a
proceeding in equity or at law, and (iii) the extent, if any, that the
provisions of Sections 11 or 12 hereof may be unenforceable as against public
policy.
(b) The Registration Statement was declared effective by the
Commission on _____________, 2000. No stop order has been issued with respect
to the Prospectus. to the best knowledge of the Primary Parties no proceedings
related to the Prospectus have been initiated or threatened by the Commission.
At the time the Registration Statement, including the Prospectus contained
therein (including any amendment or supplement thereto), became effective, the
Registration Statement complied as to form in all material respects with the
1933 Act and the regulations promulgated thereunder. The Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement thereto) at the time such Registration Statement became effective,
did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and at the time any Rule 424(b) or (c) Prospectus was filed with the
Commission and at the Closing Date referred to in Section 5, the Registration
Statement, including the Prospectus contained therein (including any amendment
or supplement thereto) and, when taken together with the Prospectus, any Blue
Sky Application or Sales Information authorized for use by any of the Primary
Parties in connection with the Offerings, will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section 6(c) shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Primary Parties by the Agent expressly regarding
the Agent for use under the captions "Market for the Common Stock", "The
Conversion and the Offering - Marketing Arrangements" and "The
5
<PAGE>
Conversion and the Offering - Direct Community Offering and Syndicated Community
Offering" or with written statements or omissions from any Sales Information or
information filed pursuant to state securities or blue sky laws or regulations
regarding the Agent.
(c) The Application for Conversion was filed with the FDIC and the
FDIC has issued to the Bank a notice of its intent not to object to the
Conversion; the Massachusetts Application has been approved by the Commissioner.
The Application for Conversion, the Massachusetts Application, did and will as
of the Closing Date comply as to form in all material respects with the
Conversion Regulations and any other applicable rules and regulations of the
FDIC and the Massachusetts Division of Banks, respectively (except as modified
or waived in writing by the FDIC and the Massachusetts Division of Banks.
(d) No order has been issued by the FDIC, the Commissioner of Banks
of the Commonwealth of Massachusetts (the "Commissioner"), or any state
regulatory authority, preventing or suspending the use of the Prospectus and no
action by or before any such government entity to revoke any approval,
authorization or order of effectiveness related to the Conversion is, to the
best knowledge of the Primary Parties, pending or threatened.
(e) The Plan has been duly adopted by the Board of the Bank. To the
best knowledge of the Primary Parties, no person has, or at the Closing Date
will have, sought to obtain review of the final action of the FDIC or the
Commissioner in approving the Plan, the Conversion, or the Applications,
pursuant to the BHCA or any other statute or regulation.
(f) The Holding Company has filed the Holding Company Application
with the FRB. As of the Closing Date the FRB will have approved of the Holding
Company's becoming a bank holding company with respect to the Bank.
(g) RP Financial, LC, which prepared the appraisal of the aggregate
pro forma market value of the Common Stock on which the Offerings were based
(the "Appraisal"), has advised the Primary Parties in writing that it is
independent with respect to each of the Primary Parties.
(h) Arthur Andersen LLP, which certified the financial statements
filed as part of the Registration Statement and the Application, has advised the
Primary Parties that it is an independent certified public accountant within the
meaning of the Code of Ethics of the AICPA, and Arthur Andersen LLP is, with
respect to the Company, the Bank and each subsidiary of the Bank, independent
certified public accountants as required by the 1933 Act and the 1933 Act
Regulations.
(i) The financial statements and the notes thereto which are included
in the Registration Statement and which are a part of the Prospectus present
fairly in all material respects the financial condition and retained earnings of
the Bank as of the dates indicated and the results of operations and cash flows
for the periods specified. The financial statements comply in all material
respects with the applicable accounting requirements of Title 12 of the Code of
Federal Regulations, Regulation S-X of the Commission and generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
presented,
6
<PAGE>
except as otherwise noted therein, and present fairly in all material respects
the information required to be stated therein. The other financial, statistical
and pro forma information and related notes included in the Prospectus present
fairly the information shown therein on a basis consistent with the audited and
unaudited financial statements included in the Prospectus, and as to the pro
forma adjustments, the adjustments made therein have been consistently applied
on the basis described therein.
(j) Since the respective dates as of which information is given in
the Registration Statement, including the Prospectus; (i) there has not been any
material adverse change in the financial condition or in the earnings, capital,
properties or business affairs of the Primary Parties considered as one
enterprise, whether or not arising in the ordinary course of business; (ii)
there have not been any material transactions entered into by any of the Primary
Parties, other than those in the ordinary course of business; and (iii) the
capitalization, liabilities, assets, properties and business of the Primary
Parties conform in all material respects to the descriptions thereof contained
in the Prospectus and, none of the Primary Parties has any material liabilities
of any kind, contingent or otherwise, except as disclosed in the Registration
Statement or the Prospectus.
(k) As of the Closing Date, the Holding Company will be a stock
corporation duly organized and in good standing under the laws of the
Commonwealth of Massachusetts, with corporate power and authority to own its
properties and to conduct its business as described in the Prospectus, and will
be qualified to transact business and in good standing in Massachusetts and in
each jurisdiction in which the conduct of business requires such qualification,
unless the failure to qualify in one or more of such jurisdictions would not
have a material adverse effect on the financial condition, earnings, capital,
properties or business affairs of the Primary Parties taken as a whole. As of
the Closing Date, the Holding Company will have obtained all licenses, permits
and other governmental authorizations required for the conduct of its business,
except those that individually or in the aggregate would not materially
adversely affect the financial condition, earnings, or business of the Primary
Parties taken as a whole (a "Material Adverse Effect"); and as of the Closing
Date, all such licenses, permits and governmental authorizations will be in full
force and effect, and the Holding Company will be in compliance therewith in all
material respects.
(l) The Holding Company does not, and as of the Closing Date, will
not own any equity securities or any equity interest in any business enterprise
except as described in the Prospectus.
(m) The Bank is a duly organized and validly existing Massachusetts-
chartered savings bank in stock form, duly authorized to conduct its business as
described in the Prospectus; the activities of the Bank are permitted by the
rules, regulations and practices of the FDIC, and the Commissioner and under
Massachusetts law; the Bank has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its business,
except those that individually or in the aggregate would not have a Material
Adverse Effect; all such licenses, permits and other governmental authorizations
are in full force and effect and the Bank is in good standing under the laws of
the Commonwealth of Massachusetts and is duly
7
<PAGE>
qualified as a foreign corporation to transact business in each jurisdiction in
which failure to so qualify would have a Material Adverse Effect; all of the
issued and outstanding capital stock of the Bank after the Conversion will be
duly and validly issued and fully paid and nonassessable; and the Holding
Company will directly own all of such capital stock free and clear of any
mortgage, pledge, lien, encumbrance, claim or restriction. The Bank does not own
equity securities or any equity interest in any other business enterprise except
as otherwise described in the Prospectus or as are immaterial in amount and are
not required to be described in the Prospectus.
(n) The deposit accounts of the Bank are insured by the FDIC up to
applicable limits. Upon consummation of the Conversion, the Bank will establish
a liquidation account for the benefit of the Bank's depositors, in accordance
with the Plan and the requirements of applicable Conversion Regulations.
(o) As of the Closing Date, the Bank will not be authorized to issue
any shares of capital stock except to the Holding Company.
(p) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Holding Company will be within the range set
forth in the Prospectus under the caption "Capitalization" and no shares of
Common Stock have been or will be issued and outstanding prior to the Closing
Date; and the shares of Common Stock to be subscribed for in the Offering have
been duly and validly authorized for issuance and, when issued and delivered by
the Holding Company pursuant to the Plan against payment of the consideration
calculated as set forth in the Plan and the Prospectus, will be duly and validly
issued and fully paid and nonassessable; the issuance of the Shares is not
subject to preemptive rights, except for the Subscription Rights granted
pursuant to the Plan; and the terms and provisions of the shares of Common Stock
will conform in all material respects to the description thereof contained in
the Prospectus. Upon issuance of the Shares, good title to the Shares will be
transferred from the Holding Company to the purchasers of Shares against payment
therefor in the Offering as set forth in the Plan and the Prospectus.
(q) The Primary Parties are not in violation of their respective
articles of incorporation or charter or their respective bylaws, or in material
default in the performance or observance of any obligation, agreement, covenant,
or condition contained in any contract, lease, loan agreement, indenture or
other instrument to which they are a party or by which they, or any of their
respective property, may be bound which would result in a Material Adverse
Effect. The consummation of the transactions herein contemplated will not (i)
conflict with or constitute a breach of, or default under, the Certificate of
Incorporation, charter or bylaws of any of the Primary Parties, or materially
conflict with or constitute a material breach of, or default under, any material
contract, lease or other instrument to which any of the Primary Parties has a
beneficial interest, or any applicable law, rule, regulation or order that is
material to the financial condition of the Bank; (ii) violate any authorization,
approval, judgment, decree, order, statute, rule or regulation applicable to the
Primary Parties except for such violations which would not have a material
adverse effect on the financial condition and results of operations of the Bank;
or (iii) result in the creation of any lien, charge or encumbrance upon any
property of the Primary
8
<PAGE>
Parties, except for such liens, changes or encumbrances that would not
individually or in the aggregate have a Material Adverse Effect.
(r) No material default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a material default on the
part of any of the Primary Parties, in the due performance and observance of any
term, covenant or condition of any indenture, mortgage, deed of trust, note,
bank loan or credit agreement or any other material instrument or agreement to
which any of the Primary Parties is a party or by which any of their property is
bound or affected in any respect which, in any such case, is material to the
Primary Parties taken as a whole, and such agreements are in full force and
effect; and no other party to any such agreements has instituted or, to the best
knowledge of any of the Primary Parties, threatened any action or proceeding
wherein any of the Primary Parties is alleged to be in default thereunder under
circumstances where such action or proceeding, if determined adversely to any of
the Primary Parties, would have a Material Adverse Effect.
(s) The Primary Parties have good and marketable title to all assets
which are material to the businesses of the Primary Parties, free and clear of
all liens, charges, encumbrances, restrictions or other claims, except such as
are described in the Prospectus or which do not have a Material Adverse Effect;
and all of the leases and subleases which are material to the businesses of the
Primary Parties, as described in the Registration Statement or Prospectus, are
in full force and effect.
(t) The Primary Parties are not in material violation of any
directive from the FDIC, the Commissioner the FRB, the Commission or any other
agency to make any material change in the method of conducting their respective
businesses; the Primary Parties have conducted and are conducting their
respective businesses so as to comply in all respects with all applicable
statutes and regulations (including, without limitation, regulations, decisions,
directives and orders of the Commissioner, the FRB, the Commission and the
FDIC), except where the failure to so comply would not reasonably be expected to
result in a Material Adverse Effect, and there is no charge, investigation,
action, suit or proceeding before or by any court, regulatory authority or
governmental agency or body pending or, to the best knowledge of any of the
Primary Parties, threatened, which would reasonably be expected to materially
and adversely affect the Conversion, the performance of this Agreement, or the
consummation of the transactions contemplated in the Plan as described in the
Registration Statement, or which would reasonably be expected to result in a
Material Adverse Effect.
(u) Prior to the Closing Date, the Primary Parties will have received
an opinion of their special counsel, Thacher Proffitt, with respect to the
federal income tax consequences of the Conversion, as described in the
Registration Statement and the Prospectus, and an opinion from Arthur Andersen
LLP with respect to the tax consequences of the Conversion under the laws of the
Commonwealth of Massachusetts; and the facts and representations upon which such
opinions will be based, will be truthful, accurate and complete, and none of the
Primary Parties will take any action inconsistent therewith.
9
<PAGE>
(v) The Bank has filed all required federal and state tax returns,
has paid all taxes that have become due and payable in respect of such returns,
except where permitted to be extended, and no deficiency has been asserted with
respect thereto by any taxing authority.
(w) No approval, authorization, consent or other order of any
regulatory or supervisory or other public authority is required for the
execution and delivery by the Primary Parties of this Agreement, or the issuance
of the Shares, except for the non-objection of the FDIC, and the approval of the
Commissioner, the FRB and the Commission and any necessary qualification,
notification, or registration or exemption under the securities or blue sky laws
of the various states in which the Shares are to be offered.
(x) None of the Primary Parties has: (i) issued any securities within
the last 18 months (except for (a) notes to evidence bank loans or other
liabilities in the ordinary course of business or as described in the
Prospectus, and (b) shares of Common Stock issued with respect to the initial
capitalization of the Holding Company); (ii) had any dealings with respect to
sales of securities within the 12 months prior to the date hereof with any
member of the NASD, or any person related to or associated with such member,
other than discussions and meetings relating to the Offering and purchases and
sales of U.S. government and agency and other securities in the ordinary course
of business; or (iii) engaged any intermediary between the Agent and the Primary
Parties in connection with the Offering or the offering of shares of the common
stock of the Bank, and no person is being compensated in any manner for such
services.
(y) The Primary Parties have not made any payment of funds of the
Primary Parties as a loan to any person for the purchase of Shares, except for
the Holding Company's loan to the employee stock ownership plan the proceeds of
which will be used to purchase Shares, or has made any other payment of funds
prohibited by law, and no funds have been set aside to be used for any payment
prohibited by law.
(z) The Bank complies in all material respects with the applicable
financial record keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, and the regulations and rules
thereunder.
(aa) The Primary Parties have not relied upon Agent or its counsel for
any legal, tax or accounting advice in connection with the Conversion.
(ab) The records of Eligible Account Holders and Supplemental Eligible
Account Holders are accurate and complete in all material respects.
(ac) The Primary Parties comply with all laws, rules and regulations
relating to environmental protection, and none of them has been notified or is
otherwise aware that any of them is potentially liable, or is considered
potentially liable, under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any other Federal, state or local
environmental laws and regulations except to the extent that any non-compliance
would not have a Material Adverse Effect; no action, suit, regulatory
investigation or other proceeding is pending, or to the knowledge of the Primary
Parties, threatened against the
10
<PAGE>
Primary Parties relating to environmental protection, nor do the Primary Parties
have any reason to believe any such proceedings may be brought against any of
them; and, to the knowledge of the Primary Parties, no disposal, release or
discharge of hazardous or toxic substances, pollutants or contaminants,
including petroleum and gas products, as any of such terms may be defined under
federal, state or local law, has occurred on, in, at or about any facilities or
properties owned or leased by any of the Primary Parties or in which the Bank
has a security interest, except to the extent such disposal, release or
discharge would not have a Material Adverse Effect.
(ad) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank included in
the Prospectus meet or are exempt from all requirements of federal, state and
local law pertaining to lending, including, without limitation, truth in lending
(including the requirements of Regulations Z and 12 C.F.R. Part 226), real
estate settlement procedures, consumer credit protection, equal credit
opportunity and all disclosure laws applicable to such loans, except for
violations which, if asserted, would not result in a Material Adverse Effect.
(ae) None of the Primary Parties are required to be registered as an
investment company under the Investment Company Act of 1940.
Any certificates signed by an officer of any of the Primary Parties
and delivered to the Agent or its counsel that refer to this Agreement shall be
deemed to be a representation and warranty by the Primary Parties to the Agent
as to the matters covered thereby with the same effect as if such representation
and warranty were set forth herein.
Section 7. Representations and Warranties of the Agent. Agent
-------------------------------------------
represents and warrants to the Primary Parties that:
(a) Agent is a corporation and is validly existing and in good
standing under the laws [of the State of New Jersey] with full power and
authority to provide the services to be furnished to the Primary Parties
hereunder.
(b) The execution, delivery and performance of this Agreement and the
Letter Agreement and the consummation of the transactions contemplated herein
have been duly and validly authorized by all necessary corporate action on the
part of Agent, and this Agreement is the legal, valid and binding agreement of
Agent. This Agreement has been validly executed and delivered by Agent and is a
valid, legal and binding obligation of Agent, enforceable in accordance with its
terms, except as the legality, validity, binding nature and enforceability
thereof may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization, conservatorship, receivership or other similar laws relating to
or affecting the enforcement of creditors' rights generally, (ii) general equity
principles regardless of whether such enforceability is considered in a
proceeding in equity or at law, and (iii) the extent, if any, that the
provisions of Sections 11 or 12 hereof may be unenforceable as against public
policy.
11
<PAGE>
(c) Each of Agent and its employees, agents and representatives who
shall perform any of the services hereunder shall have, and until the Conversion
is completed or terminated shall maintain, all licenses, approvals and permits
necessary to perform such services and shall comply in all material respects
with all applicable laws and regulations in connection with the performance of
such services.
(d) No action, suit, charge or proceeding before the Commission, the
NASD, any state securities commission or any court is pending, or to the
knowledge of Agent threatened, against Agent which, if determined adversely to
Agent, would have a material adverse effect upon the ability of Agent to perform
its obligations under this Agreement.
(e) Agent is registered as a broker/dealer pursuant to Section 15(b)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a
member of the National Association of Securities Dealers, Inc.
(f) Any funds received in the Offering by the Agent will be handled
by the Agent in accordance with Rule 15c2-4 under the 1934 Act to the extent
applicable.
Section 8. Covenants of the Primary Parties. The Primary Parties
--------------------------------
hereby jointly and severally covenant with the Agent as follows:
(a) The Holding Company will not, at any time after the date the
Registration Statement is declared effective, file any amendment or supplement
to the Registration Statement without providing the Agent and its counsel an
opportunity to review such amendment or file any amendment or supplement to
which amendment the Agent or its counsel shall reasonably object. The Holding
Company will furnish promptly to the Agent and its counsel copies of all
correspondence from the Commission with respect to the Registration Statement
and the Holding Company's responses thereto.
(b) The Primary Parties will not, at any time after the date any
Application is approved, file any amendment or supplement to such Application
without providing the Agent and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement the Agent or its counsel shall reasonably object. The Primary
Parties will furnish promptly to the Agent and its counsel copies of all
correspondence from the FRB, the FDIC and the Commissioner with respect to the
Applications and the Primary Parties' responses thereto.
(c) The Primary Parties will use their best efforts to cause the FRB
to approve the Holding Company's acquisition of the Bank, and will use their
best efforts to cause any post-effective amendment to the Registration Statement
to be declared effective by the Commission and any post-effective amendment to
the Applications to be approved by the FDIC and the Commissioner, as applicable,
and will promptly upon receipt of any information concerning the events listed
below notify the Agent (i) when the Registration Statement, each as amended, has
become effective; (ii) when the Conversion Applications, as amended, have
received the non-objection of the FDIC and the approval of the Commissioner;
(iii) when the Holding Company
12
<PAGE>
Application, as amended, has been approved by the FRB; (iv) of the receipt of
any comments from the Commission, the FDIC and the Commissioner, or any other
governmental entity with respect to the Conversion or the transactions
contemplated by this Agreement; (v) of any request by the Commission, the FRB,
the FDIC, the Commissioner, or any other governmental entity for any amendment
or supplement to the Registration Statement or the Applications or for
additional information; (vi) of the issuance by the Commission, the FDIC or the
Commissioner, or any other governmental agency of any order or other action
suspending the Offerings or the use of the Registration Statement or the
Prospectus or any other filing of the Primary Parties under the Conversion
Regulations or other applicable law, or the threat of any such action; (vii) of
the issuance by the Commission, the FDIC or the Commissioner, or any other state
authority of any stop order suspending the effectiveness of the Registration
Statement or of the initiation or threat of initiation or threat of any
proceedings for that purpose; or (viii) of the occurrence of any event mentioned
in subsection (f) below. The Primary Parties will make every reasonable effort
to prevent the issuance by the Commission, the FDIC, the Commissioner, or any
other state authority of any order referred to in (vi) and (vii) above and, if
any such order shall at any time be issued, to obtain the lifting thereof at the
earliest possible time.
(d) The Primary Parties will deliver to the Agent and to its counsel
conformed copies of each of the following documents, with all exhibits: each of
the Applications as originally filed and of each amendment or supplement
thereto, and the Registration Statement, as originally filed and each amendment
thereto. Further, the Primary Parties will deliver such additional copies of the
foregoing documents to counsel to the Agent as may be required for any NASD
filings. In addition, the Primary Parties will also deliver to the Agent such
number of copies of the Prospectus, as amended or supplemented, as the Agent may
reasonably request.
(e) The Primary Parties will comply in all material respects with any
and all terms, conditions, requirements and provisions with respect to the
Conversion and the transactions contemplated thereby imposed by the Commission,
by applicable state law and regulations, and by the 1933 Act, the 1934 Act, and
the rules and regulations of the Commission promulgated under such Acts, to be
complied with prior to the Closing Date; and when the Prospectus is required to
be delivered, the Primary Parties will comply in all material respects, at their
own expense, with all material requirements imposed upon them by the FDIC, the
Commissioner, the Conversion Regulations (except as modified or waived in
writing by the FDIC or the Commissioner), the Commission, by applicable state
law and regulations and by the 1933 Act, the 1934 Act and the rules and
regulations of the Commission promulgated under such statutes, in each case as
from time to time in force, so far as necessary to permit the continuance of
sales or dealing in shares of Common Stock during such period in accordance with
the provisions hereof and the Prospectus.
(f) During any period when the Prospectus is required to be delivered,
each of the Primary Parties will inform the Agent of any event or circumstance
of which it is or becomes aware as a result of which the Registration Statement
and/or Prospectus, as then supplemented or amended, would include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading. If it is necessary, in the
reasonable opinion of counsel for the Primary Parties, to amend or supplement
the Registration
13
<PAGE>
Statement or the Prospectus in order to correct such untrue statement of a
material fact or to make the statements therein not misleading in light of the
circumstances existing at the time of their use, the Primary Parties will, at
their expense, prepare, file with the Commission, the FDIC, and the
Commissioner, and furnish to the Agent, a reasonable number of copies of an
amendment or amendments of, or a supplement or supplements to, the Registration
Statement and the Prospectus (in form and substance reasonably satisfactory to
counsel for the Agent after a reasonable time for review) which will amend or
supplement the Registration Statement and/or the Prospectus so that as amended
or supplemented it will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in light of the circumstances existing at the time, not misleading. For the
purpose of this subsection, each of the Primary Parties will furnish such
information with respect to itself as the Agent may from time to time reasonably
request.
(g) Pursuant to the terms of the Plan, the Holding Company will
endeavor in good faith, in cooperation with the Agent, to register or to qualify
the Shares for offering and sale or to exempt such Shares from registration and
to exempt the Holding Company and its officers, directors and employees from
registration as broker-dealers, under the applicable securities laws of the
jurisdictions in which the Offering will be conducted; provided, however, that
the Holding Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation to do business in any
jurisdiction in which it is not so qualified. In each jurisdiction where any of
the Shares shall have been registered or qualified as above provided, the
Holding Company will make and file such statements and reports for a period of
not less than one year from the effective date of the Registration Statement.
(h) The Holding Company will not sell or issue, contract to sell or
otherwise dispose of, for a period of 90 days after the date hereof, any shares
of Common Stock, without the Agent's prior written consent, which consent shall
not be unreasonably withheld, other than in connection with any plan or
arrangement described in the Prospectus.
(i) For a period of three years from the date of this Agreement, the
Holding Company will furnish to the Agent, as soon as practical after such
information is available (i) a copy of each report of the Holding Company
furnished to or filed with the Commission under the 1934 Act or any national
securities exchange or system on which any class of securities of the Holding
Company is listed or quoted, (ii) a copy of each report of the Holding Company
mailed to holders of Common Stock, (iii) each press release and material news
item and article released by the Holding Company and/or Bank, and (iv) from
time-to-time, such other publicly available information concerning the Primary
Parties as the Agent may reasonably request.
(j) The Primary Parties will use the net proceeds from the sale of
the Common Stock in the manner set forth in the Prospectus under the caption
"How We Intend to Use the Proceeds from the Offering."
(k) The Holding Company and the Bank will distribute the Prospectus
or other offering materials in connection with the offering and sale of the
Common Stock only in accordance with the Conversion Regulations, the 1933 Act
and the 1934 Act and the rules and
14
<PAGE>
regulations promulgated under such statutes, and the laws of any state in which
the shares are qualified for sale.
(l) Prior to the Closing Date, the Holding Company shall register its
Common Stock under Section 12(b) or 12(g) of the 1934 Act, and will request that
such registration statement be effective no later than the completion of the
Conversion. The Holding Company shall maintain the effectiveness of such
registration for not less than three years.
(m) For so long as the Shares are registered under the 1934 Act, the
Holding Company will furnish to its stockholders as soon as practicable after
the end of each fiscal year such reports and other information as are required
to be furnished to its stockholders under the 1934 Act.
(n) The Holding Company will report the use of proceeds of the
Offering in accordance with Rule 463 under the 1933 Act.
(o) The Primary Parties will maintain appropriate arrangements for
depositing all funds received from persons mailing subscriptions for or orders
to purchase Shares on an interest bearing basis at the rate described in the
Prospectus until the Closing Date and satisfaction of all conditions precedent
to the release of the Holding Company's obligation to refund payments received
from persons subscribing for or ordering Shares in the Offerings, in accordance
with the Plan as described in the Prospectus, or until refunds of such funds
have been made to the persons entitled thereto or withdrawal authorizations
canceled in accordance with the Plan and as described in the Prospectus. The
Primary Parties will maintain such records of all funds received to permit the
funds of each subscriber to be separately insured by the FDIC (to the maximum
extent allowable) and to enable the Primary Parties to make the appropriate
refunds of such funds in the event that such refunds are required to be made in
accordance with the Plan and as described in the Prospectus.
(p) The Holding Company will register as a bank holding company under
the Bank Holding Company Act ("BHCA").
(q) The Primary Parties will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent to
ensure compliance with the "Interpretation of the Board of Governors of the NASD
on Free Riding and Withholding."
(r) The Primary Parties will conduct their businesses in compliance
in all material respects with all applicable federal and state laws, rules,
regulations, decisions, directives and orders, including all decisions,
directives and orders of the Commission, the FDIC, the Commissioner,
and the FRB.
(s) The Primary Parties shall comply with any and all terms,
conditions, requirements and provisions with respect to the Conversion and the
transactions contemplated thereby imposed by the FDIC, the Commissioner, the
BHCA, the Commission, the 1933 Act, the Regulations, the 1934 Act and the
regulations promulgated by the Commission pursuant to the
15
<PAGE>
1934 Act to be complied with subsequent to the Closing Date. The Holding Company
will comply with all provisions of all undertakings contained in the
Registration Statement.
(t) The Primary Parties will not amend the Plan without notifying the
Agent prior thereto.
(u) The Holding Company shall provide the Agent with any information
necessary to carry out the allocation of the Shares in the event of an
oversubscription, and such information shall be accurate and reliable in all
material respects.
(v) The Holding Company will not deliver the Shares until the Primary
Parties have satisfied or caused to be satisfied each condition set forth in
Section 10 hereof, unless such condition is waived in writing by the Agent.
(w) Immediately upon completion of the sale by the Holding Company of
the Shares contemplated by the Plan and the Prospectus, (i) all of the issued
and outstanding shares of capital stock of the Bank shall be owned by the
Holding Company, (ii) the Holding Company shall have no direct subsidiaries
other than the Bank, and (iii) the Conversion shall have been effected in
accordance with all applicable statutes, regulations, decisions and orders; and
all terms, conditions, requirements and provisions with respect to the
Conversion (except those that are conditions subsequent) imposed by the
Commission, the FDIC, the Commissioner, the FRB, or any other governmental
agency, if any, shall have been complied with by the Primary Parties in all
material respects or appropriate waivers shall have been obtained and all notice
and waiting periods shall have been satisfied, waived or elapsed.
(x) Prior to the Closing Date, the Plan shall have been approved by
the corporators of the Bank in accordance with the Plan and the Conversion
Regulations and the applicable provisions, if any, of the Bank's charter and
bylaws.
(y) On or before the Closing Date, the Primary Parties will have
completed all conditions precedent to the Conversion specified in the Plan and
the offer and sale of the Shares will have been conducted in all material
respects in accordance with the Plan, the Conversion Regulations (except as
modified or waived in writing by the FDIC and/or the Commissioner) and with all
other applicable laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Conversion imposed upon
any of the Primary Parties by the FDIC and/or the Commissioner, the Commission,
the FRB, or any other regulatory authority and in the manner described in the
Prospectus.
(z) The Holding Company shall notify the Agent when funds shall have
been received for the minimum number of Shares set forth in the Prospectus.
Section 9. Payment of Expenses. Whether or not the Conversion is
-------------------
completed or the sale and exchange of the Shares by the Holding Company is
consummated, the Primary Parties will pay for all expenses incident to the
performance of this Agreement, including without limitation: (a) the preparation
and filing of the Applications; (b) the preparation,
16
<PAGE>
printing, filing, delivery and shipment of the Registration Statement, including
the Prospectus, and all amendments and supplements thereto; (c) all filing fees
and expenses in connection with the qualification or registration of the Shares
for offer and sale by the Holding Company or the Bank under the securities or
"blue sky" laws, including without limitation filing fees, reasonable legal fees
and disbursements of counsel in connection therewith, and in connection with the
preparation of a blue sky law survey; (d) the filing fees of the NASD related to
the Agent's fairness filing under NASD Rule 2710 and the application of the
Holding Company to list its shares; (e) fees and expenses related to the
preparation of the independent appraisal; (f) the reasonable expenses of the
Agent, including but not limited to the reasonable fees and expenses of its
counsel; (g) fees and expenses related to auditing and accounting services; and
(h) expenses relating to advertising, temporary personnel, and the preparation
of stock certificates. The Primary Parties also agree to reimburse Agent for
reasonable out-of-pocket expenses, including legal fees and expenses, incurred
by Agent in connection with the services hereunder. Agent will not incur legal
fees (excluding the out-of-pocket expenses of counsel) in excess of $55,000
without the approval of the Bank. Other out-of-pocket expenses will not exceed
$1,000 without the approval of the Bank. The Primary Parties acknowledge,
however, that such caps may be increased by the mutual consent of the Bank and
Agent in the event of any material delay in the Offering which would require an
update of the financial information in tabular form contained in the Prospectus
for a period later than that set forth in the original Prospectus filing. Not
later than three days prior to the Closing Date, the Agent will provide the Bank
with a detailed accounting of all reimbursable expenses to be paid at the
Closing.
Section 10. Conditions to the Agent's Obligations. The obligations
-------------------------------------
of the Agent hereunder and the occurrence of the Closing and the Conversion are
subject to the condition that all representations and warranties of the Primary
Parties herein contained are, at and as of the commencement of the Offering and
at and as of the Closing Date, true and correct, the condition that the Primary
Parties shall have performed, in all material respects, all of their obligations
hereunder to be performed on or before such dates and to the following further
conditions:
(a) The Registration Statement shall have been declared effective by
the Commission, the Application and the Conversion and Massachusetts Application
shall have been approved by the FDIC and the Commissioner, as applicable, the
Holding Company Application shall have been approved by the FRB, and no stop
order or other action suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act to any of the Primary Parties' best
knowledge or proceedings therefor initiated or threatened by the Commission or
any state authority and no order or other action suspending the authorization
for use of the Prospectus or the consummation of the Conversion shall have been
issued to any of the Primary Parties' best knowledge, or proceedings therefor
initiated or threatened by the FDIC, the Commissioner, the FRB, the Commission,
or any other governmental body.
(b) At the Closing Date, the Agent shall have received:
(1) The opinion, dated as of the Closing Date, of Thacher
Proffitt, and/or local counsel acceptable to the Agent, in form and
substance satisfactory to the Agent and counsel for the Agent to the
effect that:
17
<PAGE>
(i) The Holding Company is a corporation duly organized and
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, with corporate power and authority to
own its properties and to conduct its business as described in the
Prospectus, and is duly qualified to transact business and is in good
standing in Massachusetts and in each other jurisdiction in which the
conduct of its business requires such qualification and except where
the failure to qualify would have a Material Adverse Effect.
(ii) On the date hereof, the Bank is a validly existing
Massachusetts-chartered stock savings bank, and upon consummation of
the Conversion, the Bank will continue to be a validly existing
Massachusetts-chartered stock savings bank, with full power and
authority to own its properties and to conduct its business as
described in the Prospectus and to enter into this Agreement and
perform its obligations hereunder; the activities of the Bank as
described in the Prospectus are permitted by federal and Massachusetts
law and the rules, regulations and practices of the FDIC and the
Commissioner; the issuance and sale of the capital stock of the Bank
to the Holding Company in the Conversion has been duly and validly
authorized by all necessary corporate action on the part of the
Holding Company and the Bank and, upon payment therefor in accordance
with the terms of the Plan, will be validly issued, fully paid and
nonassessable and will be owned of record and beneficially by the
Holding Company, free and clear of any mortgage, pledge, lien,
encumbrance, claim or restriction.
(iii) The activities of the Holding Company and the Bank, as
described in the Prospectus, are permitted for bank holding companies
and for subsidiaries of a bank holding company and a Massachusetts-
chartered stock holding company under applicable federal and state
law. To the best of such counsel's knowledge, each of the Holding
Company and the Bank has obtained all licenses, permits, and other
governmental authorizations that are material for the conduct of its
business, and all such licenses, permits and other governmental
authorization are in full force and effect, and to the best of such
counsel's knowledge the Holding Company and the Bank are complying
therewith in all material respects.
(iv) The Bank is an insured depository institution under the
provisions of the Federal Deposit Insurance Act, as amended, and to
such counsel's knowledge, no proceedings for the termination or
revocation of the federal deposit insurance of the Bank are pending or
threatened.
(v) Upon consummation of the Conversion, (a) the authorized,
issued and outstanding capital stock of the Holding Company will be
within the range set forth in the Prospectus under the caption
"Capitalization", and no shares of Common Stock have been or will be
issued and outstanding prior to the Closing Date (except for the
shares issued upon incorporation of the Holding Company to facilitate
the Conversion); (b) the shares of Common Stock of the Holding
18
<PAGE>
Company to be subscribed for in the Offering will have been duly and
validly authorized for issuance, and when issued and delivered by the
Holding Company pursuant to the Plan against payment of the
consideration calculated as set forth in the Plan, will be fully paid
and nonassessable; and (c) the issuance of the Shares is not subject
to preemptive rights under the charter, articles of incorporation or
bylaws of the Holding Company, or arising or outstanding by operation
of law or, to the best knowledge of such counsel, under any contract,
indenture, agreement, instrument or other document, except for the
subscription rights under the Plan.
(vi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the
Primary Parties; and this Agreement constitutes a valid, legal and
binding obligation of each of the Primary Parties, enforceable in
accordance with its terms, except as rights to indemnity and
contribution thereunder may be limited under applicable law, subject
to the qualification that (i) enforcement thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or other laws
(including the laws of fraudulent conveyance) or judicial decisions
affecting the enforceability of creditors' rights generally, the
rights of creditors of savings bank or other financial institutions,
the accounts of which are insured by the FDIC, or the reorganization
of financial institutions and (ii) enforcement thereof is subject to
general equity principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law) and to the effect
of certain laws and judicial decisions upon the availability of
injunctive relief and enforceability of equitable remedies, including
the remedies of specific performance and self-help.
(vii) The Plan has been duly adopted by the Board of Trustees of
the Bank and by the corporators of the Bank, in the manner required by
the Conversion Regulations and the Bank's amended and restated charter
and bylaws.
(viii) The Massachusetts Application has been approved by the
Commissioner, the FRB has approved the Holding Company Application,
and the Bank has received the non-objection of the FDIC to the
Conversion, and subject to the satisfaction of any conditions set
forth in such approvals, no further approval, registration,
authorization, consent or other order of any federal or state
regulatory agency, public board or body is required in connection with
the execution and delivery of this Agreement, the offer, sale and
issuance of the Shares and the consummation of the Conversion, except
as may be required under the securities or "blue sky" laws of various
jurisdictions as to which no opinion need be rendered.
(ix) The Registration Statement has become effective under the
1933 Act and to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, or
proceedings for that purpose have been instituted or threatened by the
Commission.
19
<PAGE>
(x) The terms and provisions of the shares of Common Stock
conform to the description thereof contained in the Registration
Statement and the Prospectus, and the forms of certificates proposed
to be used to evidence the shares of Common Stock are in due and
proper form.
(xi) At the time the Conversion Application and the
Massachusetts Application was approved, the Conversion Application (as
amended or supplemented), complied as to form in all material respects
with the requirements of the Conversion Regulations and all applicable
laws, rules and regulations and decisions and orders of the FDIC and
the Commissioner, except as modified or waived in writing by the FDIC
and/or the Commissioner (other than the financial statements, notes to
financial statements, financial tables and other financial and
statistical data included therein and the appraisal valuation and the
business plan as to which counsel need express no opinion). To such
counsel's knowledge, no person has sought to obtain regulatory or
judicial review of the final action of the FDIC, the Commissioner, or
the FRB approving the Applications.
(xii) At the time that the Registration Statement became
effective the Registration Statement, including the Prospectus
contained therein (as amended or supplemented) (other than the
financial statements, notes to financial statements, financial tables
or other financial and statistical data included therein and the
appraisal valuation and the business plan as to which counsel need
express no opinion), complied as to form in all material respects with
the requirements of the 1933 Act and the rules and regulations
promulgated thereunder.
(xiii) To such counsel's knowledge, there are no legal or
governmental proceedings pending, or threatened (i) asserting the
invalidity of this Agreement or (ii) seeking to prevent the Conversion
or the offer, sale or issuance of the Shares.
(xiv) The information in the Prospectus under the captions
"Regulation," "Taxation," "Restrictions on the Acquisition of Port
Financial Corp. and Cambridgeport Bank," "Description of Capital Stock
of Port Financial Corp.," and "The Conversion and the Offering," to
the extent that such information constitutes matters of law, summaries
of legal matters, documents or proceedings, or legal conclusions, has
been reviewed by such counsel and is accurate in all material respects
(other than the financial statements, notes to financial statements,
financial tables and other financial and statistical data included
therein and the appraisal valuation and the business plan as to which
counsel need express no opinion).
(xvi) None of the Primary Parties are required to be registered
as an investment company under the Investment Company Act of 1940.
20
<PAGE>
(xvii) None of the Primary Parties is in violation of its
articles of incorporation or its charter, as the case may be, or its
bylaws or, to the best of such counsel's knowledge, any material
obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument filed as an exhibit to, or incorporated by reference in,
the Registration Statement, which violation would have a Material
Adverse Effect. In addition, the execution and delivery of and
performance under this Agreement by the Primary Parties, the
incurrence of the obligations set forth herein and the consummation of
the transactions contemplated herein will not result in any violation
of the provisions of the articles of incorporation or charter, as the
case may be, or the bylaws of any of the Primary Parties or any
violation of any applicable law, act, regulation, or to such counsel's
knowledge, order or court order, writ, injunction or decree.
The Agent's counsel may rely on the opinion for purposes of its own opinion
(Thacher Proffitt and/or local counsel shall expressly authorize such reliance).
The opinion may be limited to matters governed by the laws of the United States,
the laws of the Commonwealth of Massachusetts and the corporate laws of the
Commonwealth of Massachusetts and, in the case of local counsel, the
Commonwealth of Massachusetts or Massachusetts corporate law. In rendering such
opinion, such counsel may rely (A) as to matters involving the application of
laws of any jurisdiction other than the United States, to the extent such
counsel deems proper and specified in such opinion, upon the opinion of counsel
reasonably acceptable to the Agent, as long as such other opinion indicates that
the Agent may rely on the opinion, and (B) as to matters of fact, to the extent
such counsel deems proper, on certificates of responsible officers of the
Primary Parties and public officials; provided copies of any such opinion(s) or
certificates of public officials are delivered to Agent together with the
opinion to be rendered hereunder by special counsel to the Primary Parties. In
rendering such opinion, all statements contained therein "to our knowledge" or
"to our attention" means the actual knowledge of the attorneys who have worked
on the transactions contemplated herein. The opinion of such counsel for the
Primary Parties shall state that it has no reason to believe that the Agent is
not reasonably justified in relying thereon.
(2) The letter of Thacher Proffitt to the effect that during the
preparation of the Registration Statement and the Prospectus, Thacher
Proffitt participated in conferences with certain officers of and other
representatives of the Primary Parties, counsel to the Agent,
representatives of the independent public accountants for the Primary
Parties and representatives of the Agent at which the contents of the
Registration Statement and the Prospectus and related matters were
discussed and has considered the matters required to be stated therein and
the statements contained therein and, although (without limiting the
opinions provided pursuant to Section 10(b)(1)), Thacher Proffitt has not
independently verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement and Prospectus, on the
basis of the foregoing, nothing has come to the attention of Thacher
Proffitt that caused Thacher Proffitt to believe that the Registration
Statement at the time it was declared effective by the SEC and as of the
date of such letter, contained or contains any untrue statement of a
material
21
<PAGE>
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that
counsel need express no comment or opinion with respect to statements,
notes to financial statements, schedules and other financial and
statistical data included, or statistical or appraisal methodology
employed, in the Registration Statement or Prospectus, the appraisal
valuation or the business plan).
(3) The favorable opinion, dated as of the Closing Date, of Nixon
Peabody LLP, counsel for the Agent, with respect to such matters as the
Agent may reasonably require; such opinion may rely, as to matters of fact,
upon certificates of officers and directors of the Primary Parties
delivered pursuant hereto or as such counsel may reasonably request.
(4) A Blue Sky Memorandum from Thacher Proffitt and/or local counsel
relating to the offering, including Agent's participation therein, and
shall furnish Agent with a copy thereof addressed to Agent or upon which
Thacher Proffitt and/or local counsel shall state Agent may rely. The Blue
Sky Memorandum will relate to the necessity of obtaining or confirming
exemptions, qualifications or the registration of the common stock under
applicable state securities law.
(c) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from Arthur Andersen LLP, dated the date hereof and addressed
to the Agent, such letter (i) confirming that Arthur Andersen LLP is a firm of
independent public accountants within the meaning of the 1933 Act and the
regulations promulgated thereunder, and stating in effect that in Arthur
Anderson's opinion the financial statements of the Bank included in the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1934 Act and the related rules
and regulations of the Commission thereunder; (ii) stating in effect that, on
the basis of certain agreed upon procedures (but not an audit examination in
accordance with generally accepted auditing standards) consisting of a reading
of the latest available unaudited interim financial statements of the Bank
prepared by the Bank, a reading of the minutes of the meetings of the Board of
Directors and Executive Committee of the Bank, a review of interim financial
information in accordance with Statement on Auditing Standards No. 71, and
consultations with officers of the Bank responsible for financial and accounting
matters, nothing came to their attention which caused them to believe that: (A)
such unaudited financial statements, including recent developments, if any, are
not in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements
included in the Prospectus; or (B) during the period from the date of the latest
unaudited consolidated financial statements included in the Prospectus to a
specified date not more than three business days prior to the date of the
Prospectus, there was any increase in borrowings (defined as securities sold
under agreements to repurchase and any other form of debt other than deposits)
of the Bank or in nonperforming loans of the Bank; or (C) there was any decrease
in retained earnings of the Bank at the date of such letter as compared with
amounts shown in the latest unaudited statement of condition included in the
Prospectus or there was any decrease in net income or net interest income of the
Bank for the number of full months commencing immediately after the period
covered by the latest audited income statement
22
<PAGE>
included in the Prospectus and ended on the latest month end prior to the date
of the Prospectus or in such letter as compared to the corresponding period in
the preceding year; and (iii) stating that, in addition to the audit examination
referred to in its opinion included in the Prospectus and the performance of the
procedures referred to in clause (ii) of this subsection (c), they have compared
with the general accounting records of the Bank, which are subject to the
internal controls of the accounting system of the Bank and other data prepared
by the Primary Parties directly from such accounting records, to the extent
specified in such letter, such amounts and/or percentages set forth in the
Prospectus as the Agent may reasonably request, and they have found such amounts
and percentages to be in agreement therewith (subject to rounding).
(d) At the Closing Date, the Agent shall receive a letter from Arthur
Andersen LLP dated the Closing Date, addressed to the Agent, confirming the
statements made by its letter delivered by it pursuant to subsection (c) of this
Section 10, the "specified date" referred to in clause (ii)(B) thereof to be a
date specified in such letter, which shall not be more than three business days
prior to the Closing Date.
(e) At the Closing Date, counsel to the Agent shall have been
furnished with such documents and opinions as counsel for the Agent may require
for the purpose of enabling them to advise the Agent with respect to the
issuance and sale of the Common Stock as herein contemplated and related
proceedings, or in order to evidence the accuracy of any of the representations
and warranties, or the fulfillment of any of the conditions herein contained.
(f) At the Closing Date, the Agent shall receive a certificate of the
Chief Executive Officer and Chief Financial Officer of each of the Primary
Parties, dated the Closing Date, to the effect that: (i) they have examined the
Prospectus and at the time the Prospectus became authorized for final use, the
Prospectus did not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; (ii)
there has not been, since the respective dates as of which information is given
in the Prospectus, any Material Adverse Effect otherwise than as set forth or
contemplated in the Registration Statement and the Prospectus; (iii) the
representations and warranties contained in Sections 6 and 7 of this Agreement
are true and correct with the same force and effect as though made at and as of
the Closing Date; (iv) the Primary Parties have complied in all material
respects with all material agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date including the
conditions contained in this Section 10; (v) no stop order has been issued or,
to the best of their knowledge, is threatened, by the Commission or any other
governmental body; (vi) no order suspending the Offering, the Conversion, the
acquisition of all of the shares of the Bank by the Holding Company, the
acquisition by the MHC of shares of the Common Stock or the effectiveness of the
Prospectus has been issued and to the best of their knowledge, no proceedings
for any such purpose have been initiated or threatened by the FDIC, the
Commissioner, the FRB, the Commission, or any other federal or state authority;
(vii) to the best of their knowledge, no person has sought to obtain regulatory
or judicial review of the action of the FRB, the FDIC or the Commissioner in
approving the Plan or to enjoin the Conversion.
23
<PAGE>
(g) At the Closing Date, the Agent shall receive a letter from RP
Financial, LC., dated as of the Closing Date, (i) confirming that said firm is
independent of the Primary Parties and is experienced and expert in the area of
corporate appraisals, (ii) stating in effect that the Appraisal complies in all
material respects with the applicable requirements of the Conversion
Regulations, and (iii) further stating that its opinion of the aggregate pro
forma market value of the Primary Parties, as converted, expressed in the
appraisal as most recently updated, remains in effect.
(h) None of the Primary Parties shall have sustained, since the date
of the latest financial statements included in the Registration Statement and
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth in the Registration Statement and the Prospectus, and since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there shall not have been any Material Adverse
Effect, otherwise than as set forth or contemplated in the Registration
Statement and the Prospectus, the effect of which, in any such case described
above, is in the Agent's reasonable judgment sufficiently material and adverse
as to make it impracticable or inadvisable to proceed with the Offering or the
delivery of the Shares on the terms and in the manner contemplated in the
Prospectus.
(i) Prior to and at the Closing Date, in the reasonable opinion of
the Agent (i) there shall have been no material adverse change in the financial
condition or in the earnings or business affairs of any of the Primary Parties
independently, or the Primary Parties taken as a whole, from and as of the
latest dates as of which such condition is set forth in the Prospectus, except
as referred to therein; or (ii) there shall have been no material transaction
entered into by the Primary Parties, independently or considered as one
enterprise, from the latest date as of which the financial condition of the
Primary Parties is set forth in the Prospectus, other than transactions referred
to or contemplated therein which is reasonably likely to result in a Material
Adverse Effect.
(j) At or prior to the Closing Date, the Agent shall receive (i) a
copy of the letters from the FDIC of non-objection to the Conversion, the
Conversion Application and the Massachusetts Application, (ii) a copy of the
order from the Commission declaring the Registration Statement effective, (iii)
a certified copy of the certificate of incorporation of the Holding Company,
(iv) a copy of the letter from the FRB approving the Holding Company
Application, (v) a certificate from the FDIC evidencing the Bank's insurance of
accounts, (vi) a copy of the letter from the Commissioner approving the
Massachusetts Application and (viii) any other documents that Agent shall
reasonably request.
(k) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) a suspension or limitation in trading in securities
generally on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market, or quotations halted generally on the NASDAQ Stock
Market, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required by either of such exchanges
or the NASD or by order of the Commission or any other governmental authority
other than temporary trading halts (A) imposed as a result of intraday changes
in the Dow Jones Industrial Average,
24
<PAGE>
(B) lasting no longer than until the regularly scheduled commencement of trading
on the next succeeding business-day, and (C) which, when combined with all other
such halts occurring during the previous five business days, total less than
three; (ii) a general moratorium on the operations of federally-insured
financial institutions or a general moratorium on the withdrawal of deposits
from commercial banks or other federally-insured financial institutions declared
by either federal or state authorities; or (iii) there shall not have occurred
any material adverse change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other calamity
or crisis the effect of which, in the judgment of the Agent, is so material and
adverse as to make it impracticable to market the Shares or to enforce
contracts, including subscriptions or orders, for the sale of the Shares.
(l) All such options, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Agent and to counsel for the Agent. Any
certificate signed by an officer of the Holding Company or the Bank and
delivered to the Agent or to counsel for the Agent shall be deemed a
representation and warranty by the Holding Company or the Bank, as the case may
be, to the Agent as to the statements made therein.
Section 11. Indemnification.
---------------
(a) The Primary Parties jointly and severally agree to indemnify and
hold harmless the Agent, its officers, directors, agents, attorneys, servants
and employees and each person, if any, who controls the Agent within the meaning
of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, against any and
all loss, liability, claim, damage or expense whatsoever (including but not
limited to settlement expenses, subject to the limitation set forth in the last
sentence of subsection (c) below), joint or several, that the Agent or any of
such officers, directors, agents, attorneys, servants, employees and controlling
Persons (collectively, the "Related Persons") may suffer or to which the Agent
or the Related Persons may become subject under all applicable federal and state
laws or otherwise, and to promptly reimburse the Agent and any Related Persons
upon written demand for any reasonable expenses (including reasonable fees and
disbursements of counsel) incurred by the Agent or any Related Persons in
connection with investigating, preparing or defending any actions, proceedings
or claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions: (i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the Prospectus
(or any amendment or supplement thereto), the Applications, or any blue sky
application or other instrument or document of the Primary Parties or based upon
written information supplied by any of the Primary Parties filed in any state or
jurisdiction to register or qualify any or all of the Shares under the
securities laws thereof (collectively, the "Blue Sky Applications"), or any
application or other document, advertisement, or communication ("Sales
Information") prepared, made or executed by or on behalf of any of the Primary
Parties with its consent or based upon written information furnished by or on
behalf of any of the Primary Parties, in order to qualify or register the Shares
under the securities laws thereof, (ii) arise out of or are based upon the
omission or alleged omission to state in any of the foregoing documents or
information, a material fact required to be stated therein or necessary to make
the statements
25
<PAGE>
therein, in light of the circumstances under which they were made, not
misleading; (iii) arise from any theory of liability whatsoever relating to or
arising from or based upon the Registration Statement (or any amendment or
supplement thereto), the Prospectus (or any amendment or supplement thereto),
the Applications, any Blue Sky Applications or Sales Information or other
documentation delete distributed in connection with the Conversion; or (iv)
result from any claims made with respect to the accuracy, reliability and
completeness of the records of Eligible Account Holders and Supplemental
Eligible Account Holders or for any denial or reduction of a subscription or
order to purchase Common Stock, whether as a result of a properly calculated
allocation pursuant to the Plan or otherwise, based upon such records; provided,
however, that no indemnification is required under this subsection (a) to the
extent such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue material statements or alleged untrue material statements
in, or material omission or alleged material omission from, the Registration
Statement (or any amendment or supplement thereto) or the Prospectus (or any
amendment or supplement thereto), the Applications, the Blue Sky Applications or
Sales Information or other documentation distributed in connection with the
Conversion made in reliance upon and in conformity with written information
furnished to the Primary Parties by the Agent or its representatives (including
counsel) with respect to the Agent expressly for use in the Registration
Statement (or any amendment or supplement thereto) or Prospectus (or any
amendment or supplement thereto) under the captions "Market for the Common
Stock", "The Conversion and the Offering - Marketing and Arrangements" and "The
Conversion and the Offering - Direct Community Offering and Syndicated Community
Offering" or statistical information regarding the Holding Company prepared by
the Agent for use in the Sales Information, except for information derived from
the Prospectus. Provided further, that the Primary Parties will not be
responsible for any loss, liability, claim, damage or expense to the extent a
court of competent jurisdiction finds they result primarily from material oral
misstatements by the Agent to a purchaser of Shares which are not based upon
information in the Registration Statement or Prospectus, or from actions taken
or omitted to be taken by the Agent in bad faith or from the Agent's gross
negligence or willful misconduct, and the Agent agrees to repay to the Primary
Parties any amounts advanced to it by the Primary Parties in connection with
matters as to which it is found by a court of competent jurisdiction not to be
entitled to indemnification hereunder.
(b) The Agent agrees to indemnify and hold harmless the Primary
Parties, their directors and officers, agents, servants and employees and each
person, if any, who controls any of the Primary Parties within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and all
loss, liability, claim, damage or expense whatsoever (including but not limited
to settlement expenses, subject to the limitation set forth in the last sentence
of subsection (c) below), joint or several which they, or any of them, may
suffer or to which they, or any of them, may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Primary
Parties and any such persons upon written demand for any reasonable expenses
(including fees and disbursements of counsel) incurred by them in connection
with investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment or supplement thereto),
26
<PAGE>
the Applications or any Blue Sky Applications or Sales Information or are based
upon the omission or alleged omission to state in any of the foregoing documents
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Agent's obligations under this
Section 11(b) shall exist only if and only to the extent that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from, the Applications, Registration Statement
(or any amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Primary Parties by the Agent or its representatives (including
counsel) expressly for use under the captions "Market for the Common Stock",
"The Conversion and the Offering - Marketing Arrangements" and "The Conversion
and the Offering - Direct Community Offering and Syndicated Community Offering"
or statistical information regarding the Holding Company prepared by the Agent
for use in the Sales information (except for statistical information derived
from the Prospectus).
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 11,
Section 12 or otherwise, unless the failure to give such notice promptly results
in material prejudice to the indemnifying party. An indemnifying party may
participate at its own expense in the defense of such action. In addition, if it
so elects within a reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice, may
assume the defense of such action with counsel chosen by it reasonably
acceptable to the indemnified parties that are defendants in such action, unless
such indemnified parties reasonably object to such assumption on the ground that
there may be legal defenses available to them that are different from or in
addition to those available to such indemnifying party. If an indemnifying party
assumes the defense of such action, the indemnifying parties shall not be liable
for any fees and expenses of counsel for the indemnified parties incurred
thereafter in connection with such action, proceeding or claim, other than
reasonable costs of investigation. In no event shall the indemnifying parties be
liable for the fees and expenses of more than one separate firm of attorneys
(unless an indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or in
addition to those of other indemnified parties) for all indemnified parties in
connection with any one action, proceeding or claim or separate but similar or
related actions, proceedings or claims in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party, shall be
liable for any settlement of any action, proceeding or suit, which settlement is
effected without its prior written consent.
(d) The agreements contained in this Section 11 and in Section 12
hereof and the representations and warranties of the Primary Parties set forth
in this Agreement shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of the Agent or its officers,
directors, controlling persons, agents or employees or by or on behalf of any of
the Primary Parties or any officers, directors, controlling persons, agents or
employees of any of the Primary Parties; (ii) delivery of and payment hereunder
for the Shares; or (iii) any
27
<PAGE>
termination of this Agreement. Notwithstanding the prior sentence, Sections 11
and 12 hereof are subject to and limited by Section 23A of the Federal Reserve
Act, as applicable.
28
<PAGE>
Section 12. Contribution.
------------
(a) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 11 is due in
accordance with its terms but is for any reason held by a court to be
unavailable from the Primary Parties or the Agent, the Primary Parties and the
Agent shall contribute to the aggregate losses, claims, damages and liabilities
of the nature contemplated by such indemnification (including any investigation,
legal and other expenses incurred in connection therewith and any amount paid in
settlement of any action, suit, or proceeding of any claims asserted, but after
deducting any contribution received by the Primary Parties or the Agent from
persons other than the other party thereto, who may also be liable for
contribution) in such proportion so that (i) the Agent is responsible for that
portion represented by the percentage that the fees paid to the Agent pursuant
to Section 4 of this Agreement (not including expenses) ("Agent's Fees"), less
any portion of Agent's Fees paid by Agent to Assisting Brokers, bear to the
total proceeds received by the Primary Parties from the sale of the Shares in
the Offering, net of all expenses of the Offering, and (ii) the Primary Parties
shall be responsible for the balance. If, however, the allocation provided above
is not permitted by applicable law or if the indemnified party failed to give
the notice required under Section 11 above, then each indemnifying party shall
contribute to such amount paid or payable to such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of the
Primary Parties on the one hand and the Agent on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof), but also the
relative benefits received by the Primary Parties on the one hand and the Agent
on the other from the Offering, as well as any other relevant equitable
considerations. The relative benefits received by the Primary Parties on the one
hand and the Agent on the other hand shall be deemed to be in the same
proportion as the total proceeds from the Offering, net of all expenses of the
Offering, received by the Primary Parties bear, with respect to the Agent, to
the total fees (not including expenses) received by the Agent less the portion
of such fees paid by the Agent to Assisting Brokers. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Primary Parties on the
one hand or the Agent on the other and the parties relative intent, good faith,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Primary Parties and the Agent agree that it would not
be just and equitable if contribution pursuant to this Section 12 were
determined by pro-rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section 12. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or action, proceedings or claims in
respect thereof) referred to above in this Section 12 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action, proceeding or claim.
It is expressly agreed that the Agent shall not be liable for any loss,
liability, claim, damage or expense or be required to contribute any amount
which in the aggregate exceeds the amount paid (excluding reimbursable expenses)
to the Agent under this Agreement less the portion of such fees paid by the
Agent to Assisting Brokers. It is understood and agreed that the above-stated
limitation on the Agent's liability is essential to the Agent and that the Agent
would not have entered into this Agreement
29
<PAGE>
if such limitation had not been agreed to by the parties to this Agreement. No
person found guilty of any fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution with respect to
any loss or liability arising from such misrepresentation from any person who
was not found guilty of such fraudulent misrepresentation. The duties,
obligations and liabilities of the Primary Parties and the Agent under this
Section 12 and under Section 11 shall be in addition to any duties, obligations
and liabilities which the Primary Parties and the Agent may otherwise have. For
purposes of this Section 12, each of the Agent's and the Primary Parties'
officers, directors and, in the case of the Primary Parties, trustees and each
person, if any, who controls the Agent or any of the Primary Parties within the
meaning of the 1933 Act and the 1934 Act shall have the same rights to
contribution as the Primary Parties and the Agent. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 12, will
notify such party from whom contribution may be sought, but the omission to so
notify such party shall not relieve the party from whom contribution may be
sought from any other obligation it may have hereunder or otherwise than under
this Section 12.
Section 13. Survival.
--------
(a) All representations, warranties and indemnities and other
statements contained in this Agreement (and in Paragraph 11 of the Letter
Agreement), or contained in certificates of officers of the Primary Parties or
the Agent submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any termination or cancellation of this Agreement or
any investigation made by or on behalf of the Agent or its controlling persons,
or by or on behalf of the Primary Parties and shall survive the issuance of the
Shares, and any legal representative, successor or assign of the Agent, any of
the Primary Parties, and any indemnified person shall be entitled to the benefit
of the respective agreements, indemnities, warranties and representations.
(b) The provisions of Paragraph 9 of the Letter Agreement shall
survive the issuance of the Shares (but not any termination or cancellation of
this Agreement) for a period of one (1) year, and any legal representative,
successor or assign of the Agent, and any of the Primary Parties shall be
entitled during such period to the benefit of the agreements contained therein.
Section 14. Termination. Agent may terminate this Agreement by
-----------
giving the notice indicated below in this Section at any time after this
Agreement becomes effective as follows:
(a) In the event the Holding Company fails to sell the minimum number
of the Shares prior to June 30, 2000, in accordance with the provisions of the
Plan or as required by the Conversion Regulations and applicable law, upon
notice by the Agent this Agreement shall terminate upon refund by the Primary
Parties to each person who has subscribed for or ordered any of the Shares the
full amount which it may have received from such person, together with interest
in accordance with Section 3 and any such termination shall be without liability
of any party to any other party except as otherwise provided in Sections 3, 4,
9, 11 and 12 hereof and Paragraph 11 of the Letter Agreement.
30
<PAGE>
(b) If any of the conditions specified in Section 10 shall not have
been fulfilled when and as required by this Agreement, or by the Closing Date,
or waived in writing by the Agent, this Agreement and all of the Agent's
obligations hereunder may be canceled by the Agent by notifying the Bank of such
cancellation in writing at any time at or prior to the Closing Date, and any
such cancellation shall be without liability of any party to any other party
except as otherwise provided in Sections 3, 4, 9, 11 and 12 hereof and
Paragraph 11 of the Letter Agreement.
(c) If Agent elects to terminate this Agreement as provided in this
Section, the Bank shall be notified by the Agent as provided in Section 15
hereof.
(d) If this Agreement is terminated in accordance with the provisions
of this Agreement, the Primary Parties shall pay the Agent the fees earned
pursuant to Section 4 and will reimburse the Agent for its reasonable expenses
pursuant to Section 9, including without limitation accounting, communication,
legal and travel expenses.
Section 15. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to Agent shall be
directed to Ryan, Beck & Co., 220 South Orange Avenue, Livingston, New Jersey
07039, Attention: Mr. Ben Plotkin, President (with a copy to Nixon Peabody LLP,
1255 23/rd/ Street, N.W., Suite 800, Washington, D.C. 20037; Attention: Raymond
J. Gustini, Esq.); notices to the Primary Parties shall be directed to
Cambridgeport Bank, P.O. Box 9140, Cambridge, MA 02139-9140, Attention: James B.
Keegan, President and Chief Operating Officer (with a copy to Thacher Proffitt &
Wood, 1700 Pennsylvania Ave., N.W., Suite 800, Washington, D.C. 20006,
Attention: Richard A. Schaberg, Esq.)
Section 16. Parties. This Agreement shall inure to the benefit of and
-------
be binding upon the Agent and the Primary Parties, and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
parties hereto and their respective successors and the controlling persons and
officers and directors referred to in Sections 11 and 12 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provisions herein contained. It is understood
and agreed that this Agreement is the exclusive agreement among the parties,
supersedes any prior Agreement among the parties and may not be varied except by
a writing signed by all parties, except for Paragraphs 3, 9 and 11 of the Letter
Agreement, which are not hereby superseded.
Section 17. Partial Invalidity. In the event that any term,
------------------
provision or covenant herein or the application thereof to any circumstances or
situation shall be invalid or unenforceable, in whole or in part, the remainder
hereof and the application of said term, provision or covenant to any other
circumstance or situation shall not be affected thereby, and each term,
provision or covenant herein shall be valid and enforceable to the full extent
permitted by law.
31
<PAGE>
Section 18. Construction. This Agreement shall be construed in
------------
accordance with the laws of the Commonwealth of Massachusetts.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and us in accordance with its terms.
Very truly yours,
PORT FINANCIAL CORP.
By: __________________________
James B. Keegan
President and Chief Executive Officer
CAMBRIDGEPORT BANK
By: __________________________
James B. Keegan
President and Chief Executive Officer
The foregoing Agency Agreement
is hereby confirmed and
accepted as of the date first
set forth above.
RYAN, BECK & CO., INC.
By: __________________________
Ben A. Plotkin
President and Chief Executive Officer
32
<PAGE>
Exhibit 2.1
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
PLAN OF CONVERSION
FROM
MUTUAL HOLDING COMPANY
TO
STOCK HOLDING COMPANY
AND
STOCK ISSUANCE
Adopted by the Board of Trustees
on October 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Introduction - Business Purpose.................................. 1
2. Definitions...................................................... 2
3. General Procedure for Conversion................................. 7
3.1 Procedures for Conversion................................... 7
3.2 Preconditions to Conversion................................. 9
4. Number of Shares and Purchase Price of Conversion Stock.......... 9
4.1 Independent Appraisal....................................... 9
4.2 Price Per Share............................................. 9
4.3 Number of Shares............................................ 10
4.4 Confirmation of Valuation................................... 10
5. Subscription Rights of Eligible Account Holders, Supplemental
Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans and Management............................................. 10
5.1 Subscription Priorities..................................... 10
5.2 Minimum Purchase; No Fractional Shares...................... 13
5.3 Purchase Limitations........................................ 13
5.4 Certain Determinations...................................... 13
6. Direct Community Offering and Syndicated Community Offering...... 13
6.1 Direct Community Offering................................... 13
6.2 Syndicated Community Offering............................... 14
6.3 Other Arrangements.......................................... 14
7. Limitations on Purchases......................................... 14
7.1 Maximum Purchase Limit...................................... 14
7.2 Purchases by Management..................................... 15
7.3 Illegal Purchases........................................... 15
7.4 Rejection of Orders......................................... 15
8. Manner of Exercising Rights; Order Forms......................... 15
9. Payment for Conversion Stock..................................... 17
9.1 Deadline for Receipt of Payment............................. 17
9.2 Changes in Aggregate Purchase Price......................... 17
9.3 Method of Payment........................................... 17
10. Expiration of Purchase Rights; Undelivered, Defective or
Late Order Forms; Insufficient Payment........................... 18
10.1 Expiration of Subscription Rights.......................... 18
10.2 Undelivered, Defective or Late Order Forms;
Insufficient Payment....................................... 18
10.3 Waiver of Irregularities or Defects........................ 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
11. Persons in Nonqualified States or in Foreign Countries........... 19
12. Voting Rights after Conversion................................... 19
13. Establishment of a Liquidation Account........................... 19
13.1 Establishment of Liquidation Account....................... 19
13.2 Interest in Liquidation Account............................ 19
13.3 Amount of Subaccount Balances.............................. 19
13.4 Distributions.............................................. 20
14. Restriction on Transfer of Conversion Stock of Management........ 20
14.1 Restrictions on Resale..................................... 20
14.2 Certificates and Stop Orders............................... 20
14.3 Stock Dividends and Stock Splits........................... 21
15. Restriction on Stock Purchases by Management..................... 21
16. Amendment and Termination of the Plan............................ 21
17. Time Period for Completion of Conversion......................... 21
18. Expenses of Conversion........................................... 21
19. Registration Under Securities Exchange Act of 1934............... 21
20. Market........................................................... 22
21. Conversion Stock Not Insured..................................... 22
22. No Loans to Purchase Capital Stock............................... 22
23. Restrictions on Acquisition of Bank.............................. 22
24. Stock Charter and Bylaws......................................... 22
24.1 Stock Holding Company Articles of Organization
And Bylaws................................................. 22
24.2 Bank Charter And Bylaws.................................... 23
25. Post Offering Matters............................................ 23
25.1 Stock Benefit Plans........................................ 23
25.2 Payment of Dividends....................................... 23
25.3 Repurchase of Stock........................................ 23
26. Miscellaneous.................................................... 24
26.1 Interpretation of Plan..................................... 24
26.2 Enforcement of Terms and Conditions........................ 24
</TABLE>
ii
<PAGE>
Exhibits
--------
Exhibit A - Proposed Articles of Organization of the Stock Holding Company
Exhibit B - Proposed Bylaws of the Stock Holding Company
Exhibit C - Amended and Restated Charter of Cambridgeport Bank
Exhibit D - Amended and Restated Bylaws of Cambridgeport Bank
Exhibit E - Initial Directors of the Stock Holding Company
iii
<PAGE>
CAMBRIDGEPORT MUTUAL HOLDING COMPANY
PLAN OF CONVERSION FROM MUTUAL HOLDING COMPANY
TO STOCK HOLDING COMPANY AND STOCK ISSUANCE
1. Introduction - Business Purpose
The Board of Trustees of Cambridgeport Mutual Holding Company, a
Massachusetts-chartered mutual holding company (the "MHC"), has determined that
it is in the best interests of the MHC, of Cambridgeport Bank, a Massachusetts-
chartered stock savings bank and wholly owned subsidiary of the MHC (the
"Bank"), of the depositors and customers of the Bank, and of the communities
served by the Bank and the MHC for the MHC to convert from a mutual institution
to a stock-form institution (the "Conversion"). Capitalized terms used but not
defined in this Section 1 shall have the meaning set forth in Section 2 hereof.
In order to carry out the Conversion, the Board of Trustees of the MHC has
adopted this Plan of Conversion (the "Plan") to be carried out under the laws of
the Commonwealth of Massachusetts and the regulations of the Massachusetts
Division of Banks and the FRB, and other applicable laws and regulations.
Pursuant to the Plan, the MHC will convert to a stock form corporation (the
"Stock Holding Company") and offer Conversion Stock on a priority basis to (i)
qualifying depositors, (ii) Tax-Qualified Employee Plans of the Bank and the MHC
and (iii) Management, with any remaining shares to be offered to the Local
Community in a Direct Community Offering and possibly to the public in a
Syndicated Community Offering.
The Conversion is intended to provide an additional source of capital not
now available in order to allow the Bank and the MHC to better serve the needs
of the Local Community through: increased lending (especially to support the
introduction of small business banking); opportunistic branch expansion;
diversification of products; expanding delivery systems, including the
introduction of Internet banking and capitalization on opportunities to serve
customers disenfranchised by recent consolidations in the banking industry. The
Conversion is also intended to provide an additional source capital to the Sock
Holding Company in order to allow it to: finance acquisitions of other
financial institutions or other businesses related to banking; pay dividends to
stockholders; and repurchase shares of Conversion Stock. In addition, after the
Conversion, the Stock Holding Company would have the ability to issue additional
shares of Holding Company Common Stock to raise additional capital or in
connection with additional mergers or acquisitions, although no additional
capital issuance and no merger or acquisition are planned or contemplated at the
present time. In addition, stock ownership by Officers and other Employees of
the Stock Holding Company and the Bank has proven to be an effective performance
incentive and an effective means of attracting and retaining qualified
personnel. The Board of Directors, Board of Trustees and senior management
believe that the Conversion will be beneficial to the population within the
primary market area. The Conversion will provide local customers and other
residents with an opportunity to become equity owners of the Bank, and thereby
participate in the possible stock price appreciation and cash dividends, which
is consistent with the objective of being a locally-owned financial institution
servicing local financial needs. The Board and management believe that, through
expanded local stock ownership, current customers and non-customers who purchase
1
<PAGE>
Conversion Stock will seek to enhance the financial success of the Bank through
consolidation of their banking business and increased referrals to the Bank.
The Plan is subject to the approval of various regulatory agencies, and
must also be approved by the affirmative vote of at least a majority of the
MHC's Corporators (and a majority of the MHC's Independent Corporators (who must
constitute not less than 60% of all Corporators)) at an annual meeting or a
special meeting called for such purpose. By approving the Plan, the Corporators
will also be approving the Articles of Organization and bylaws of the Stock
Holding Company and the Charter and bylaws of the Bank and all other steps
necessary or incidental to the Conversion.
The Bank became a stock-form subsidiary of the MHC when the Bank
reorganized into mutual holding company form in 1994. Accordingly, the
Conversion will not affect the corporate existence of the Bank. Although the
Plan does provide that certain amendments will be made to the Bank's corporate
charter and bylaws, the Bank's business and operations will not be affected or
interrupted by the Conversion, and the Bank will continue as the same legal
entity after the Conversion. The deposit accounts and loan accounts of the
Bank's customers will not be affected by the Conversion. Upon Conversion, each
deposit account holder of the Bank will continue to hold exactly the same
deposit account as the holder held immediately before the Conversion. All
deposit accounts in the Bank following the Conversion will continue to be
insured up to the legal maximum by the Federal Deposit Insurance Corporation and
the Depositors Insurance Fund of the Mutual Savings Central Fund, Inc. in the
same manner as such deposit accounts were insured immediately before the
Conversion. There will be no change in the Bank's loans. The Conversion will
not result in any reduction of the Bank's reserves or net worth.
2. Definitions
As used in the Plan, the terms set forth below have the following meanings:
Acting in Concert: The term "Acting in Concert" means (a) knowing
participation in a joint activity or conscious parallel action towards a common
goal, whether or not pursuant to an express agreement; or (b) Persons seeking to
combine or pool their voting or other interests (such as subscription rights) in
the securities of an issuer for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. When Persons act together for such purpose, their group is deemed to
have acquired their stock. The determination of whether a group is Acting in
Concert shall be made solely by the Board of Trustees of the MHC or Officers
delegated by such Board and may be based on any evidence upon which the Board or
such delegate chooses to rely, including, without limitation, joint account
relationships or the fact that such Persons have filed joint Schedules 13D with
the SEC with respect to other companies. Trustees of the MHC and directors of
the Stock Holding Company and the Bank shall not be deemed to be Acting in
Concert solely as a result of their membership on any such board or boards.
Affiliate: An "Affiliate" of, or a Person "Affiliated" with, a specified
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the
Person specified.
2
<PAGE>
Aggregate Purchase Price: The term "Aggregate Purchase Price" means the
total sum paid for all shares of Conversion Stock.
Application: The application, including a copy of the Plan, submitted by
the MHC to the Commissioner for approval of the Conversion.
Associate: The term "Associate," when used to indicate a relationship with
any Person, means: (i) any corporation or organization (other than the Bank,
the Stock Holding Company, the MHC or a majority-owned subsidiary of any
thereof) of which such Person is a director, Officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
securities; (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity; (iii) any relative or spouse of such Person, or
any relative of such spouse, who has the same home as such Person; and (iv) any
Person Acting in Concert with any of the Persons or entities specified in
clauses (i) through (iii) above; provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an Associate of any
director, trustee or Officer of the MHC, the Stock Holding Company or the Bank,
to the extent provided in the Plan. When used to refer to a Person other than
an Officer or director of the Bank, the MHC or the Stock Holding Company, the
MHC in its sole discretion may determine the Persons that are Associates of
other Persons. Trustees of the MHC and directors of the Stock Holding Company
and the Bank shall not be deemed to be Associates solely as a result of their
membership on such Board.
Bank: Cambridgeport Bank.
BHCA: The Bank Holding Company Act of 1956, as amended.
Broker-Dealer: The term "Broker-Dealer" means any person who engages
either for all or part of such person's time, directly or indirectly, as agent,
broker or principal, in the business of offering, buying, selling or otherwise
dealing or trading in securities issued by another person.
Commissioner: The Office of the Commissioner of Banks of The Commonwealth
of Massachusetts.
Community Offering: A Direct Community Offering and/or a Syndicated
Community Offering.
Conversion: (1) the conversion of the MHC into the Stock Holding Company
by amendment of the MHC's charter and bylaws to authorize the issuance of
capital stock or by such other means as the Commissioner shall approve under
applicable Massachusetts law and regulations, (2) the offering of Conversion
Stock in a Subscription Offering and, to the extent shares remain available, in
a Direct Community Offering and possibly in a Syndicated Community Offering; (3)
the issuance of the Conversion Stock, (4) the amendment of the Bank's charter
and bylaws as contemplated in the Plan; and (5) the consummation of the related
transactions provided for in the Plan.
Conversion Stock: The Holding Company Common Stock to be issued in the
Conversion.
3
<PAGE>
Corporator: A member of the MHC's Board of Corporators.
Deposit Account: Any withdrawable deposit account offered by the Bank,
including, without limitation, savings accounts, NOW account deposits,
certificates of deposit, demand deposits, Keogh Plan, SEPs and IRA accounts for
which the Bank acts as custodian or trustee, and such other types of deposit
accounts as may then have been authorized by Massachusetts or federal law and
regulations, but not including repurchase agreements, savings bank life
insurance policies or certain escrow accounts.
Direct Community Offering: The offering to the Local Community with
preference given to natural persons residing in the Local Community, and then to
the general public of any unsubscribed shares in the Subscription Offering which
may be effected pursuant to the Plan. The Direct Community Offering may be
conducted simultaneously with the Subscription Offering.
Division: The Division of Banks of The Commonwealth of Massachusetts.
Eligible Account Holder: Any Person holding a Qualifying Deposit on the
Eligibility Record Date.
Eligibility Record Date: July 31, 1998, the date for determining who
qualifies as an Eligible Account Holder.
Employee: The term "Employee" does not include a trustee, director or
Officer.
Employee Plan: Any Tax-Qualified Employee Plan or Non-Tax-Qualified
Employee Benefit Plan.
ESOP: The employee stock ownership plan to be established by the Bank.
Estimated Valuation Range: The dollar range of the proposed Offering, as
determined by the Independent Appraiser before the Offering and as it may be
amended from time to time thereafter. The Estimated Valuation Range may vary
within 15% above or 15% below the midpoint of such range, with a possible
adjustment by up to 15% above the maximum ("Range Maximum") of such range.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
Holding Company Common Stock: The common stock authorized to be issued
from time to time by the Stock Holding Company.
Independent Appraiser: The appraiser retained by the MHC to prepare an
appraisal of the pro forma market value of the Conversion Stock.
4
<PAGE>
Independent Corporator: A Corporator who is not an Employee, Officer, or
trustee of the MHC or an Employee, Officer, director, or "significant borrower"
of the Bank.
Independent Valuation: The estimated pro forma market value of the
Conversion Stock as determined by the Independent Appraiser.
Information Statement. The information statement required to be sent to
the Corporators in connection with the Special Meeting.
Liquidation Account: The liquidation account established pursuant to
Section 13.1 of the Plan.
Local Community: Those cities and towns designated by the MHC with the
approval of the Commissioner before the commencement of the Offering.
Management: Employees, Officers, directors, trustees and Corporators of
the Bank or the MHC.
Marketing Agent: The broker-dealer responsible for organizing and managing
the Conversion and sale of the Conversion Stock.
Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide
competitive bid and offer quotations on request, and (ii) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
Maximum Purchase Limit: The limitation on the purchase of shares of
Conversion Stock established by Section 7.1, as such limit may be increased
pursuant to said Section 7.1.
MHC: Cambridgeport Mutual Holding Company, the Massachusetts-chartered
holding company for the Bank as it exists in mutual form prior to the
Conversion.
Non-Tax-Qualified Employee Benefit Plan: Any defined benefit plan or
defined contribution plan which is not qualified under Section 401 of the
Internal Revenue Code.
Offering: The Subscription Offering, the Direct Community Offering and the
Syndicated Community Offering.
Officer: The Chairman of the Board, the President, any Officer of the
level of vice president or above, the Clerk and the Treasurer of the Bank, the
MHC or the Stock Holding Company, as the case may be.
Person: An individual, corporation, partnership, association, joint-stock
company, trust (including Individual Retirement Accounts, SEP's and Keogh
Accounts), unincorporated organization, government entity or political
subdivision thereof or any other entity.
5
<PAGE>
Plan: This Plan of Conversion as adopted by the Board of Directors of the
Bank and the Board of Trustees of the MHC and approved by the Commissioner.
Prospectus: The term "Prospectus" means the prospectus by which the
Conversion Stock is being offered.
Purchase Price: The term "Purchase Price" means the price of the
Conversion Stock, as offered in the Conversion.
Qualifying Deposit: The term "Qualifying Deposit" means deposit accounts
of all types offered by the Bank including, but not limited to, NOW account
deposits, certificates of deposit, demand deposits, money market deposits and
deposits made pursuant to IRA/Keogh Plans. It does not include repurchase
agreements, savings bank life insurance policies or certain escrow accounts.
Aggregate deposits of less than $50 will not constitute Qualifying Deposits.
Range Maximum: The valuation which is 15% above the midpoint of the
Estimated Valuation Range, as defined in Section 4.1.
Regulations: The regulations of the Division and the FRB regarding mutual
to stock conversions.
SEC: The Securities and Exchange Commission.
Special Meeting: The Special Meeting of Corporators called for the purpose
of voting on the Plan.
Stock Holding Company: The stock-form holding company that will result
from the conversion of the MHC as provided in the Plan, issue Conversion Stock
in the Conversion, and continue to own 100% of the common stock of the Bank.
Stock Holding Company Application: The holding company application to be
submitted by the MHC to the FRB to have the MHC convert to stock form and issue
Conversion Stock.
Subscription Offering: The term "Subscription Offering" means the offering
of Conversion Stock, through nontransferable Subscription Rights issued to
Eligible Account Holders, Supplemental Eligible Account Holders, the Tax
Qualified Employee Stock Benefit Plans of the Bank and Management.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
Record Date" means September 30, 1999, the record date set by the Bank for
determining Supplemental Eligible Account Holders.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
Account Holder" means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit in the Bank as of the Supplemental Eligibility Record Date,
except Officers, directors, trustees, corporators and their associates.
6
<PAGE>
Syndicated Offering: The term "Syndicated Offering" means the offering of
Conversion Stock not subscribed for in the Subscription Offering or the Direct
Community Offering, if any, to certain members of the general public and/or
through a syndicate of registered broker-dealers:
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank, such as an employee stock ownership plan, or
other plan, which, with its related trust, meets the requirements to be
"qualified" under section 401 of the Internal Revenue Code of 1986, as amended:
3. General Procedure for Conversion
3.1 Procedures for Conversion. After adoption of the Plan by the Board of
Directors of the Bank and at least two-thirds of the Board of Trustees of the
MHC, the Plan will be submitted, together with all other requisite material in
the Application, to the Commissioner for his approval and to the FRB to
determine whether it has objections, based on safety and soundness
considerations, to the Conversion. References herein to approval of the
Commissioner shall also refer to the approval from the FRB. The Bank must also
receive either private letter rulings from the Internal Revenue Service and the
Massachusetts Department of Revenue or opinions of its counsel as to the federal
income tax consequences of the Conversion and of its tax accountants as to the
Massachusetts income tax consequences of the Conversion, in either case
substantially to the effect that the Conversion will not result in any adverse
federal or Massachusetts income tax consequence to the Bank, the MHC, the Stock
Holding Company, Eligible Account Holders or Supplemental Eligible Account
Holders.
Upon a determination by the Commissioner that the Application is complete,
the MHC will publish and post public announcements and notices of the
Application as required by the Commissioner and the Regulations. Following
approval of the Plan by the Commissioner, the Special Meeting shall be scheduled
in accordance with the MHC's Bylaws, and the Plan (as revised in response to
comments received from the Commissioner), proposed revisions and amendments to
the charters and bylaws of the Bank and the Articles of Organization and bylaws
of the Stock Holding Company, and any information required pursuant to the
Regulations, will be submitted to the Corporators for their consideration and
approval at the Special Meeting. The MHC will mail to each Corporator a copy of
the Information Statement not less than seven (7) days before the Special
Meeting. Following approval of the Plan by the Corporators, the MHC intends to
take such steps as may be appropriate pursuant to applicable laws and
regulations to convert the MHC to a Massachusetts-chartered stock form holding
company.
If the Corporators approve the Plan, and upon receipt of all required
regulatory approvals, the Bank will sell the Conversion Stock in a Subscription
Offering as provided herein. Upon such approval, the Conversion Stock to be
issued pursuant to this Plan will be offered to Eligible Account Holders,
Supplemental Eligible Account Holders, the Tax-Qualified Employee Stock Benefit
Plans and Management and as set forth in Section 5 of this Plan. The
Subscription Offering period will run for no less than twenty (20) but no more
than forty-five (45) days from the date of distribution of the Subscription
Offering materials, unless extended by the MHC with the approval of the
Commissioner.
7
<PAGE>
If feasible, any Conversion Stock remaining will then be sold 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, during or subsequent to 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 Rights
provided for in this Plan.
If feasible, any shares of Conversion Stock remaining unsold after
completion of the Subscription Offering and a Direct Community Offering will be
sold in a Syndicated Community Offering (which may commence following or
contemporaneously with the Direct Community Offering). If for any reason a
Syndicated Community Offering of all unsubscribed Conversion Stock cannot be
effected, the MHC will use its best efforts to obtain other purchasers, subject
to the approval of the Commissioner. Completion of the sale of all Conversion
Stock not sold in the Subscription Offering is required within forty-five (45)
days after termination of the Subscription Offering, subject to the extension of
such forty-five (45) day period by the MHC with the approval of the
Commissioner. The MHC may seek one or more extensions of such forty-five (45)
day period if necessary to complete the sale of all shares of Conversion Stock.
If all available shares of Conversion Stock are sold in the Subscription
Offering and any Direct Community Offering, there will be no Syndicated
Community Offering and the Conversion will be consummated upon completion of the
Subscription Offering or the Direct Community Offering, as the case may be.
Upon the consummation of the Conversion, the MHC will be converted into the
Stock Holding Company. The Stock Holding Company will be chartered as a
Massachusetts corporation and will be authorized to exercise any and all powers,
rights and privileges, and will be subject to all limitations applicable to bank
holding companies under applicable laws and regulations. The initial members of
the Board of Directors of the Stock Holding Company will be those Persons whose
names are set forth on Exhibit E to the Plan, each to hold office until the
---------
Annual Meeting (or Special Meeting in lieu thereof) in the year set forth
opposite their respective names on such Exhibit E, and until their successors
are elected and have been qualified, and otherwise in accordance with the
Articles of Organization and By-Laws of the Stock Holding Company. The Officers
of the Bank immediately prior to the Conversion shall be the initial Officers of
the Stock Holding Company, in each case until their respective successors are
duly elected or appointed and qualified. The Stock Holding Company, as
successor in interest to the MHC, will continue to own 100% of the common stock
of the Bank. The Stock Holding Company expects to contribute at least 50% of
the net proceeds of the Conversion to the Bank as additional capital.
The Bank believes that the Conversion proceeds will greatly enhance the
Bank's ability, among other things, (i) to expand its franchise through
increased lending, (ii) to diversify products offered to customers and (iii) to
establish new branch locations.
3.2 Preconditions to Conversion. The Conversion is expressly conditioned
upon prior occurrence of the following:
8
<PAGE>
(A) Approval of the Plan by the affirmative vote of a majority of the
Corporators at a regular or special meeting of such Corporators (and,
if required by regulatory authorities, by the affirmative vote of a
majority of Independent Corporators (who shall constitute not less
than 60% of all Corporators)).
(B) Approval by the Commissioner of the Application, including the Plan
and the Articles of Organization and Bylaws of the Stock Holding
Company and of the Bank.
(C) Approval by the FRB for the MHC to convert to stock form and issue
Conversion Stock.
4. Number of Shares and Purchase Price of Conversion Stock.
4.1 Independent Appraisal. An Independent Appraiser shall be employed by
the MHC to provide it with an Independent Valuation as required by regulations
of the Commissioner. The Trustees of the MHC shall thoroughly review and
analyze the methodology and fairness of the Independent Valuation. The
Independent Valuation will be made by a written report to the MHC, contain the
factors upon which the Independent Valuation was made and conform to procedures
adopted by the Commissioner. The Independent Valuation shall contain an
Estimated Valuation Range of aggregate prices for the Conversion Stock, which
range shall reflect the anticipated pro forma market value of the Conversion
Stock. The Aggregate Purchase Price shall be no more than 15 percent above the
Estimated Valuation Range, and the minimum price shall be no more than 15
percent below the Estimated Valuation Range. 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, 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 to the MHC at the close of the Subscription
Offering a valuation of the pro forma market value of the Conversion Stock. The
Aggregate Purchase Price of the Conversion Stock shall be adjusted to reflect
any required changes in the Independent Valuation. If, as a result of such
adjustment, the Aggregate Purchase Price is not within the Estimated Valuation
Range, the MHC shall obtain an amendment to the Commissioner's approval. If
appropriate, the Commissioner will condition his approval by requiring a
resolicitation of depositors and/or order forms.
4.2 Price Per Share. 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 in accordance
with the Independent Valuation furnished to the MHC by the Independent
Appraiser.
4.3 Number of Shares. The total number of shares of Conversion Stock
which will be issued in connection with the Conversion will be determined by the
Board of Trustees of the MHC and the Board of Directors of the Bank immediately
prior to the commencement of the Subscription Offering; provided, that the Board
of Trustees of the MHC may elect to increase or decrease the number of shares of
Conversion Stock to be offered in the Offering depending upon market and
9
<PAGE>
financial conditions or in the event the initial Independent Valuation is
materially increased or decreased by the Independent Appraiser.
4.4 Confirmation of Valuation. Notwithstanding the foregoing, no sale of
Conversion Stock may be consummated unless, before such consummation, the
Independent Appraiser confirms to the Trustees of the MHC and to the FRB and the
Commissioner that, to the best knowledge of the Independent Appraiser, nothing
of a material nature has occurred which, taking into account all relevant
factors, would cause the Independent Appraiser to conclude that the aggregate
value of the Conversion Stock at the Aggregate Purchase Price for all shares of
Conversion Stock is incompatible with its estimate of the aggregate consolidated
pro forma market value of the Conversion Stock. An increase in the aggregate
value of the Conversion Stock by up to 15% above the estimated pro forma market
value of the MHC would not be deemed to be material. If such confirmation is
not received, the MHC may cancel the Conversion, resolicit and extend the
Conversion and establish a new Purchase Price and/or Estimated Valuation Range,
or hold a new Conversion or take such other action as the FRB and the
Commissioner may permit. The estimated pro forma market value of the
Conversion Stock shall be determined for such purpose by an Independent
Appraiser on the basis of such appropriate factors as are not inconsistent with
the Regulations and will be confirmed upon completion of the Conversion. In any
case, the total number of shares of Conversion Stock to be issued and sold will
be determined by the MHC as follows: (a) the estimated aggregate pro forma
market value of the Conversion Stock, immediately after Conversion as
determined by the Independent Appraiser, expressed in terms of a specific
aggregate dollar amount rather than as a range, shall be divided by (b) the
Purchase Price.
5. Subscription Rights of Eligible Account Holders, Supplemental Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans and Management
5.1 Subscription Priorities. In descending order of priority, the
opportunity to purchase Conversion Stock shall be given in the Subscription
Offering to: (A) Eligible Account Holders; (B) Supplemental Eligible Account
Holders; (C) Tax-Qualified Employee Plans; and (D) Management. Any shares of
Conversion Stock that are not subscribed for in the Subscription Offering at the
discretion of the MHC may be offered for sale in a Direct Community Offering
and, if necessary, a Syndicated Community Offering on terms and conditions and
procedures satisfactory to the MHC.
(A) Category No. 1: Eligible Account Holders
(1) Each Eligible Account Holder shall receive, as first priority and
without payment, non-transferable Subscription Rights to purchase
shares of Conversion Stock in the amount up to $1,000,000. The MHC
may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, (x)
increase such $1,000,000 purchase limit to up to 5% of the number of
shares of Conversion Stock sold in the Offering or (y) decrease such
$1,000,000 purchase limit to no less than one-tenth of one percent
(.10%) of the number of shares of Conversion Stock sold in the
Offering. If the MHC increases the $1,000,000 purchase limit,
subscribers for the previously-effective maximum amount will be, and
certain other large subscribers in the sole discretion of the MHC may
be, given the opportunity to
10
<PAGE>
increase their subscriptions up to the then applicable limit. Requests
to purchase additional shares of Conversion Stock under this provision
will be determined by the MHC, in its sole discretion. Such
subscription is subject to the Maximum Purchase Limit specified in
Section 7.1 and the minimum purchase limit in Section 7.1 and
exclusive of an increase in the total number of shares issued due to
an increase in the Estimated Valuation Range of up to 15%.
(2) In the event that subscriptions for Conversion Stock are received from
Eligible Account Holders upon exercise of Subscription Rights pursuant
to paragraph (a) in excess of the number of Shares available for
subscription, the Conversion Stock available for purchase will be
allocated among the subscribing Eligible Account Holders so as to
permit each subscribing Eligible Account Holder, to the extent
possible, to purchase a number of Shares sufficient to make his total
allocation of Conversion Stock equal to the lesser of 100 Shares or
the number of Shares subscribed for by such Eligible Account Holder.
Any Shares remaining after such allocation will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion which the amount of each Eligible
Account Holder's Qualifying Deposit bears to the total amount of the
Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds
the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated on the same principle (one or more
times as necessary) among those Eligible Account Holders whose
subscriptions are still not fully satisfied until all available Shares
have been allocated.
(3) Subscription Rights held by Eligible Account Holders who are also
Officers, directors, trustees or Corporators of the Bank or the MHC or
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.
11
<PAGE>
(B) Category No. 2: Supplemental Eligible Account Holders
(1) Each Supplemental Eligible Account Holder shall receive, as second
priority and without payment, nontransferable subscription rights to
subscribe for shares of Conversion Stock equal to an amount up to
$1,000,000. The MHC may, in its sole discretion and without further
notice to or solicitation of subscribers or other prospective
purchasers, (x) increase such $1,000,000 purchase limit to up to 5% of
the number of shares of Conversion Stock sold in the Offering or (y)
decrease such $1,000,000 purchase limit to no less than one-tenth of
one percent (.10%) of the number of shares of Conversion Stock sold in
the Offering. If the MHC increases the $1,000,000 purchase limit,
subscribers for the previously-effective maximum amount will be, and
certain other large subscribers in the sole discretion of the MHC may
be, given the opportunity to increase their subscriptions up to the
then applicable limit. Requests to purchase additional shares of
Conversion Stock under this provision will be determined by the MHC,
in its sole discretion. Such subscription is subject to the Maximum
Purchase Limit specified in Section 7.1 and the minimum purchase limit
in Section 7.1 and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Valuation Range of
up to 15%.
(2) In the event that subscriptions for Conversion Stock are received from
Supplemental Eligible Account Holders upon exercise of Subscription
Rights pursuant to paragraph (a) in excess of the number of Shares
available for subscription, the Conversion Stock available for
purchase will be allocated among the subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of Shares
sufficient to make his total allocation of Conversion Stock equal to
the lesser of 100 Shares or the number of Shares subscribed for by
such Supplemental Eligible Account Holder. Any Shares remaining after
such allocation will be allocated among the subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied in the
proposition which the amount of each Supplemental Eligible Account
Holder's Qualified Deposit bears to the total of the Qualifying
Deposits of all Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds
the amount subscribed for by any one or more Supplemental Eligible
Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle
until all available shares have been allocated.
(C) Category No. 3: Tax-Qualified Employee Stock Benefit Plans
The Tax-Qualified Employee Stock Benefit Plans of the Bank shall
receive, without payment, as a third priority after the filling of the
subscriptions of Eligible Account Holders, non-transferable
Subscription Rights to purchase up to 8% of the shares of Conversion
Stock issued in the Conversion. In the event that the total number of
shares of Conversion Stock offered in the Conversion is increased to
an amount greater than the Range Maximum, the ESOP shall have a
priority right to purchase
12
<PAGE>
any such shares exceeding the Range Maximum (up to the aggregate of 8%
of Conversion Stock sold. If all the shares of Common Stock offered in
the Subscription Offering are purchased by Eligible Account Holders
and Supplemental Eligible Account Holders, then the ESOP will purchase
shares in the open market following consummation of the Conversion. 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 Holding Company or the Bank.
Notwithstanding any provision contained herein to the contrary, the
Bank may make scheduled discretionary contributions to a Tax-Qualified
Employee Stock Benefit Plan; provided, that such contributions do not
cause the Bank to fail to meet its regulatory capital requirements.
(D) Category No. 4: Management.
To the extent there are shares remaining after satisfaction of
subscriptions by Eligible Account Holders, Supplemental Eligible
Account Holders, and any Tax-Qualified Employee Plan, each Management
member shall receive non-transferable subscription rights to subscribe
for shares of Conversion Stock offered in the Conversion in an amount
up to $1,000,000. The MHC may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, (x) increase such $1,000,000 purchase limit to up to 5% of
the number of shares of Conversion Stock sold in the Offering or (y)
decrease such $1,000,000 purchase limit to no less than one-tenth of
one percent (.10%) of the number of shares of Conversion Stock sold in
the Offering. If the MHC increases the $1,000,000 purchase limit,
subscribers for the previously-effective maximum amount will be, and
certain other large subscribers in the sole discretion of the MHC may
be, given the opportunity to increase their subscriptions up to the
then applicable limit. Requests to purchase additional shares of
Conversion Stock under this provision will be determined by the MHC,
in its sole discretion. Such subscription is subject to (i) the
Maximum Purchase Limit specified in Section 7.1 and the minimum
purchase limitation in Section 7.1 and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated
Valuation Range of up to 15% and (ii) the limitation on purchases by
Management specified in Section 7.2. In the event that Management
subscribes under this Section 5.1(D) for more shares of Conversion
Stock than are available for purchase by them, the shares of
Conversion Stock available for purchase will be allocated by the MHC
among such subscribing persons on an equitable basis, such as by
giving weight to the period of service, compensation and position of
the individual subscriber.
5.2 Minimum Purchase; No Fractional Shares. The minimum purchase by any
Person shall be 25 shares (to the extent that shares of Conversion Stock are
available for purchase), provided, however, that the aggregate purchase price
for any minimum share purchase shall not exceed $500. No fractional shares will
be allocated or issued.
13
<PAGE>
5.3 Purchase Limitations and Adjustments. All purchase priorities
established by this Section 5 shall be subject to the purchase limitations set
forth in, and shall be subject to adjustment as provided in, Section 7.1 of this
Plan. In addition to the priorities set forth in this Section 5, the MHC may
establish other priorities for the purchase of Conversion Stock, subject to the
approval of the Commissioner and the FRB.
5.4 Certain Determinations. All interpretations or determinations of
whether prospective purchasers are "residents," "Associates," or "Acting in
Concert", and any other interpretations of any and all other provisions of the
Plan shall be made by and at the sole discretion of the MHC, and may be based on
whatever evidence the MHC may choose to use in making any such determination.
6. Direct Community Offering and Syndicated Community Offering.
6.1 Direct Community Offering. If feasible, Conversion Stock which
remains unsubscribed after the exercise of Subscription Rights pursuant to the
Subscription Offering (Section 5) shall be offered for sale first to the Local
Community and then to the general public through a Direct Community Offering.
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 Board so determines. The right to subscribe for
Conversion Stock in the Direct Community Offering is subject to the right of the
Bank 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. In
making the Direct Community Offering, the MHC will give preference to natural
persons residing in the Local Community. Orders accepted in the Direct
Community Offering shall be filled up to a maximum of 2% of the Aggregate
Purchase Price per order and thereafter remaining shares shall be allocated on
an equal number of shares basis per order until all available shares have been
allocated. No Person may purchase more than $1,000,000 of Conversion Stock in
the Direct Community Offering.
The Direct Community Offering, if any, shall be for a period of not more
than 45 days unless extended by the MHC, and shall commence concurrently with,
during or promptly after the Subscription Offering. The MHC may use the
Marketing Agent on a best efforts basis to sell the unsubscribed shares in the
Subscription Offering and Direct Community Offering. The MHC may pay a
commission or other fee to the Marketing Agent as to the shares sold by the
Marketing Agent in the Subscription Offering and Direct Community Offering and
may also reimburse the Marketing Agent for expenses incurred in connection with
the sale.
6.2 Syndicated Community Offering. If any Conversion Stock remains unsold
after the close of the Subscription Offering and Direct Community Offering, the
MHC may use the services of Broker-Dealers to sell such unsold shares in a
Syndicated Community Offering, subject to terms, conditions and procedures as
may be determined by the MHC in a manner that is intended to achieve the widest
distribution of the Conversion Stock subject to the rights of the MHC to accept
or reject in whole or in part all orders in the Syndicated Community Offering.
No Person may purchase in the Syndicated Community Offering more than $1,000,000
of Conversion Stock. Orders for Conversion Stock in the Syndicated Community
Offering may be filled up to a maximum of 2% of the Aggregate Purchase Price per
order and thereafter remaining shares shall be allocated on an equal
14
<PAGE>
number of shares basis per order until all orders have been filled. It is
expected that the Syndicated Community Offering will commence as soon as
practicable after termination of the Direct Community Offering, if any. The
Syndicated Community Offering shall be completed within 45 days after the
termination of the Subscription Offering, unless such period is extended as
provided herein. The commission in the Syndicated Community Offering shall be
determined by a marketing agreement between the MHC and the Marketing Agent.
Such agreement shall be filed with the FRB, the Division and the SEC.
6.3 Other Arrangements. If for any reason a Syndicated Community Offering
of unsubscribed shares of Conversion Stock cannot be effected or is not deemed
to be advisable, and any shares remain unsold after the Subscription Offering
and the Direct Community Offering, if any, the MHC will seek to make other
arrangements for the sale of the remaining shares, including an underwritten
public offering. Such other arrangements will be subject to the approval of the
Commissioner and the FRB and to compliance with applicable state and federal
securities laws.
7. Limitations on Purchases.
7.1 Maximum Purchase Limit. With the exception of the Tax-Qualified
Employee Stock Benefit Plan, which is expected to subscribe for 8% of the shares
of Conversion Stock, the Plan of Conversion provides for the following purchase
limitations: no Person, either alone or together with Associates of or Persons
Acting In Concert with such Person, may purchase more than $2,000,000 of
Conversion Stock except that: (i) the MHC may, in its sole discretion and
without further notice to or solicitation of subscribers or other prospective
purchasers, (x) increase such Maximum Purchase Limit to up to 5% of the number
of shares of Conversion Stock sold in the Offering or (y) decrease such Maximum
Purchase Limit to no less than one-tenth of one percent (.10%) of the number of
shares of Conversion Stock sold in the Offering. If the MHC increases the
Maximum Purchase Limit, subscribers for the previously-effective maximum amount
will be, and certain other large subscribers in the sole discretion of the MHC
may be, given the opportunity to increase their subscriptions up to the then
applicable limit. Requests to purchase additional shares of Conversion Stock
under this provision will be determined by the MHC, in its sole discretion. A
minimum of 25 shares of Conversion Stock 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.
7.2 Purchases by Management. The maximum number of Shares which may be
purchased in the Subscription Offering and Direct Community Offering in the
Conversion by Management and their Associates, in the aggregate shall not exceed
30 percent (30%) of the Conversion Stock sold in the Offering. Each Management
person will be subject to the same purchase limitations as other Eligible
Account Holders and Supplemental Eligible Account Holders.
7.3 Illegal Purchases. Notwithstanding any other provision of the Plan,
no Person shall be entitled to purchase any Conversion Stock to the extent such
purchase would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of Securities
Dealers, Inc., particularly those regarding free riding and withholding. The
MHC and/or its agents may ask for an acceptable legal opinion from any purchaser
as to the legality of such purchase and may refuse to honor any purchase order
if such opinion is not timely furnished.
15
<PAGE>
7.4 Rejection of Orders. The Bank and the MHC have the right in their
sole discretion to reject any order submitted by a Person whose representations
the Bank and the MHC believe to be false or who they otherwise believe, either
alone or Acting in Concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of the Plan.
8. Manner of Exercising Rights; Order Forms.
Upon authorization of the sale of Conversion Stock by the Commissioner:
(1) Promptly after the Commissioner has approved the Prospectus referred to
in paragraph (2) of this Section 8, order forms approved by the
Commissioner for the exercise of the Subscription Rights provided for
in this Plan will be sent to all persons with Subscription Rights at
their last known address appearing in the records of the Bank.
(2) Each order form will be preceded or accompanied by a Prospectus which
must be approved by the Commissioner. Such Prospectus shall describe
the Bank and the Conversion Stock being offered and will contain all
the information required by the Commissioner and all applicable laws
and regulations as necessary to enable the recipients of the order
forms to make informed investment decisions regarding the purchase of
Conversion Stock. The Bank may, in lieu of mailing a Prospectus to each
Eligible Account Holder and Supplemental Eligible Account Holder, mail
a Notice and Information Statement to each such person with a request
form to be returned to the Bank by a reasonable date certain to request
subscription materials.
(3) The order forms will contain or will be accompanied by, among other
things, the following:
(a) 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;
(b) A specified time by which order forms must be received by the Bank
for purposes of exercising the Subscription Rights under this
Plan, as provided in Section 10 of this Plan;
(c) 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;
(d) 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;
16
<PAGE>
(e) Instructions concerning how to indicate on such order form the
extent to which the recipient elects to exercise Subscription
Rights under this Plan, the name or names in which the Shares
subscribed for are to be registered, the address to which
certificates representing such Shares are to be sent and the
alternative methods of payment for Conversion Stock which will be
permitted;
(f) Specifically designated blank spaces for dating and signing the
order form;
(g) 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;
(h) A statement that the Subscription Rights provided for in this Plan
are nontransferable, will be void after the specified time
referred to in paragraph (3)(6) 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 of
Conversion Stock subscribed for prior to such specified time; and
(i) Provision for certification to be executed by the recipient of the
order form to the effect that, as to any shares of Conversion
Stock which the recipient elects to purchase, such recipient is
purchasing such shares of Conversion Stock for his own account
only and has no present agreement or understanding regarding any
subsequent sale or transfer of such shares of Conversion Stock.
9. Payment for Conversion Stock.
9.1 Deadline for Receipt of Payment. Full payment for Conversion Stock
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 any Employee Plan subscribes for shares during the
Subscription Offering, such plans will not be required to pay for the shares at
the time they subscribe but rather may pay for such shares of Conversion Stock
subscribed for by such plans at the Purchase Price upon consummation of the
Conversion; provided, however, that, in the case of the ESOP there is in force
from the time of its subscription until the consummation of the Conversion, a
loan commitment to lend to the ESOP, at such time, the aggregated Purchase Price
of the shares for which it subscribed. The Stock Holding Company or the Bank
may make scheduled discretionary contributions to an Employee Plan provided such
contributions from the Bank, if any, do not cause the Bank to fail to meet its
regulatory capital requirement. Payment for Conversion Stock may also be made
by a participant in an Employee Plan (including the Bank's deferred compensation
plan for Bank Employees) causing funds held for such participant's benefit by an
Employee Plan to be paid over for such purchase to the extent that such plan
allows participants or any related trust established for the benefit of such
participants to direct that some or all of their individual accounts or sub-
accounts be invested in Holding Company Conversion Stock.
17
<PAGE>
9.2 Changes in Aggregate Purchase Price. If it is determined that the
Aggregate Purchase Price should be greater than 15% above the Range Maximum,
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 of the MHC) each person who subscribed for Conversion Stock will be
permitted to withdraw his subscription and have his payment for Conversion Stock
returned to him in whole or in part, with interest, or to make payment to the
Bank of the additional amount necessary to pay for the Conversion Stock
subscribed for by him at the Purchase Price in the manner and within the time
prescribed by the Bank. 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
MHC will apply for an amendment to the Commissioner's approval of this Plan and
comply with such requirements as the Commissioner may then establish.
9.3 Method of Payment. Payment for Conversion Stock will be permitted to
be made in any of the following manners:
(1) By check, bank draft or money order, provided that checks will only be
accepted subject to collection. 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 by check,
bank draft or money order 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.
(2) By appropriate authorization of withdrawal from designated types of
deposit accounts in 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.
(3) Wire transfers as payment for shares ordered for purchase may be
permitted or accepted as proper payment.
(4) 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 passbook rate.
18
<PAGE>
10. Expiration of Purchase Rights; Undelivered, Defective or Late Order
Forms; Insufficient Payment.
10.1 Expiration of Subscription Rights. 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 at [ ] p.m. Massachusetts Time, on a specified
date which shall be not less than the twentieth day following the date on which
order forms are first sent to Eligible Account Holders, provided that the Bank
shall have the power to extend such expiration time in its discretion.
10.2 Undelivered, Defective or Late Order Forms; Insufficient Payment. In
those cases in which the Bank is unable to locate particular persons granted
Subscription Rights under this Plan, and cases in which order forms (1) are
returned as undeliverable by the United States Post Office, (2) are not received
back by the Bank or are received by the Bank after the expiration date specified
thereon, (3) are defectively filled out or executed or (4) are not accompanied
by the full required payment for the Conversion Stock subscribed for (including
cases in which deposit accounts from which withdrawals are authorized are
insufficient to cover the amount of the required payment), the Subscription
Rights of the person to whom such rights have been granted will lapse as though
such person failed to return the completed order form within the time period
specified thereon.
10.3 Waiver of Irregularities or Defects. The Bank may, but will not be
obligated to, waive any irregularity on any order forms 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
Bank of terms and conditions of this Plan and of the order forms will be final.
11. Persons in Nonqualified States or in Foreign Countries.
Subject to the following sentence, the Stock Holding Company will make
reasonable efforts to comply with the securities laws of all states of the
United States in which Eligible Account Holders and Supplemental Eligible
Account Holders entitled to subscribe for Conversion Stock pursuant to this Plan
reside. However, no such person will be offered any Subscription Rights or sold
any Conversion Stock under this Plan who resides in a foreign country or who
resides in a state of the United States with respect to which the Bank
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise. No payments will be made in
lieu of the granting of Subscription Rights to such persons.
19
<PAGE>
12. Voting Rights after Conversion.
Following Conversion, voting rights with respect to the Stock Holding
Company will be held and exercised exclusively by the holders of the capital
stock of the Stock Holding Company; the Stock Holding Company shall own all of
the issued and outstanding stock of the Bank.
13. Establishment of a Liquidation Account.
13.1 Establishment of Liquidation Account. For purposes of granting a
priority claim to the assets of the Bank in the event of a complete liquidation
thereof to Eligible Account Holders and Supplemental Eligible Account Holders
who continue to maintain deposit accounts at the Bank, the Stock Holding Company
will, at the time of Conversion, establish a "Liquidation Account" in an amount
equal to the net worth of the MHC set forth in its latest statement of financial
condition contained in its final Prospectus. The function of the Liquidation
Account is to establish a priority on liquidation and, except as provided for in
this Section 13, shall not operate to restrict the use or application of any of
the net worth accounts of the Stock Holding Company.
13.2 Interest in Liquidation Account. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a separate inchoate interest in
the Liquidation Account for each deposit account making up a Qualifying Deposit.
Such inchoate interests are referred to herein as "Subaccount Balances." For
deposit accounts in existence on the Eligibility Record Date and the
Supplemental Eligibility Record Date, separate Subaccount Balances shall be
determined on the basis of the Qualifying Deposits in such deposit accounts on
each such date.
13.3 Amount of Subaccount Balances. Each initial Subaccount Balance in the
Liquidation Account shall be an amount determined by multiplying the opening
balance in the Liquidation Account by a fraction the numerator of which is the
closing balance in the Eligible Account Holder's and Supplemental Eligible
Account Holder's account and the denominator of which is the total amount of all
Qualifying Deposits of Eligible Account Holders and Supplemental Account Holders
on the corresponding record date. 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 closing date
of the Bank subsequent to the corresponding record date, is less than the lesser
of the deposit balance in such account at the close of business on any other
annual closing date subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date, or the amount of the Qualifying Deposit as of the
Eligibility Record Date or Supplemental Eligible Record Date, 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. If
any account is closed, its related Subaccount Balance shall be reduced to zero
upon such closing.
13.4 Distributions. In event of a complete liquidation of the Stock
Holding Company (and only in such event), each Eligible Account Holder and
Supplemental Eligible Account Holder shall receive from the Liquidation Account
a liquidation distribution equal to the current amount in each of his Subaccount
Balances, before any liquidation distribution may be made to any holders of the
conversion stock of the converted Bank. No merger, consolidation, purchase of
bulk assets with assumption of accounts and other liabilities, or similar
transaction, in which the Stock Holding
20
<PAGE>
Company 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. Restriction on Transfer of Conversion Stock of Management.
14.1 Restrictions on Resale. All capital stock purchased by Management of
the Bank or the MHC on original issue pursuant to this Plan (by subscription or
otherwise) will be subject to the restriction that no such shares shall be sold
for a period of one year following the date of purchase of such shares, except
in the event of the death or substantial disability (as determined by the
Commissioner) of the Management person to whom such Conversion Stock was
initially sold under the terms of this Plan or upon the written approval of the
Commissioner.
14.2 Certificates and Stop Orders. With respect to all Conversion Stock
subject to restriction on subsequent disposition pursuant to the above
paragraph, each of the following provisions shall apply:
(1) Each certificate representing such Conversion Stock shall bear the
following legend prominently stamped on its face giving notice of such
restriction on transfer:
The shares represented by this certificate may not be sold by the
registered holder hereof for a period of not less than one year from
the date of issuance hereof, except in the event of the death of the
registered holder or substantial disability (as determined by the
Commissioner) of the officer, director, trustee or corporator to whom
such shares were initially sold under the terms of this Plan or upon
the written approval of the Commissioner.
(2) Instructions will be given to the transfer agent for the Stock Holding
Company not to recognize or effect any transfer of any certificates
representing such Shares, or any change of record ownership thereof in
violation of such restriction on transfer.
14.3 Stock Dividends and Stock Splits. Any capital stock of the Stock
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 Conversion Stock is issued.
15. Restriction on Stock Purchases by Management.
For a period of three years following the Conversion, no Officer, director,
trustee or Corporator of the Bank the MHC or the Stock Holding Company or any of
their Associates shall, without the prior written approval of the Commissioner,
purchase capital stock of the Stock Holding Company from the Bank, the MHC or
the Stock Holding Company.
21
<PAGE>
16. Amendment and Termination of the Plan.
This Plan may be substantively amended by the Board of Trustees of the MHC
in its sole discretion as a result of comments from regulatory authorities or
otherwise, at any time prior to the date material is sent to the Corporators in
connection with the Special Meeting to consider this Plan, and at any time
thereafter with the concurrence of the Commissioner. This Conversion may be
terminated by the Trustees of the MHC at any time prior to the Special Meeting
of the Corporators called to consider this Plan and at any time thereafter with
the concurrence of the Commissioner.
17. Time Period for Completion of Conversion.
The Conversion of the MHC shall be completed within 24 months from the date
this Plan is approved by the Board of Trustees of the MHC.
18. Expenses of Conversion.
The Bank and the MHC shall use their best efforts to assure that the
expenses incurred in connection with the Conversion shall be reasonable.
19. Registration Under Securities Exchange Act of 1934.
The Stock Holding Company shall register its Conversion Stock under the
Massachusetts General Laws and Section 12(g) of the Securities Exchange Act of
1934, as amended, concurrently with or promptly following the Conversion,
provided that either or both such registrations are required under applicable
law.
20. Market.
The Stock Holding Company shall use its best efforts to encourage and
assist two or more market makers to establish and maintain a market for its
Conversion Stock promptly following Conversion. The Stock Holding Company shall
also use its best efforts to cause its Conversion Stock to be quoted on the
Nasdaq Stock Market or such other national exchange.
21. Conversion Stock Not Insured.
The Conversion Stock will not be covered by deposit insurance.
22. No Loans to Purchase Capital Stock.
The Bank shall not loan funds or otherwise extend credit to any person to
purchase the capital stock of the Holding Company in connection with the
Conversion. The Stock Holding Company will not offer or sell any of the Holding
Company Common Stock proposed to be issued to any Person whose purchase would be
financed by funds loaned to the Person by the Stock Holding Company, Bank or any
of their Affiliates.
22
<PAGE>
23. Restrictions on Acquisition of Bank.
Present Massachusetts regulations provide that for a period of three years
following completion of the Conversion, no Person, or group of Persons Acting In
Concert shall directly, or indirectly, offer to purchase or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Bank without the prior approval of the Commissioner. However, approval is not
required for purchases directly from the Bank or the underwriters or selling
group acting on its behalf with a view towards public resale, or for purchases
not exceeding one percent per annum of the shares outstanding, or for the
acquisition of securities by one or more Tax-Qualified Employee Stock Benefit
Plans of the Bank, provided that the plan or plans do not have beneficial
ownership in the aggregate of more than 25% of any class of equity security of
the Bank. Civil penalties may be imposed by the Commissioner for willful
violation or assistance of any violation. Where any person directly or
indirectly, acquires beneficial ownership of more than ten percent of any class
of equity security of the Bank within such three-year period without the prior
approval of the Commissioner, stock of the Bank beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to the stockholders for a vote.
24. Stock Charter and Bylaws.
24.1 Stock Holding Company Articles of Organization And Bylaws. Copies of
the proposed Articles of Organization and Bylaws of the Stock Holding Company
are attached hereto as Exhibit A and Exhibit B, respectively, and are made a
--------- ---------
part of the Plan. By their approval of the Plan, the Corporators shall have
approved and adopted the Articles of Organization and Bylaws of the Stock
Holding Company.
24.2 Bank Charter And Bylaws. Copies of the proposed amended and restated
Charter and Bylaws of the Bank are attached hereto as Exhibit C and Exhibit D,
--------- ---------
respectively, and are made a part of the Plan. By their approval of the Plan,
the Trustees, as the governing body of the sole stockholder of the Bank, have
approved and adopted the amended and restated Charter and Bylaws of the Bank.
25. Post Offering Matters.
25.1 Stock Benefit Plans. The Board of Directors of the Bank and/or the
Stock Holding Company are permitted under the Regulations, and may decide, to
adopt one or more stock benefit plans for the benefit of the Employees, Officers
and directors of the Bank and Stock Holding Company, including an ESOP, stock
award plans and stock option plans, which will be authorized to purchase Common
Stock and grant options for Common Stock. However, only the Tax-Qualified
Employee Plans will be permitted to purchase Conversion Stock in the Conversion
subject to the purchase priorities set forth in the Plan. Pursuant to the
Regulations, the Stock Holding Company may authorize the ESOP and any other Tax-
Qualified Employee Plans to purchase in the aggregate up to 8% of the Conversion
Stock to be issued. The Bank or the Stock Holding Company may make scheduled
discretionary contributions to one or more Tax-Qualified Employee Plans to
purchase Common Stock or to purchase issued and outstanding shares of Common
Stock or authorized but unissued shares of Common Stock subsequent to the
completion of the Conversion, provided, however, that such contributions do not
cause the Bank to fail to meet any of its regulatory capital
23
<PAGE>
requirements. The Plan specifically authorizes the grant and issuance by the
Stock Holding Company of (i) awards of Common Stock after the Conversion
pursuant to one or more stock recognition and award plans (the "Recognition
Plans") in an amount equal to up to 4% of the number of shares of Conversion
Stock issued in the Conversion, (ii) options to purchase a number of shares of
the Stock Holding Company's Conversion Stock in an amount equal to up to 10% of
the number of shares of Conversion Stock issued in the Conversion and shares of
Conversion Stock issuable upon exercise of such options, and (iii) Common Stock
to one or more Tax Qualified Employee Plans, including the ESOP, at the closing
of the Conversion or at any time thereafter, in an amount equal to up to 8% of
the number of shares of Conversion Stock issued in the Conversion (including
shares of Conversion Stock to be issued to the ESOP). Shares awarded to the Tax
Qualified Employee Plans or pursuant to the Recognition Plans, and shares issued
upon exercise of options may be authorized but unissued shares of the Stock
Holding Company's Common Stock, or shares of Common Stock purchased by the Stock
Holding Company or such plans in the open market. The Recognition Plans and the
stock option plans will be subject to shareholder approval.
25.2 Payment of Dividends. The Stock Holding Company may not declare or
pay a cash dividend on the Holding Company Common Stock if the effect thereof
would cause its regulatory capital to be reduced below the amount required to
maintain the Liquidation Account and under FRB rules and regulations.
Otherwise, the Stock Holding Company may declare dividends in accordance with
applicable laws and regulations.
25.3 Repurchase of Stock. Based upon facts and circumstances following
the Conversion and subject to applicable regulatory and accounting requirements,
the Board of Directors of the Stock Holding Company may determine to repurchase
stock in the future. Such facts and circumstances may include but not be limited
to: (i) market and economic factors such as the price at which the Holding
Company Common Stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of return
and risk involved in the investment, the ability to increase the book value
and/or earnings per share of the remaining outstanding shares, and the
opportunity to improve the Stock Holding Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or the purchase of shares by the ESOP in
the event the ESOP is unable to acquire shares in the Subscription Offering, or
to fund the Stock Plans; and (iii) any other circumstances in which repurchases
would be in the best interests of the Stock Holding Company and its
shareholders.
26. Miscellaneous.
26.1 Interpretation of Plan. All interpretations of the Plan and
application of its provisions to particular circumstances by the MHC shall be
final, subject to the authority of the Commissioner. When a reference is made in
this Agreement to Sections or Exhibits, such reference shall be to a Section of
or Exhibit to the Plan unless otherwise indicated. The recitals hereto
constitute an integral part of the Plan. References to Sections include
subsections, which are part of the related Section (e.g., a section numbered
"Section 5.5.1" would be part of "Section 5.5" and references to "Section 5.5"
would also refer to material contained in the subsection described as "Section
5.5.1"). The table of contents and headings contained in the Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Whenever the words "include", "includes" or
24
<PAGE>
"including" are used in the Plan, they shall be deemed to be followed by the
words "without limitation".
26.2 Enforcement of Terms and Conditions. The MHC shall have the right to
take all such action as it, in its sole discretion, may deem necessary,
appropriate or advisable in order to monitor and enforce the terms, conditions,
limitations and restrictions contained in the Plan and the terms, conditions and
representations contained in the Order Forms, including, but not limited to, the
right to require any subscriber or purchaser to provide evidence, in a form
satisfactory to the MHC, of such Person's eligibility to subscribe for or
purchase shares of the Conversion Stock under the terms of the Plan and the
absolute right (subject only to any necessary regulatory approvals or
concurrence) to reject, limit or revoke acceptance of any subscription or order
and to delay, terminate or refuse to consummate any sale of Conversion Stock
that it believes might violate, or is designed to, or is any part of a plan to,
evade or circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and binding on all
Persons, and the MHC, the Bank and their Board of Trustees, Board of Directors,
Officers, Employees and agents shall be free from any liability to any Person on
account of any such action.
25
<PAGE>
Exhibit A
Proposed Articles of Organization of the Stock Holding Company
<PAGE>
Exhibit B
Proposed Bylaws of the Stock Holding Company
<PAGE>
Exhibit C
Amended and Restated Charter of Cambridgeport Bank
<PAGE>
Exhibit D
Amended and Restated Bylaws of Cambridgeport Bank
<PAGE>
Exhibit E
Initial Directors of the Stock Holding Company
<PAGE>
EXHIBIT 3.1
ARTICLES OF ORGANIZATION
OF
Port Financial Corp.
ARTICLE I
NAME
The exact name of the corporation is "Port Financial Corp." (the
"Corporation").
ARTICLE II
PURPOSE
The purpose of the Corporation is to engage in the following business
activities: to buy, sell, deal in, or hold securities of every kind and
description; to operate as a holding company and to carry on any business
permitted to holding companies under applicable laws and regulations; and in
general to carry on any business permitted to corporations organized under
Chapter 156B of the Massachusetts General Laws as now in force or hereafter
amended.
ARTICLE III
AUTHORIZED CAPITAL STOCK
The total number of shares and par value of each class of stock that the
Corporation is authorized to issue is as follows:
Common: 30,000,000 shares, $.01 par value
Preferred: 5,000,000 shares, $.01 par value
ARTICLE IV
CAPITAL STOCK
A description of the different classes and series of the Corporation's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class and series of capital
stock are as follows:
A. COMMON STOCK. Except as provided by law or in this Article IV (or
in any certificate of establishment of series of preferred stock), holders of
the Common Stock shall exclusively possess all voting power. Each holder of
shares of Common Stock shall be entitled to one vote on all matters for each
share held by such holder. Stockholders shall not be permitted to cumulate their
votes for election of directors.
<PAGE>
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the Common Stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the Common
Stock, then dividends may be paid on the Common Stock and on any class or series
of stock entitled to participate therewith as to dividends, out of any assets
legally available for the payment of dividends; but only when and as declared by
the Board of Directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
any class having preferences over the Common Stock in the event of liquidation,
dissolution or winding up of the full preferential amounts of which they are
respectively entitled, the holders of the Common Stock, and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Corporation, to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind, in proportion to their holdings.
Each share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
B. PREFERRED STOCK. Subject to any limitations prescribed by law,
the Board of Directors of the Corporation is authorized, by vote or votes from
time to time adopted, to provide for the issuance of one or more classes of
preferred stock, which shall be separately identified. The Board of Directors
shall have the authority to divide any authorized class of preferred stock of
the Corporation into one or more series, to establish or change from time to
time the number of shares to be included in each such series, and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of any series so established and
the qualifications, limitations and restrictions thereof. Each series shall be
separately designated so as to distinguish the shares thereof from the shares of
all other series and classes. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
one or more of the following:
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
3. The voting powers, full or limited, if any, of shares of such
series;
4. Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
-2-
<PAGE>
5. The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation, and if so convertible or exchangeable, the conversion price or
prices or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
8. The price or other consideration for which the shares of such
series shall be issued;
9. Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of preferred stock
and whether such shares may be reissued as shares of the same or any other
series of stock; and
10. Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as are permitted by law and as the
Board of Directors of the Corporation may deem advisable.
Any such vote shall become effective when the Corporation files with the
Secretary of State of The Commonwealth of Massachusetts a certificate of
establishment of one or more series of preferred stock signed by the President
or any Vice President and by the Clerk, Assistant Clerk, Secretary or Assistant
Secretary of the Corporation, setting forth a copy of the vote of the Board of
Directors establishing and designating the series and fixing and determining the
relative rights and preferences thereof, the date of adoption of such vote and a
certification that such vote was duly adopted by the Board of Directors.
Each share of each series of preferred stock shall have the same relative
rights as and be identical in all respects with all the other shares of the same
series.
Subject to the authority of the Board of Directors as set forth in
Paragraph 9 above, any shares of Preferred Stock shall, upon reacquisition
thereof by the Corporation, be restored to the status of authorized but unissued
Preferred Stock under this Section B.
-3-
<PAGE>
Except as specifically provided in these Articles, the holders of Preferred
Stock or Common Stock shall not be entitled to any vote and shall not have any
voting rights concerning the designation or issuance of any shares of Preferred
Stock authorized by and complying with the conditions of these Articles, and
subject to the authority of the Board of Directors or any authorized committee
thereof as set forth above, the right to any such vote is expressly waived by
all present and future holders of the capital stock of the Corporation.
ARTICLE V
LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK
Section 1. Applicability of Article. The provisions of this Article
V shall become effective upon (i) the consummation of the Conversion and (ii)
the concurrent acquisition by the Corporation of all of the outstanding capital
stock of the Bank (the "Effective Date"). All terms used in this Article V and
not otherwise defined herein shall have the meanings ascribed to such terms in
Article VI below.
Section 2. Prohibitions Relating to Beneficial Ownership of Voting
Stock. No Person (other than the Corporation, any Subsidiary or any pension,
profit-sharing, stock bonus or other compensation plan maintained by the
Corporation or by a member of a controlled group of corporations or trades or
businesses of which the Corporation is a member for the benefit of the employees
of the Corporation or any Subsidiary, or any trust or custodial arrangement
established in connection with any such plan) shall directly or indirectly
acquire or hold the beneficial ownership of more than ten percent (10%) of the
issued and outstanding shares of Voting Stock of the Corporation. Any Person so
prohibited who directly or indirectly acquires or holds the beneficial ownership
of more than ten percent (10%) of the issued and outstanding shares of Voting
Stock in violation of this Section 2 shall be subject to the provisions of
Sections 3 and 4 of this Article V, below. The Corporation is authorized to
refuse to recognize a transfer or attempted transfer of any shares of Voting
Stock to any Person who beneficially owns, or who the Corporation believes would
become by virtue of such transfer the beneficial owner of, more than ten percent
(10%) of shares of the Voting Stock.
Section 3. Excess Shares. If, notwithstanding the foregoing
prohibition, a Person subject to the foregoing prohibition shall voluntarily or
involuntarily become or attempt to become the purported beneficial owner (the
"Purported Owner") of shares of Voting Stock in excess of ten percent (10%) of
the issued and outstanding shares of Voting Stock, (i) during the period of
three years following the date of the completion of the Conversion (the "Initial
Period"), the number of shares in excess of ten percent (10%) shall be deemed to
be "Excess Shares," and shall not be counted as shares entitled to vote, shall
not be voted by any person or counted as voting shares in connection with any
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; or (ii) following
the Initial Period, the holder of any Excess
-4-
<PAGE>
Shares shall be entitled to cast only one one-hundredth (1/100) of one vote per
share for each Excess Share.
The restrictions set forth in this Article V shall be noted
conspicuously on all certificates evidencing ownership of shares of Voting
Stock.
Section 4. Powers of the Board of Directors.
(a) The Board of Directors may, to the extent permitted by law, from
time to time establish, modify, amend or rescind, by Bylaw or otherwise,
regulations and procedures not inconsistent with the express provisions of this
Article V for the orderly application, administration and implementation of the
provisions of this Article V. Such procedures and regulations shall be kept on
file with the Corporate Secretary of the Corporation and with the Transfer
Agent, shall be made available for inspection by the public and, upon request,
shall be mailed to any holder of shares of Voting Stock of the Corporation.
(b) When it appears that a particular Person has become a Purported
Owner of Excess Shares in violation of Section 2 of this Article V, or of the
regulations or procedures of the Board of Directors with respect to this Article
V, and that the provisions of this Article V require application, interpretation
or construction, then a majority of the directors of the Corporation shall have
the power and duty to interpret all of the terms and provisions of this Article
V and to determine on the basis of information known to them after reasonable
inquiry all facts necessary to ascertain compliance with this Article V,
including, without limitation, (i) the number of shares of Voting Stock
beneficially owned by any Person or Purported Owner, (ii) whether a Person or
Purported Owner is an Affiliate or Associate of, or is acting in concert with,
any other Person or Purported Owner, (iii) whether a Person or Purported Owner
has an agreement, arrangement or understanding with any other Person or
Purported Owner as to the voting or disposition of any shares of the Voting
Stock, (iv) the application of any other definition or operative provision of
this Article V to the given facts or (v) any other matter relating to the
applicability or effect of this Article V.
The Board of Directors shall have the right to demand that any Person
who is reasonably believed to be a Purported Owner of Excess Shares (or who
holds of record shares of Voting Stock beneficially owned by any Person
reasonably believed to be a Purported Owner in excess of such limit) supply the
Corporation with complete information as to (i) the record owner(s) of all
shares of Voting Stock beneficially owned by such Person or Purported Owner and
(ii) any other factual matter relating to the applicability or effect of this
Article V as may reasonably be requested of such Person or Purported Owner.
Any applications, interpretations, constructions or any other
determinations made by the Board of Directors pursuant to this Article V, 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 shareholders, and neither the Corporation nor any of its
shareholders shall have the right to challenge any such application,
interpretation, construction or determination.
-5-
<PAGE>
Section 5. Severability. In the event any provision (or portion
thereof) of this Article V shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or portions thereof) of
this Article V 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 shareholders that each such remaining provision (or portion
thereof) of this Article V remain, to the fullest extent permitted by law,
applicable and enforceable as to all shareholders, including Purported Owners,
if any, notwithstanding any such finding.
Section 6. Exclusions. This Article V shall not apply to (a) any
offer or sale with a view towards public resale made exclusively by the
Corporation to any underwriter or underwriters acting on behalf of the
Corporation, or to the selling group acting on such underwriter's or
underwriters' behalf, in connection with a public offering of the Common Stock;
or (b) 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 or
reorganization that does not have the effect, directly or indirectly, of
changing the beneficial ownership interests of the Corporation's shareholders,
other than pursuant to the exercise of any dissenters' appraisal rights, except
as a result of immaterial changes due to fractional share adjustments, which
changes do not exceed, in the aggregate, one percent (1%) of the issued and
outstanding shares of such class of equity or convertible securities.
ARTICLE VI
OTHER LAWFUL PROVISIONS
6.1 CORPORATE GOVERNANCE
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 these Articles 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. Any action 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 the unanimous consent in writing by
such stockholders.
C. 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 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) (the "Whole
-6-
<PAGE>
Board"), (provided, however, that if there is an Interested Stockholder (as
defined in Section C of Section 6.4), any such call by the Board of Directors
shall also require the affirmative vote of a majority of the Disinterested
Directors (as defined in Section C of Section 6.4) then in office). Special
meetings shall be called by the Clerk, or in the case of the death, absence,
incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who hold at least 80% in interest of the
capital stock entitled to vote at such meeting. Application to a court pursuant
to Section 34(b) of Chapter 156B (the "Massachusetts Business Corporation Law")
of The General Laws of The Commonwealth of Massachusetts (or successor
provisions) requesting the call of a special meeting of stockholders because
none of the officers is able and willing to call such a meeting may be made only
by stockholders who hold at least 80% in interest of the capital stock entitled
to vote at such meeting. At a special meeting of stockholders, only such
business shall be conducted, and only such proposals shall be acted upon, as
shall have been stated in the written notice of the special meeting, unless
otherwise provided by law.
6.2 DIRECTORS
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,
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. 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. No person shall be eligible for election,
reelection, appointment or reappointment to the Board if such person reached
seventy (70) years of age or older on January 1 of the year in which such person
seeks election, reelection, appointment or reappointment to the Board.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, 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, (provided, however, that if there is
an Interested Stockholder, any such action by the Board of Directors shall also
require the affirmative vote of a majority of the Disinterested Directors then
in office) 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.
-7-
<PAGE>
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any Director may be removed from office at any time, but
only for cause and only by the affirmative vote of either (i) two-thirds of the
Whole Board or (ii) the holders of at least 80% of the voting power of all of
the then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class. At
least 30 days prior to such meeting of the Board of Directors or stockholders,
written notice shall be sent to the Director whose removal will be considered at
the meeting and, if the removal is for cause, the Director will be provided an
opportunity to be heard before the Board of Directors or stockholders, as
applicable.
6.3 AMENDMENT TO BYLAWS. The Board of Directors is expressly empowered to
adopt, amend or repeal the 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 (unless at the time of such action
there shall be an Interested Stockholder, in which case such action shall
require the affirmative vote of a majority of the Disinterested Directors then
in office). 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 the Corporation required by law
or by these Articles, 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, voting
together as a single class, shall be required to adopt, amend or repeal any
provisions of the Bylaws of the Corporation.
6.4 CERTAIN BUSINESS COMBINATIONS
A. In addition to any affirmative vote required by law or these
Articles, and except as otherwise expressly provided in this Section 6.4:
1. any merger or consolidation of the Corporation or any Subsidiary
(as defined in Section C of this Section 6.4) with (i) any Interested
Stockholder (as defined in Section C of this Section 6.4), 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
defined in Section C of this Section 6.4) 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 herein defined in Section C of this Section 6.4) 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 defined in Section C of this Section 6.4) equaling or exceeding
25% of the combined Fair Market Value of the outstanding Common Stock of
the Corporation and its
-8-
<PAGE>
Subsidiaries, except for any issuance or transfer pursuant to an employee
benefit plan of the Corporation or any Subsidiary thereof (established with
the approval of a majority of the Disinterested Directors then in office);
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"), 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 these Articles or any Certificate of
Establishment or in any agreement with any national securities exchange or
otherwise.
The term "Business Combination" as used in this Section 6.4 shall mean any
transaction which is referred to in any one or more of paragraphs 1 through 5 of
Section A of this Section 6.4.
B. The provisions of Section A of this Section 6.4 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, or such vote (if any), as is required
by law or by these Articles, 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 defined in Section C of this Section 6.4)
then in office.
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:
-9-
<PAGE>
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder 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.
(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 Section 6.4 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 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;
(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; and
(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
-10-
<PAGE>
previously acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this Section 6.4
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 defined in Section C of this Section 6.4) then in
office, 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 approved by a majority of the Disinterested Directors then
in office, 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 then in
office, 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 Section 6.1 and this Section 6.4:
1. A "Person" shall include an individual, 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.
-11-
<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 5% 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 5% 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. "Beneficial ownership" shall be determined pursuant to Rule 13d-3
of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect on the date of
filing of these Articles; provided, however, that a person shall, in any
event, also be deemed the "beneficial owner" of any Common Stock:
(a) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(b) 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 clauses of Section A of Section 6.4) 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
-12-
<PAGE>
(c) 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 another such
Director or Officer (or any affiliate thereof, and (2) neither any employee
stock ownership plan 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 of computing the percentage
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 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.
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 amended, as in effect on the
date of filing of these Articles.
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 assumption of office
is recommended for appointment or election by a majority of Disinterested
Directors then in office.
-13-
<PAGE>
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 Section
6.4 shall include the shares of Common Stock and/or the shares of any other
class of outstanding Voting Stock retained by the holders of such shares.
D. A majority of the Directors of the Corporation then in office
(provided, however, that if there is an Interested Stockholder, any such
determination shall also require the affirmative vote of a majority of the
Disinterested Directors then in office) shall have the power and duty to
determine for the purposes of this Section 6.4, 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 then in office shall have the further power to interpret
all of the terms and provisions of this Section 6.4.
-14-
<PAGE>
E. Nothing contained in this Section 6.4 shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of these Articles 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, these Articles or any Certificate of
Establishment, 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, voting together
as a single class, shall be required to alter, amend or repeal this Section 6.4.
6.5 STANDARDS FOR BOARD OF DIRECTORS' EVALUATION OF OFFERS.
The Board of Directors of the Corporation, in determining whether the
interests of the Corporation and its stockholders will be served by any offer of
another Person (as defined in Section 6.4) to (i) make a tender or exchange
offer for any equity security of the Corporation, (ii) merge or consolidate the
Corporation with or into another institution, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the
Corporation, may consider the interests of the Corporation's employees,
suppliers, creditors and customers, the economy of the state, region and nation,
community and societal considerations, and the long-term and short-term
interests of the Corporation and its stockholders, including the possibility
that these interests may be best served by the continued independence of the
Corporation.
6.6 PRE-EMPTIVE RIGHTS
Holders of the capital stock of the Corporation shall not be entitled to
preemptive rights with respect to any shares of the capital stock of the
Corporation which may be issued.
6.7 INDEMNIFICATION
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 Massachusetts Business
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
-15-
<PAGE>
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
Section 6.7 shall include, in the case of a Director or officer at the level of
Vice President or above, and in the case of any other Officer or any employee
may include (in the discretion of the Board of Directors), 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").
Notwithstanding the foregoing, expenses incurred by an indemnitee in advance of
the final disposition of a proceeding may be paid only upon the Corporation's
receipt of an undertaking by the indemnitee to repay such payment if he or she
shall be adjudicated or determined to be not entitled to indemnification under
applicable law. The Corporation may accept such undertaking without reference to
the financial ability of the Indemnitee to make such repayment. The rights to
indemnification and to the advancement of expenses conferred in Sections A and B
of this Section 6.7 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 Section 6.7 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 also shall be
entitled to be paid the expense 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, he or she shall not have acted in good faith in the
reasonable belief that his or her action was in the best interests of the
Corporation. 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 Massachusetts Business
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 Section 6.7 or
otherwise, shall be on the Corporation.
-16-
<PAGE>
D. The rights to indemnification and to the advancement of expenses
conferred in this Section 6.7 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Articles, 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 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 Massachusetts Business 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 Section 6.7 with respect to the
indemnification and advancement of expenses of Directors and Officers of the
Corporation. Without limiting the generality of the foregoing, the Corporation
may enter into specific agreements, commitments or arrangements for
indemnification on any terms not prohibited by law which it deems to be
appropriate.
G. If the Corporation is merged into or consolidated with another
corporation and the Corporation is not the surviving corporation, the surviving
Corporation shall assume the obligations of the Corporation under this Section
6.7 with respect to any action, suit, proceeding or investigation arising out of
or relating to any actions, transactions or facts occurring at or prior to the
date of such merger or consolidation.
6.8 LIMITATION OF LIABILITY OF DIRECTORS
A. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director notwithstanding any provision of law imposing such liability;
provided, however, that this Section 6.8 shall not eliminate or limit any
liability of a Director (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Sections 61 or 62 of Chapter 156B of the General Laws of the
Commonwealth of Massachusetts, or (iv) with respect to any transaction from
which the Director derived an improper personal benefit.
B. No amendment or repeal of this Section 6.8 shall adversely affect
the rights and protection afforded to a Director of this Corporation under this
Section 6.8 for acts or omissions occurring prior to such amendment or repeal.
If the Massachusetts Business Corporation Law is hereafter amended to further
eliminate or limit the personal liability of Directors or to authorize corporate
action to further eliminate or limit such liability, then the liability of the
Directors of this Corporation shall be eliminated or limited to the fullest
extent permitted by the Massachusetts Business Corporation Law as so amended.
-17-
<PAGE>
6.9 TRANSACTIONS WITH INTERESTED PERSONS
A. Unless entered into in bad faith, no contract or transaction by
the Corporation shall be void, voidable or in any way affected by reason of the
fact that it is with an Interested Person.
B. For the purposes of this Section 6.9, "Interested Person" means
any person or organization in any way interested in the Corporation whether as a
director, officer, stockholder, employee or otherwise, and any other entity in
which any such person or organization of the Corporation is in any way
interested.
C. Unless such contract or transaction was entered into in bad
faith, no Interested Person, because of such interest, shall be liable to the
Corporation or to any other person or organization for any loss or expense
incurred by reason of such contract or transaction or shall be accountable for
any gain or profit realized from such contract or transaction.
D. The provisions of this Section 6.9 shall be operative
notwithstanding the fact that the presence of an Interested Person was necessary
to constitute a quorum at a meeting of Directors or stockholders of the
Corporation at which such contract or transaction was authorized or that the
vote of an Interested Person was necessary for the authorization of such
contract or transaction.
6.10 ACTING AS A PARTNER
The Corporation may be a partner in any business enterprise which it would
have power to conduct by itself.
6.11 STOCKHOLDERS' MEETINGS
Meetings of stockholders may be held at such place in The Commonwealth of
Massachusetts or, if permitted by applicable law, elsewhere in the United States
as the Board of Directors may determine.
6.12 AMENDMENT TO ARTICLES OF ORGANIZATION
These Articles may be amended at a duly constituted meeting of stockholders
called expressly for such purpose, by the affirmative vote of at least 80% of
the total votes eligible to be cast by stockholders on such amendment, voting
together as a single class; provided, however, that if the Board of Directors
recommends, by the affirmative vote of at least two-thirds of the Directors then
in office at a duly constituted meeting of the Board of Directors (unless at any
time within the 60 day period immediately preceding the meeting at which the
stockholder vote is to be taken, there shall be an Interested Stockholder, in
which case such action shall also require the affirmative vote of a majority of
the Disinterested Directors then in office), that stockholders approve such
amendment at such meeting of stockholders, such amendment shall only require the
affirmative vote of a majority of the total votes eligible to be cast by
stockholders on such amendment, voting together as a single class.
-18-
<PAGE>
ARTICLE VII
EFFECTIVE DATE
The effective date of organization of the Corporation shall be the date
approved and filed by the Secretary of the Commonwealth.
ARTICLE VIII
DIRECTORS AND OFFICERS
The information contained in Article VIII is not a permanent part of the
Articles of Organization.
a. The street address of the principal office of the Corporation in
Massachusetts is: 689 Massachusetts Avenue, Cambridge, Massachusetts,
02139.
b. The name, residential address and post office address of each Director
and Officer of the Corporation is as follows:
<TABLE>
<CAPTION>
Title Name Residential Address and Post Office Address
- -------------- --------------------- ---------------------------------------------
<S> <C> <C>
President: James B. Keegan 60 Columbine Avenue, Milton, MA 02186
Executive Vice
President: Jane L. Lundquist 21 Appleton Lane, Boxford, MA 01921
Treasurer: Charles Jeffrey 6 Canal Park, #403, Cambridge, MA 02141
Clerk: Paul R. Corcoran, Jr. 40 Sewall Street, West Newton, MA 02465
Director: Paul R. Corcoran, Jr. 40 Sewall Street, West Newton, MA 02465
Director: Daniel C. Crane, Esq. 594 Huron Avenue, Cambridge, MA 02138
Director: Samuel C. Fleming 61 Meadowbrook Road, Weston, MA 02493
Director: William Goldberg, Esq. 256 Atlantic Avenue, Swampscott, MA 01907
Director: Robert D. Happ 3474 So. Ocean Blvd., #15, Palm Beach, FL 33480
Director: Jane L. Lundquist 21 Appleton Lane, Boxford, MA 01921
Director: James B. Keegan 60 Columbine Avenue, Milton, MA 02186
Director: Joseph F. O'Connor 42 Forest Gate, Yarmouth Port, MA 02675
Director: Rudolph R. Russo 2 Blanchard Road, Cambridge, MA 02138-1009
</TABLE>
c. The fiscal year (i.e., tax year) of the Corporation shall end on the
last day of the month of December.
d. The name and business address of the resident agent, if any, of the
Corporation is: _______________.
-19-
<PAGE>
ARTICLE IX
BYLAWS
Bylaws of the Corporation have been duly adopted and the President,
Treasurer, Clerk and Directors whose names are set forth above, have been duly
elected.
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I, whose
signature appears below as incorporator and whose name and residential address
is clearly printed beneath my signature, do hereby associate with the intention
of forming this Corporation under the provisions of General Laws, Chapter 156B
and do hereby sign these Articles of Organization as incorporator this ____ day
of __________, 1999.
_________________________________
___________________, Incorporator
[Address]
<PAGE>
Exhibit 3.2
BYLAWS
OF
PORT FINANCIAL CORP.
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 on the third Tuesday of April of each year or on such other day
(other than a legal holiday or day of religious significance) as the Board of
Directors shall designate. The time and place of the annual meeting shall be
designated by the Board of Directors.
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 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") or otherwise as set forth in the
Articles of Organization. The hour, date and place of any special meeting and
the record date for determining the stockholders having the right to notice of
and to vote at any such meeting shall be determined by the Board of Directors or
the President.
Section 3. NOTICE OF MEETINGS. Written notice of the place, date,
and time of all meetings of the stockholders shall be given at least seven (7)
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
Chapter 156B of the General Laws of the Commonwealth of Massachusetts (or
successor provisions) (the "Massachusetts Business Corporation Law"), other
applicable law, or the Articles of Organization 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 shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger
<PAGE>
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter. The stockholders present at a duly
constituted meeting may continue to transact business until adjournment
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
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.
Section 5. ORGANIZATION. The President or, in the absence of the
President, the Chairman of the Board of the Corporation or, in his or her
absence, a Vice President of the Corporation, shall call to order any meeting of
the stockholders and act as chairman of the meeting. In the absence of the Clerk
of the Corporation, the secretary of the meeting shall be such person as the
chairman appoints. The chairman of the meeting shall have the power, among
other things, to adjourn such meeting at any time and from time to time. The
order of business and all other matters of procedure at every meeting of
stockholders shall be determined by the chairman of the meeting.
Section 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedure 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
Clerk of the Corporation. To be timely, a stockholder's notice must be
received at the principal executive offices of the Corporation not less
than ninety (90) calendar days in advance of the date of the Corporation's
proxy statement which was released to stockholders in connection with the
previous year's annual meeting of stockholders; provided, however, with
respect to the Corporation's first annual meeting of stockholders, to be
timely notice shall be received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the annual
meeting except that in the event 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 was mailed or such public
disclosure was made. A stockholder's notice to the Clerk shall set forth
as to each matter such stockholder proposes to bring before the annual
meeting: (A) a brief description
-2-
<PAGE>
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 Corporation's books, of the stockholder
proposing such business; (C) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such
stockholder; and (D) any material interest of such stockholder in such
business.
At any special 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) as a result of a written
application for a special meeting brought by stockholders in accordance
with the Articles of Organization. Any such written application for a
special meeting by one or more stockholders shall set forth as to each
matter proposed to be brought before the special meeting the information
described in subsections (A) through (D) of this Section 6(b).
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at a meeting of stockholders except in
accordance with the provisions of this Section 6(b). The President of the
Corporation or other person presiding over the 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, he or she shall so
declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
(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 Clerk of the Corporation. To be timely,
a stockholder's notice must be received at the principal executive offices
of the Corporation not less than ninety (90) calendar days in advance of
the date of the Corporation's proxy statement which was released to
stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, with respect to the Corporation's first
annual meeting of stockholders, to be timely notice shall be received at
the principal executive offices of the Corporation not less than ninety
(90) days prior to the date of the annual meeting except that in the event
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 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 the election of Directors, or is otherwise
required, in each case pursuant to Regulation
-3-
<PAGE>
14A under the Securities Exchange Act of 1934 (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
notice of (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
Clerk 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 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 should so determine, he
or she shall declare to the meeting and the defective nomination shall be
disregarded.
(d) Nothing contained in this Section 6 shall require proxy materials
distributed by the management of the Corporation to include any information
with respect to nominations or other proposals by stockholders.
Section 7. PROXIES AND VOTING. At any meeting of the
stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting. Any copy,
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. Proxies shall be
in written form and shall be dated not more than six (6) months before the
meeting named therein, unless the proxy is coupled with an interest and provides
otherwise. Proxies shall be filed with the Clerk at the meeting, or of any
adjournment thereof, before being voted. Proxies solicited on behalf of the
management shall be voted as directed by the stockholder or, in the absence of
such direction, as determined by a majority of the Board of Directors. Except
as otherwise limited therein, proxies shall entitle the persons authorized
thereby to vote at any adjournment of such Meeting, but they shall not be valid
after final adjournment of such meeting. A proxy with respect to stock held in
the name of two or more persons shall be valid if executed by one of them unless
at or prior to exercise of the proxy the Clerk of the Corporation receives a
specific written notice to the contrary from any one of them. Whenever stock is
held in the name of two or more persons, in the absence of specific written
notice to the Corporation to the contrary, at any meeting of the stockholders of
the Corporation any one or more of such stockholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt
is made to cast conflicting votes, in person or by proxy, by the several persons
in whose names shares of stock stand, the vote or votes to which those persons
are entitled shall be cast as directed by a majority of those holding such stock
and present in person or by proxy at such meeting, but no votes shall be cast
for such stock if a majority does not agree. A proxy purporting to be executed
by or on behalf of a stockholder shall be deemed valid unless successfully
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger.
-4-
<PAGE>
Every vote shall be taken by ballots, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedure 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 or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Articles of Organization or by law, all
other matters shall be determined by a majority of the votes present and cast at
a properly called meeting of stockholders.
ARTICLE II
BOARD OF DIRECTORS
Section 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE. 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. The Board of Directors may annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
In the absence of a Chairman of the Board, meetings of the Board of Directors
will be chaired by a Director selected by the Board of Directors from among its
members.
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, commencing with the first
annual meeting, 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. No
person shall be eligible for election, reelection, appointment or reappointment
to the Board if such person reached seventy (70) years of age or older on
January 1 of the year in which such person seeks election, reelection,
appointment or reappointment to the Board.
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to
the rights of the holders of any class or series of Preferred Stock then
outstanding, 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
-5-
<PAGE>
office, though less than a quorum; (provided, however, that if there is an
Interested Stockholder, such action shall also require the affirmative vote of a
majority of the Disinterested Directors then in office) and Directors so chosen
shall hold office for a term specified by the Directors then in office or, if
not so specified, 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 a majority of the Directors then in office or by the
President and shall be held at such place, on such date, and at such time as
they or he/she shall fix. Notice of the place, date, and time of each such
special meeting shall be given to each Director by whom it is not waived by
mailing written notice in person or by telephone or sent to his or her business
or home address by telecommunication at least two (2) days in advance of the
meeting, or by written notice mailed to his or her business or home address at
least three (3) days in advance of such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
thereon prepaid. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting. Any Director may waive notice
of any meeting by a writing executed by him or her either before or after the
meeting and filed with the records of the meeting. The attendance of a Director
at a meeting shall constitute a waiver of notice of such meeting, except where
the Director protests the lack of notice to him or her prior to the meeting or
at its commencement. Neither the business to be transacted at, nor the purpose
of, any meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting. Notice of any special meeting may be waived
in accordance with Article VI, Section 2, hereof.
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 but shall not constitute attendance for the purpose of
compensation pursuant to Section 9 of this Article II, unless the Board of
Directors by resolution so provides.
-6-
<PAGE>
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:
(a) To declare, and the Corporation may pay, dividends on outstanding
shares of its capital stock;
(b) To issue or reserve for issue from time to time the whole or any
part of the capital stock of the Corporation which may be authorized from
time to time, to such persons or organizations, for such consideration,
whether cash, property, services or expenses, and on such terms as the
Board of Directors or a designated committee thereof may determine,
including without limitation the granting of options, warrants, or
conversion or other rights to subscribe to said capital stock;
(c) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(d) 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;
(e) 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;
(f) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(g) 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;
(h) 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; and
(i) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs.
-7-
<PAGE>
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.
Section 10. ACTION BY CONSENT. Any action required or permitted to
be taken by the Board of Directors at any meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the Directors then in office. Such written consents shall be filed with
the records of the meetings of the Board of Directors and shall be treated for
all purposes as a vote at a meeting of the Board of Directors.
Section 11. PRESUMPTION OF ASSENT. A Director of the Corporation
who is present at a meeting of the Board of Directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention has been entered in the minutes of
the meeting or unless he or she has filed a written dissent to such action with
the person acting as the Clerk of the meeting before the adjournment thereof or
has forwarded such dissent by registered mail to the Clerk of the Corporation
within five (5) days after the date such dissenting Director receives a copy of
the minutes of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
ARTICLE III
COMMITTEES
Section 1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the Whole Board, 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 those 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. 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, she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings. 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.
-8-
<PAGE>
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 of Article I of these Bylaws in order to
determine compliance with such Bylaw provision, and (b) to recommend to the
Whole Board nominees for election to the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The Board of Directors as soon as may be
practicable after the annual meeting of stockholders may choose a Chairman of
the Board, and shall choose a President, a Treasurer, a Clerk, and one or more
Vice Presidents, and from time to time may choose such other Officers as it may
deem proper. The Chairman of the Board, if any, shall be chosen from among the
Directors. Any number of offices may be held by the same person.
(a) 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 with or without cause by
the affirmative vote of a majority of the Directors then in office.
(b) All Officers chosen by the Board of Directors shall each 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.
(c) Any vacancy in any office may be filled for the unexpired portion
of the term by the Board of Directors.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one is chosen, shall, when present, preside at all meetings of the Board of
Directors. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. PRESIDENT. The President shall be the Chief Executive
Officer unless the Board of Directors, by special vote confer the duties of
Chief Executive Officer upon the Treasurer or a Vice President. The President
or such other 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 or which are delegated to him or her by the Board of Directors.
Subject to the direction of the Board of Directors, and in the absence of a
Chairman of the Board, the President shall have all of the powers and perform
all of the duties of the Chairman of the Board (as designated in Section 2), and
shall also have power to sign all stock certificates, contracts and other
instruments of the
-9-
<PAGE>
Corporation which are authorized and shall have general supervision of all of
the other Officers (other than the Chairman of the Board, if any), employees and
agents of the Corporation.
Section 4. VICE PRESIDENTS. The Vice President or 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 or the Chief Executive Officer. A
Vice President or Vice Presidents may be designated as Executive Vice President
or Senior Vice President.
Section 5. TREASURER, VICE TREASURERS, AND ASSISTANT TREASURERS.
The Treasurer shall, subject to the direction of the Board of Directors, have
general charge of the financial affairs of the Corporation and shall cause to be
kept accurate books of account. He or she shall have custody of all funds,
securities, and valuable documents of the Corporation, except as the Board of
Directors may otherwise provide. The Treasurer shall also perform such other
duties as the Board of Directors may from time to time designate. Any Vice
Treasurer and any Assistant Treasurer shall have such powers and perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
Section 6. CLERK. The Clerk or an Assistant Clerk 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 offices and/or such other duties and
powers as are properly assigned thereto by the Board of Directors or the
President.
Section 7. ASSISTANT CLERKS AND OTHER OFFICERS. The Board of
Directors may appoint one or more Assistant Clerks 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 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
in which the Corporation may hold securities and otherwise to exercise any and
all rights and powers which the 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 of the capital stock of the Corporation in such form
as may from time to time be prescribed by the Board of Directors. Such
certificate shall be signed by the Chairman of the Board, President or a Vice
President and by the Treasurer or an Assistant Treasurer, and sealed with the
corporate seal or a facsimile thereof. Such signatures may be facsimile if the
certificate is signed by a transfer agent, or by a registrar, other than a
Director, Officer or employee of the Corporation. In
-10-
<PAGE>
case any Officer who has signed or whose signature has been placed on such
certificate shall have ceased to be such Officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such Officer at the time of its issue. Each certificate for shares of
capital stock shall be consecutively numbered or otherwise identified. Every
certificate for shares of stock which is subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
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. The Board of Directors may fix in advance
a time of not more than sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or the making of any
distribution to stockholders, or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Corporation after the
record date. Without fixing such record date the Board of Directors may for any
of such purposes close the transfer books for all or any part of such period.
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.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
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.
-11-
<PAGE>
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
telecommunication. 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
telecommunication, shall be the time of the giving of the notice.
Section 2. WAIVERS. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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 Clerk. 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
Comptroller or by an Assistant Clerk or an assistant to the Comptroller.
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.
-12-
<PAGE>
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.
Section 6. EXECUTION OF INSTRUMENTS. All deeds, leases,
transfers, contracts, bonds, notes and other instruments and obligations to be
entered into by the Corporation in the ordinary course of its business without
Board of Directors action may be executed on behalf of the Corporation by the
Chairman of the Board, President, any Vice President, Treasurer or any other
Officer, employee or agent of the Corporation as the Board of Directors may
authorize.
Section 7. ARTICLES OF ORGANIZATION. All references in these
Bylaws to the Articles of Organization shall be deemed to refer to the Articles
of Organization of the Corporation, as amended and in effect from time to time.
Section 8. POWERS OF CORPORATION. The Corporation shall have and
may exercise all the powers, privileges and authority, express, implied and
incidental, now or hereafter conferred by applicable law and the Corporation's
Articles of Organization.
Section 9. INTERESTED STOCKHOLDER AND DISINTERESTED DIRECTORS. As
used in these Bylaws, the terms "Interested Stockholder" and "Disinterested
Director" shall have the same respective meanings assigned to them in the
Corporation's Articles of Organization. Any determination of beneficial
ownership of securities under these Bylaws shall be made in the manner specified
in the Articles of Organization.
ARTICLE VIII
AMENDMENT
Section 1. AMENDMENT BY DIRECTORS. The Bylaws of the Corporation
may be amended or repealed by the affirmative vote of two-thirds of the whole
Board at a duly constituted meeting of the Board of Directors, unless at the
time of such action there shall be an Interested Stockholder, in which case such
action shall also require the affirmative vote of a majority of the
Disinterested Directors (as such term is defined in the Articles of
Organization) then in office at such meeting. Not later than the time of giving
notice of the annual meeting of stockholders next following the amending or
repealing by the Directors of any Bylaw, notice thereof stating the substance of
such change shall be given to all stockholders entitled to vote on amending the
Bylaws.
Section 2. AMENDMENT BY STOCKHOLDERS. The Bylaws of the
Corporation may be amended or repealed at a duly constituted meeting of
stockholders called expressly for such purpose, by the affirmative vote of at
least 80% of the total voting power of all of the then-outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class.
-13-
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED CHARTER
OF
CAMBRIDGEPORT BANK
Effective as of _____________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. Corporate Title ............................................... -1-
ARTICLE 2. Office ........................................................ -1-
ARTICLE 3. Powers. ....................................................... -1-
ARTICLE 4. Duration ...................................................... -1-
ARTICLE 5. Capital Stock ................................................. -1-
5.1 Common Stock ..................................................... -2-
5.2 Preferred Stock .................................................. -2-
ARTICLE 6. Stockholder Approval for Certain Events ....................... -4-
ARTICLE 7. Preemptive Rights ............................................. -4-
ARTICLE 8. Directors ..................................................... -4-
ARTICLE 9. Indemnification ............................................... -5-
ARTICLE 10. Acting as a Partner .......................................... -5-
ARTICLE 11. Stockholders' Meetings ....................................... -5-
ARTICLE 12. Amendment of Charter ......................................... -5-
</TABLE>
-i-
<PAGE>
AMENDED AND RESTATED CHARTER
OF
CAMBRIDGEPORT BANK
WHEREAS, a Charter was granted in the year 1853 to incorporate
Cambridgeport Bank (hereinafter, the "Original Bank") as a Massachusetts savings
bank; and
WHEREAS, in 1994 the Original Bank, in accordance with chapter 167H of the
Massachusetts General Laws and all other applicable law, reorganized into a
mutual holding company (the "Mutual Holding Company") by establishing this bank
as a subsidiary banking institution as a stock savings bank (hereinafter
referred to as the "Bank") and transferring to the Bank all or the substantial
part of its assets and liabilities, including all of its deposit liabilities;
and
WHEREAS, the Mutual Holding Company is in the process of converting into a
stock holding company pursuant to applicable Massachusetts and federal banking
law, and is issuing its stock in connection therewith to the Bank's depositors
and others;
NOW, THEREFORE, the charter of the Bank is hereby amended and restated to
read as follows:
ARTICLE 1. Corporate Title. The full corporate tide of the Bank is
"Cambridgeport Bank" and may be changed from time to time by the stockholders of
the Bank.
ARTICLE 2. Office. The main office of the Bank is located at 689
Massachusetts Avenue, Cambridge, Massachusetts 02139 and may be changed from
time to time by the Board of Directors of the Bank, subject to applicable law.
ARTICLE 3. Powers. The Bank is a stock-form savings bank organized under
Massachusetts law and shall have and may exercise all the powers, privileges and
authority, express, implied and incidental, available to it under Chapter 168
(including without limitation those sections of Chapter 172 that are listed in
Section 34C of Chapter 168 or are otherwise applicable) of the Massachusetts
General Laws or other applicable state and federal laws, and by all acts
amendatory thereof and supplemental thereto.
ARTICLE 4. Duration. The duration of the Bank is perpetual.
ARTICLE 5. Capital Stock. The total number of shares of capital stock
which the Bank is authorized to issue is Six Hundred Thousand (600,000), of
which Five Hundred Ninety Thousand (590,000) shares shall be common stock, One
Dollar ($1.00) par value per share, and Ten Thousand (10,000) shares shall be
preferred stock, One Dollar ($1.00) par value per share. The shares may be
issued by the Bank from time to time as authorized by its Board of Directors.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value per share. The
consideration for the shares shall be cash, tangible or intangible property,
labor, services or expenses, or any combination of the foregoing, but no share
shall be issued unless the
<PAGE>
cash, so far as due, or the property, labor, services or expenses for which it
was authorized to be issued, has or have been actually received or incurred by,
or conveyed or rendered to, the Bank, or is in its possession as surplus.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Bank. The value of such property,
labor, services or expenses, as determined by the Board of Directors of the
Bank, shall be conclusive. Shares of capital stock issued in accordance with the
foregoing shall be fully paid and not assessable. In the case of a stock
dividend, that part of the surplus of the Bank which is transferred to stated
capital upon the issuance of stock as a stock dividend shall be deemed to be the
consideration for their issuance.
A description of the different classes and series of the Bank's capital
stock and a statement of the designations, and the relative rights, preferences
and limitations of the shares of each class and series of capital stock are as
follows:
5.1 Common Stock. Except as provided in this ARTICLE 5 (or in any
certificate of establishment of series of preferred stock), the holders of the
common stock shall exclusively possess all voting power. Each holder of Common
Stock shall at every meeting of stockholders be entitled to one vote in person
or by proxy for each share of Common Stock held by him or her. The holders of
the Common Stock shall be entitled to such dividends as may from time to time be
declared by the Board of Directors out of any funds legally available for the
declaration of dividends, subject to any provisions of this Amended and Restated
Charter, as amended from time to time ("Charter"), and subject to the relative
rights and preferences of any shares of Preferred Stock authorized and issued
hereunder. Subject to the relative rights and preferences of any shares of
Preferred Stock authorized and issued hereunder, upon the dissolution or
liquidation of the Corporation, whether voluntary or involuntary, the holders of
shares of Common Stock shall be entitled to receive pro rata all assets of the
Corporation available for distribution to its stockholders.
There shall be no cumulative voting rights in the election of Directors.
Each share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
In the event of any liquidation, dissolution or winding up of the Bank,
after there shall have been paid to or set aside for the holders of any class
having preferences over the common stock in the event of liquidation,
dissolution or winding up of the full preferential amounts of which they are
respectively entitled, the holders of the common stock, and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Bank, to receive the remaining
assets of the Bank available for distribution, in cash or in kind, in proportion
to their holdings.
5.2 Preferred Stock. The Board of Directors is authorized, subject to the
approval of the provisions of any series of preferred stock by the Commissioner
of Banks of The Commonwealth of Massachusetts (if required by law) and subject
to any other limitations prescribed by law or the provisions of this Article 5,
to provide for the issuance of shares of Preferred Stock with or without series,
and, by filing a certificate pursuant to the applicable law of the Commonwealth
of Massachusetts (the "Certificate of Designation"), to establish from time to
time the number of shares to be included in each such series and to fix the
designation, preferences, voting powers,
-2-
<PAGE>
qualifications and special or relative rights or privileges of the shares of
each such series. In the event that at any time the Board of Directors shall
have established and designated one or more series of Preferred Stock consisting
of a number of shares less than the total number of authorized shares of
Preferred Stock, the remaining authorized shares of Preferred Stock shall be
deemed to be shares of an undesignated series of Preferred Stock until
designated by the Board of Directors as being a part of a series previously
established or a new series then being established by the Board of Directors.
Notwithstanding the fixing of the number of shares constituting a particular
series, the Board of Directors may at any time thereafter authorize the issuance
of additional shares of the same series except as set forth in the Certificate
of Designation. The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of one or more of the
following:
(A) The number of shares constituting that series, which number may
be increased or decreased (but not below the number of shares of
such series then outstanding) from time to time by the Board of
Directors, and the distinctive designation of that series;
(B) Whether any dividend shall be paid on shares of that series, and,
if so, the dividend rate on the shares of that series; whether
dividends shall be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(C) Whether shares of that series shall have voting rights in
addition to the voting rights provided by law and, if so, the
terms of such voting rights-,
(D) Whether shares of that series shall be convertible into shares of
Common Stock or another security and, if so, the terms and
conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(E) Whether shares of that series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates; and
whether that series shall have a sinking fund for the redemption
or purchase of shares of that series and, if so, the terms and
amount of such sinking fund;
(F) Whether, in the event of purchase or redemption of the shares of
that series, any shares of that series shall be restored to the
status of authorized but unissued shares or shall have such other
status as shall be set forth in the Certificate of Designation,
(G) The rights of the shares of that series in the event of the sale,
conveyance, exchange or transfer of all or substantially all of
the property and assets of the Corporation, or the merger or
consolidation of the Corporation into or with
-3-
<PAGE>
any other corporation or entity, or the merger of any other
corporation or entity into it, or the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of shares of that series
to payment in any such event;
(H) The price or other consideration for which the shares of such
series shall be issued;
(I) Whether shares of that series shall carry any preemptive right in
or preemptive right to subscribe to any additional shares of
Preferred Stock or any shares of any other class of stock which
may at any time be authorized or issued, or any bonds, debentures
or other securities convertible into shares of stock of any class
of the Corporation, or options or warrants carrying rights to
purchase such shares or securities; and
(J) Any other designations, preferences, voting powers,
qualifications, and special or relative rights or privileges of
the shares of that series.
Except as specifically provided in this Charter, the holders of Preferred
Stock or Common Stock shall not be entitled to any vote and shall not have any
voting rights concerning the designation or issuance of any shares of Preferred
Stock authorized by and complying with the conditions of this Charter, and
subject to the authority of the Board of Directors or any authorized committee
thereof as set forth above, the right to any such vote is expressly waived by
all present and future holders of the capital stock of the Corporation.
ARTICLE 6. Stockholder Approval for Certain Events. The Bank shall not,
without the previous affirmative vote or written consent of holders of at least
a majority of the then outstanding shares of common stock, (i) authorize or
issue, or obligate itself to issue, any additional shares of common or preferred
stock, or (ii) effect any consolidation or merger involving the Bank (except
into or with a majority-owned subsidiary corporation).
ARTICLE 7. Preemptive Rights. Holders of the capital stock of the Bank
shall not be entitled to pre-emptive rights with respect to any shares of the
capital stock of the Bank which may be issued.
ARTICLE 8. Directors. The Board of Directors shall consist of not less
than seven (7) nor more than twenty-five (25) individuals, except as otherwise
required by applicable law. The number of Directors and their respective
classifications shall be fixed from time to time exclusively by the Board of
Directors; provided, however, that if at the time of such action there is an
Interested Stockholder (as such term is defined in the By-laws of the Bank),
such action shall in addition require a majority vote of the Disinterested
Directors (as such term is defined in the By-laws of the Bank) then in office.
The Directors shall be classified, with respect to the term for which they
severally hold office, into three classes, as nearly equal in number as
possible, with one class to be elected annually. The initial Directors of the
Bank shall hold office as follows: the first class of Directors shall hold
office
-4-
<PAGE>
initially for a term expiring at the annual meeting of stockholders to be held
in 2001, the second class of Directors shall hold office initially for a term
expiring at the annual meeting of stockholders to be held in 2002, and the third
class of Directors shall hold office initially for a term expiring at the annual
meeting of stockholders to be held in 2003. At each succeeding annual meeting of
stockholders, the successors of the class of Directors whose term expires at
that meeting shall be elected by a plurality vote of all votes cast at such
meeting to hold office for a term expiring at the annual meeting of stockholders
held in the third year following the year of their election. Members of each
class shall hold office until their successors are duly elected and qualified or
until their earlier resignation or removal.
ARTICLE 9. Indemnification. The Directors, officers and employees of the
Bank shall be indemnified to the extent provided in the By-Laws of the Bank.
ARTICLE 10. Acting as a Partner. The Bank may be a partner in any business
enterprise which it would have power to conduct by itself.
ARTICLE 11. Stockholders' Meetings. Meetings of stockholders may be held at
such place in The Commonwealth of Massachusetts or, if permitted by applicable
law, elsewhere in the United States as the Board of Directors may determine.
ARTICLE 12. Amendment of Charter. This charter may be amended by a majority
vote of the shares outstanding and entitled to vote, subject to applicable law.
-5-
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
CAMBRIDGEPORT BANK
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 on the third Tuesday of April of each year or on such other day
(other than a legal holiday or day of religious significance) as the Board of
Directors shall designate. The time and place of the annual meeting shall be
designated by the Board of Directors.
Section 2. SPECIAL MEETINGS. Subject to the rights of the holders
of any class or series of preferred stock of the Bank, special meetings of
stockholders of the Bank may be called by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of Directors which the Bank
would have if there were no vacancies on the Board of Directors (hereinafter,
the "Whole Board") or otherwise as set forth in the Charter. The hour, date and
place of any special meeting and the record date for determining the
stockholders having the right to notice of and to vote at any such meeting shall
be determined by the Board of Directors or the President.
Section 3. NOTICE OF MEETINGS. A written notice of all annual and
special meetings of stockholders shall state the place, date, hour, and purposes
of such meetings, and shall be given by the Clerk or an Assistant Clerk (or
other person authorized by these Bylaws or by law) at least seven (7) days
before the meeting to each stockholder entitled to vote at such meeting or to
each stockholder who, under the Charter or under these Bylaws, is entitled to
such notice, by leaving such notice with him or at his or her residence or usual
place of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his or her address as it appears on the stock transfer books of
the Bank.
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 shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger
<PAGE>
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter. The stockholders present at a duly
constituted meeting may continue to transact business until adjournment
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
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.
Section 5. ORGANIZATION. The President or, in the absence of the
President, the Chairman of the Board of the Bank or, in his or her absence, a
Vice President of the Bank, shall call to order any meeting of the stockholders
and act as chairman of the meeting. In the absence of the Clerk of the Bank,
the secretary of the meeting shall be such person as the chairman appoints. The
chairman of the meeting shall have the power, among other things, to adjourn
such meeting at any time and from time to time. The order of business and all
other matters of procedure at every meeting of stockholders shall be determined
by the chairman of the meeting.
Section 6. CONDUCT OF BUSINESS.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedure 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 Bank 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 Clerk
of the Bank. To be timely, a stockholder's notice must be received at the
principal executive offices of the Bank not less than ninety (90) calendar
days in advance of the date of the Bank's proxy statement which was
released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, with respect to the Bank's
first annual meeting of stockholders, to be timely notice shall be received
at the principal executive offices of the Bank not less than ninety (90)
days prior to the date of the annual meeting except that in the event 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 was mailed or such public disclosure was made. A stockholder's
notice to the Clerk shall set forth as to each matter such stockholder
proposes to bring before the annual meeting: (A) a brief description of the
business desired to be brought before the
-2-
<PAGE>
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 stockholder proposing such business; (C) the class and number of shares
of the Bank's capital stock that are beneficially owned by such
stockholder; and (D) any material interest of such stockholder in such
business.
At any special 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) as a result of a written
application for a special meeting brought by stockholders in accordance
with the Charter. Any such written application for a special meeting by
one or more stockholders shall set forth as to each matter proposed to be
brought before the special meeting the information described in subsections
(A) through (D) of this Section 6(b).
Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at a meeting of stockholders except in
accordance with the provisions of this Section 6(b). The President of the
Bank or other person presiding over the 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, he or she shall so
declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
(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 Bank
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 Bank 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 Clerk of the Bank. To be timely, a stockholder's notice
must be received at the principal executive offices of the Bank not less
than one-hundred twenty (120) calendar days in advance of the date of the
annual meeting except that in the event less than one hundred twenty (120)
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 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; and (ii) as to the stockholder
giving notice of (x) the name and address, as they appear on the Bank's
books, of such stockholder and (y) the class and number of shares of the
Bank'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 Clerk of the Bank
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 Bank unless nominated in accordance with the
provisions of this Section 6(c). The Officer
-3-
<PAGE>
of the Bank or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she should so determine, he or she shall declare
to the meeting and the defective nomination shall be disregarded.
Section 7. PROXIES AND VOTING. At any meeting of the
stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting. Any copy,
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. Proxies shall be in
written form and shall be dated not more than six (6) months before the meeting
named therein, unless the proxy is coupled with an interest and provides
otherwise. Proxies shall be filed with the Clerk at the meeting, or of any
adjournment thereof, before being voted. Proxies solicited on behalf of the
management shall be voted as directed by the stockholder or, in the absence of
such direction, as determined by a majority of the Board of Directors. Except as
otherwise limited therein, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such Meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by one of them unless at
or prior to exercise of the proxy the Clerk of the Bank receives a specific
written notice to the contrary from any one of them. Whenever stock is held in
the name of two or more persons, in the absence of specific written notice to
the Bank to the contrary, at any meeting of the stockholders of the Bank any one
or more of such stockholders may cast, in person or by proxy, all votes to which
such ownership is entitled. In the event an attempt is made to cast conflicting
votes, in person or by proxy, by the several persons in whose names shares of
stock stand, the vote or votes to which those persons are entitled shall be cast
as directed by a majority of those holding such stock and present in person or
by proxy at such meeting, but no votes shall be cast for such stock if a
majority does not agree. A proxy purporting to be executed by or on behalf of a
stockholder shall be deemed valid unless successfully challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
Every vote shall be taken by ballots, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. The Bank 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 Bank 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 or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Charter or by law, all other matters shall
be determined by a majority of the votes present and cast at a properly called
meeting of stockholders.
-4-
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 1. GENERAL POWERS, NUMBER AND TERM OF OFFICE. The business
and affairs of the Bank shall be under the direction of its Board of Directors.
The Board of Directors shall consist of not less than seven (7) and not more
than twenty-five (25) individuals, except as otherwise required by applicable
law. The number of Directors shall be fixed from time to time exclusively by the
Board of Directors. The Board of Directors may annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
In the absence of a Chairman of the Board, meetings of the Board of Directors
will be chaired by a Director selected by the Board of Directors from among its
members.
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, commencing with the first
annual meeting, 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. No
person shall be elected or re-elected as a Director for a term extending beyond
his or her 70/th/ birthday.
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to
the rights of the holders of any class or series of Preferred Stock then
outstanding, 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; (provided, however, that if there is
an Interested Stockholder, such action shall also require the affirmative vote
of a majority of the Disinterested Directors then in office) and Directors so
chosen shall hold office for a term specified by the Directors then in office
or, if not so specified, 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.
-5-
<PAGE>
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by a majority of the Directors then in office or by the
President and shall be held at such place, on such date, and at such time as
they or he/she shall fix. Notice of the place, date, and time of each such
special meeting shall be given to each Director by whom it is not waived by
mailing written notice in person or by telephone or sent to his or her business
or home address by telecommunication at least two (2) days in advance of the
meeting, or by written notice mailed to his or her business or home address at
least three (3) days in advance of such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
thereon prepaid. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting. Any Director may waive notice
of any meeting by a writing executed by him or her either before or after the
meeting and filed with the records of the meeting. The attendance of a Director
at a meeting shall constitute a waiver of notice of such meeting, except where
the Director protests the lack of notice to him or her prior to the meeting or
at its commencement. Neither the business to be transacted at, nor the purpose
of, any meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting. Notice of any special meeting may be waived in
accordance with Article VI, Section 2, hereof.
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 but shall not constitute attendance for the purpose of
compensation pursuant to Section 9 of this Article II, unless the Board of
Directors by resolution so provides.
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 business and affairs of the Bank shall be
managed by a Board of Directors who may exercise all the powers of the Bank
except as otherwise provided by law, by the Charter or by these Bylaws.
Section 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.
-6-
<PAGE>
Section 10. ACTION BY CONSENT. Any action required or permitted to
be taken by the Board of Directors at any meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the Directors then in office. Such written consents shall be filed with
the records of the meetings of the Board of Directors and shall be treated for
all purposes as a vote at a meeting of the Board of Directors.
Section 11. PRESUMPTION OF ASSENT. A Director of the Bank who is
present at a meeting of the Board of Directors at which action on any Bank
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention has been entered in the minutes of the meeting
or unless he or she has filed a written dissent to such action with the person
acting as the Clerk of the meeting before the adjournment thereof or has
forwarded such dissent by registered mail to the Clerk of the Bank within five
(5) days after the date such dissenting Director receives a copy of the minutes
of the meeting. Such right to dissent shall not apply to a Director who voted in
favor of such action.
Section 12. ADVISORY DIRECTORS.
(a) The Board of Directors may establish one or more groups or boards
of Advisory Directors as it in its discretion may deem appropriate. The
Board of Directors, by resolution adopted by the Board, may from time to
time appoint such persons, or may reappoint one or more times any Advisory
Director whose term as such has expired or will expire within two months
thereafter, to serve as an Advisory Director for a period ending not more
than fourteen (14) months after such appointment or reappointment;
provided, that no officer or Director of the Bank shall serve
simultaneously as an Advisory Director.
(b) Advisory Directors may be consulted by the Board of Directors
from time to time on such matters as the Board of Directors shall deem
appropriate, and shall perform such other duties as the Board of Directors
may from time to time prescribe. The Board of Directors may provide, by
resolution, the time and place for the holding of regular meetings of the
Advisory Directors with or without such notice as the Board of Directors
may determine. Special meetings of the Advisory Directors may be called by
or at the request of the Chairman of the Board, the President or a majority
of the Directors. The person authorized to call such special meeting may
fix the place for the holding of any such meeting.
(c) Advisory Directors, as such, may receive compensation for their
services, if authorized by, resolution of the Board of Directors, including
a reasonable fixed sum for each meeting attended and reasonable expenses of
attendance, if any.
(d) Advisory Directors may be removed by the Board of Directors with
or without cause whenever in its judgment the interests of the Bank will be
served thereby.
-7-
<PAGE>
ARTICLE III
COMMITTEES
Section 1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the Whole Board, 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 those 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. 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, she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings. 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
Bank pursuant to Section 6 of Article I of these Bylaws in order to determine
compliance with such Bylaw provision, and (b) to recommend to the Whole Board
nominees for election to the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The Board of Directors as soon as may be
practicable after the annual meeting of stockholders may choose a Chairman of
the Board, and shall choose a President, a Treasurer, a Clerk, and one or more
Vice Presidents, and from time to time may choose such other Officers as it may
deem proper. The Chairman of the Board, if any, shall be chosen from among the
Directors. Any number of offices may be held by the same person.
(a) 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 with or without cause by
the affirmative vote of a majority of the Directors then in office.
-8-
<PAGE>
(b) All Officers chosen by the Board of Directors shall each 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.
(c) Any vacancy in any office may be filled for the unexpired portion
of the term by the Board of Directors.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one is chosen, shall, when present, preside at all meetings of the Board of
Directors. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Bank which are authorized.
Section 3. PRESIDENT. The President shall be the Chief Executive
Officer unless the Board of Directors, by special vote confer the duties of
Chief Executive Officer upon the Treasurer or a Vice President. The President or
such other Chief Executive Officer shall have general responsibility for the
management and control of the business and affairs of the Bank and shall perform
all duties and have all powers which are commonly incident to the office of
President or which are delegated to him or her by the Board of Directors.
Subject to the direction of the Board of Directors, and in the absence of a
Chairman of the Board, the President shall have all of the powers and perform
all of the duties of the Chairman of the Board (as designated in Section 2), and
shall also have power to sign all stock certificates, contracts and other
instruments of the Bank which are authorized and shall have general supervision
of all of the other Officers (other than the Chairman of the Board, if any),
employees and agents of the Bank.
Section 4. VICE PRESIDENTS. The Vice President or 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 or the Chief Executive Officer. A
Vice President or Vice Presidents may be designated as Executive Vice President
or Senior Vice President.
Section 5. TREASURER, VICE TREASURERS, AND ASSISTANT TREASURERS.
The Treasurer shall, subject to the direction of the Board of Directors, have
general charge of the financial affairs of the Bank and shall cause to be kept
accurate books of account. He or she shall have custody of all funds,
securities, and valuable documents of the Bank, except as the Board of Directors
may otherwise provide. The Treasurer shall also perform such other duties as the
Board of Directors may from time to time designate. Any Vice Treasurer and any
Assistant Treasurer shall have such powers and perform such duties as the Board
of Directors or the Chief Executive Officer may from time to time designate.
Section 6. CLERK. The Clerk or an Assistant Clerk 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 offices
-9-
<PAGE>
and/or such other duties and powers as are properly assigned thereto by the
Board of Directors or the President.
Section 7. ASSISTANT CLERKS AND OTHER OFFICERS. The Board of
Directors may appoint one or more Assistant Clerks 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 or the President.
Section 8. ACTION WITH RESPECT TO SECURITIES OF OTHER BANKS.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Bank authorized by the President shall have power to vote and
otherwise act on behalf of the Bank, in person or in which the Bank may hold
securities and otherwise to exercise any and all rights and powers which the
Bank may possess by reason of its ownership of securities in such other Bank.
ARTICLE V
STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be
entitled to a certificate of the capital stock of the Bank in such form as may
from time to time be prescribed by the Board of Directors. Such certificate
shall be signed by the Chairman of the Board, President or a Vice President and
by the Treasurer or an Assistant Treasurer, and sealed with the corporate seal
or a facsimile thereof. Such signatures may be facsimile if the certificate is
signed by a transfer agent, or by a registrar, other than a Director, Officer or
employee of the Bank. In case any Officer who has signed or whose signature has
been placed on such certificate shall have ceased to be such Officer before such
certificate is issued, it may be issued by the Bank with the same effect as if
he or she were such Officer at the time of its issue. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
Every certificate for shares of stock which is subject to any restriction on
transfer and every certificate issued when the Bank is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
Section 2. TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the transfer books of the Bank kept at an office of the Bank or by
transfer agents designated to transfer shares of the stock of the Bank. 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. The Board of Directors may fix in advance
a time of not more than sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or the making of any
distribution to stockholders, or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Bank after the record
date. Without
-10-
<PAGE>
fixing such record date the Board of Directors may for any of such purposes
close the transfer books for all or any part of such period.
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.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
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
INDEMNIFICATION
Section 1. OFFICERS. To the extent permitted by law and except as
provided in Sections 3 and 4 of this Article, each Officer of the Bank (and his
or her heirs and personal representatives) shall be indemnified by the Bank
against all Expenses incurred by him or her in connection with any Proceeding in
which he or she is involved as a result of (a) his or her serving or having
served as an Officer or employee of the Bank, (b) his or her serving or having
served as a Director, officer or employee of any of its wholly-owned
Subsidiaries, or (c) his or her serving or having served in any capacity with
respect to any other corporation, organization, partnership, joint venture,
trust, employee benefit plan or other entity at the request or direction of the
Bank. Capitalized terms used but not defined in this Article 6 shall have the
meanings defined in Section 9 of this Article.
Section 2. NON-OFFICER EMPLOYEES. To the extent permitted by law
and except as provided in Sections 3 and 4 of this Article, each non-Officer
Employee of the Bank (and his or her heirs and personal representatives) may, in
the discretion of the Board of Directors, be indemnified against any or all
Expenses incurred by him or her in connection with any Proceeding in which he or
she is involved as a result of (a) his or her serving or having served as a non-
Officer Employee of the Bank, (b) his or her serving or having served as a
Director, officer, or employee of any of its wholly-owned subsidiaries, or (c)
his or her serving or having served in any capacity with respect to any other
corporation, organization, partnership, joint venture, trust employee benefit
plan or other entity at the request or direction of the Bank.
-11-
<PAGE>
Section 3. SERVICE AT DIRECTION OF BOARD OF DIRECTORS. No
indemnification shall be provided to an Officer or non-Officer Employee with
respect to his or her serving or having served in any capacity "at the request
or direction of the Bank" unless such service was required or directed by vote
of the Board of Directors prior to the occurrence of the event to which the
indemnification relates; provided that the Board of Directors may provide an
Officer or non-Officer Employee with indemnification, as to a specific
Proceeding, even though such Board of Directors vote was not obtained, if in its
discretion, the Board of Directors determines it to be appropriate for the Bank
to do so.
Section 4. CERTAIN LIMITATIONS. No indemnification shall be
provided to an Officer or to a non-Officer Employee with respect to a matter as
to which he or she shall have been determined by final judicial decision from
which there is no further right to appeal (hereinafter a "Final Adjudication")
that such Indemnitee is not entitled to be indemnified for such expenses under
this Article or otherwise. If in a Proceeding brought by or in the right of the
Bank, a Director of the Bank is held not liable for monetary damages, that
Director shall be deemed to have met the standard of conduct set forth above and
to be entitled to indemnification for Expenses reasonably incurred in the
defense of such Proceeding.
Section 5. ADVANCEMENT OF EXPENSES. In the event that the Bank
does not assume the defense, or unless and until the Bank assumes the defense
pursuant to Section 7 of this Article of any Proceeding of which the Bank
receives notice under this Article, the Bank shall pay, in the case of a
Director or officer at the level of Vice President or above, and may pay, in the
case of any other Indemnitee, any Expenses incurred by such Indemnitee in
defending a Proceeding or any appeal therefrom in advance of the final
disposition of such Proceeding ("Advancement of Expenses"); provided, however,
that if the Proceeding is initiated by the Indemnitee or the Disinterested
Directors, then the Bank may, but need not, pay such Expenses in advance of the
final disposition of such Proceeding. The Board of Directors shall have the
authority, in its discretion, to pay Expenses incurred by any other Officer or
any Non-Officer Employee in defending a Proceeding or any appeal therefrom in
advance of the final disposition of such Proceeding.
Notwithstanding the foregoing, to the extent required by the Massachusetts
Business Corporation Law Expenses incurred by an Indemnitee in advance of the
final disposition of a Proceeding may be paid only upon the Bank's receipt of an
undertaking ("Undertaking") by the Indemnitee to repay such payment if there
shall have been a Final Adjudication that such Indemnitee is not entitled to be
indemnified for such expenses under this Article or otherwise. The Bank may
accept such Undertaking without reference to the financial ability of the
Indemnitee to make such repayment.
Section 6. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
this Article is not paid in full by the Bank within sixty (60) days after a
written claim has been received by the Bank, except in the case of a claim for
an Advancement of Expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the Bank
to recover the unpaid amount of the claim. If the Indemnitee is successful in
whole or in part in any such suit, or in a suit brought by the Bank to recover
an
-12-
<PAGE>
Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee
shall also be entitled to be paid the expense of prosecuting or defending such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an Advancement of Expenses) it shall be a defense that the
Indemnitee has not met the applicable standard of conduct set forth in the
Massachusetts Business Corporation Law. In addition, in any suit by the Bank to
recover an Advancement of Expenses pursuant to the terms of an Undertaking, the
Bank shall be entitled to recover such expenses upon a Final Adjudication that
the Indemnitee has not met the applicable standard of conduct set forth in the
Massachusetts Business Corporation Law. Neither the failure of the Bank
(including its Board of Directors, independent legal counsel, or stockholders)
to have made a determination prior to the commencement of such suit that
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in the
Massachusetts Business Corporation Law, nor an actual determination by the Bank
(including its Board of Directors, independent legal counsel or stockholders)
that the Indemnitee has not met such applicable standard of conduct, shall
create a presumption that the Indemnitee has not met the applicable standard of
conduct or, in the case of such a suit brought by the Indemnitee, be a defense
to such suit. In any suit brought by the Indemnitee to enforce a right to
indemnification or to an Advancement of Expenses hereunder, or by the Bank 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 6 or otherwise shall be on the
Bank.
Section 7. NOTIFICATION AND DEFENSE OF CLAIM. Each Indemnitee
must notify the Bank in writing as soon as practicable of any Proceeding
involving him or her or with respect to which indemnity will or could be sought.
With respect to any Proceeding of which the Bank is so notified, the Bank will
be entitled to participate therein at its own expense and/or to assume the
defense thereof at its own expense, with legal counsel reasonably acceptable to
the Indemnitee. After the Bank notifies the Indemnitee of its election so to
assume such defense, the Bank shall not be liable to the Indemnitee for any
legal or other expenses subsequently incurred by the Indemnitee in connection
with such claim, other than as provided below in this Section 7. The Indemnitee
shall have the right to employ his or her own counsel in connection with such
claim, but the fees and expenses of such counsel incurred after notice from the
Bank of its assumption of the defense thereof shall be at the expense of the
Indemnitee unless (i) the employment of counsel by the Indemnitee has been
authorized by the Bank, (ii) counsel to the Indemnitee shall have reasonably
concluded that there may be a conflict of interest or position on any
significant issue between the Bank and the Indemnitee in the conduct of the
defense of such action, or (iii) the Bank shall not in fact have employed
counsel to assume the defense of such action. In each such case, the fees and
expenses of Indemnitee's counsel reasonably acceptable to the Bank shall be at
the expense, of the Bank, except as otherwise expressly provided by this Article
6. The Bank shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Bank or as to
which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
Section 8. INSURANCE. The Bank may purchase and maintain
insurance to protect itself and any Indemnitee against any liability of any
character asserted against and
-13-
<PAGE>
incurred by the Bank or any such Indemnitee, or arising out of any such status,
whether or not the Bank would have the power to indemnify such person against
such liability by law or under the provisions of this Article 6 or under the
Massachusetts Business Corporation Law. The Bank's obligation to provide
indemnification under this Article 6 shall be offset to the extent
indemnification is available from any other source, including any otherwise
applicable insurance coverage under a policy maintained by the Bank or any other
person.
Section 9. DEFINITIONS. For the purposes of this Article:
(a) "Officer" means (i) any person who serves or has served as a
Director of the Bank (ii) any person who serves or has served in any other
office filled by election or appointment by the Board of Directors, whether
or not such person is an officer of the Bank within the definition of that
term as contained in the Bylaws of the Bank, and (iii) any other person who
serves or has served, at the request or direction of the Bank, as a
Director or officer of any of the Bank's wholly-owned subsidiaries;
(b) "non-Officer Employee" means any person who serves or has served
as an employee or agent of the Bank but who is not an Officer;
(c) "Indemnitee" means each Officer, and each non-Officer Employee
whom the Board of Directors has determined to indemnify pursuant to Section
6,2;
(d) "Proceeding" means any action, suit, proceeding or investigation,
civil or criminal, brought or threatened in or before any court, tribunal,
administrative or legislative body or agency; and
(e) "Expenses" means any liability fixed by a judgment, order, decree
or award (including, but not limited to, judgments, fines, ERISA excise
taxes or penalties) in a Proceeding, any amount actually and reasonably
paid in settlement of a Proceeding and any professional fees and other
disbursements reasonably incurred in a Proceeding.
Section 10. OTHER INDEMNIFICATION RIGHTS. The provisions of this
Article shall not be construed to be exclusive. The Bank shall have the power to
indemnify (and to provide for the Advancement of Expenses to) its Officers and
any of its agents or employees who are not Officers and to enter into specific
agreements, commitments or arrangements for indemnification on any terms not
prohibited by law which it deems to be appropriate. Nothing in this Article
shall limit any lawful rights to indemnification existing independently of this
Article.
Section 11. SURVIVAL OF BENEFITS. The provisions of this Article
shall be applicable to persons who shall have ceased to be Directors or officers
of the Bank, and shall inure to the benefit of the heirs, executors and
administrators of persons entitled to be indemnified hereunder. Nothing
hereunder shall be deemed to limit the Bank's authority to indemnify any person
pursuant to any contract or otherwise.
-14-
<PAGE>
Section 12. SUBSEQUENT AMENDMENT. The right to indemnification
conferred in this Article shall be a contract right and no amendment,
termination or repeal of this Article or of the relevant provisions of the
Massachusetts Business Corporation Law or any other applicable laws shall affect
or diminish in any way the rights of any Indemnitee to indemnification under the
provisions hereof with respect to any Proceeding arising out of or relating to
any actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
Section 13. MERGER OR CONSOLIDATION. If the Bank is merged into or
consolidated with another corporation and the Bank is not the surviving
corporation, the surviving corporation shall assume the obligations of the Bank
under this Article with respect to my action, suit, proceeding or investigation
arising out of or relating to any actions, transactions or facts occurring at or
prior to the date of such merger or consolidation.
Section 14. SUBSEQUENT LEGISLATION. If the Massachusetts General
Laws are amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Bank shall indemnify such
persons to the fullest extent permitted by the Massachusetts General Laws, as so
amended.
Section 15. SAVINGS CLAUSE. If this Article or any portion hereof
shall be found invalid on any ground by any court of competent jurisdiction,
then the Bank shall nevertheless indemnify each Indemnitee as to any Expenses
with respect to any Proceeding to the fullest extent permitted by any applicable
portion of this Article that shall not have been found invalid and to the
fullest extent permitted by applicable law.
ARTICLE VII
CERTAIN OPERATING PROVISIONS
Section 1. DEPOSITS. The Bank may receive demand, time and any
other types of deposits authorized by applicable law upon such terms and
conditions as may be agreed upon between the depositor and the Bank. Each
depositor, when making the first deposit in an account, shall subscribe to the
appropriate account agreement for that type of account (if there be such an
agreement) and shall subscribe to the Bylaws, assenting to the same and to all
of the regulations of the Bank whether then existing or thereafter enacted.
The Treasurer at his or her discretion shall be at liberty to refuse to
receive any deposits and may require, on such notice as may be required by
applicable law, any depositor or his or her representative, to withdraw the
whole or any part of the amount standing to the credit of his or her account,
except that on a systematic savings account which has been accepted, the
designated monthly deposit may not be refused nor may such an account or any
other term account be ordered to be withdrawn during the term of the applicable
account agreement. In case of neglect or refusal, to withdraw, no part of said
account shall be entitled to receive any subsequent interest.
-15-
<PAGE>
Where a depositor becomes indebted to the Bank under any circumstances, the
Bank shall have the right at its option and subject to applicable law, to set
off against such indebtedness an amount equal to such indebtedness by deducting
such amount from the deposits of the depositor.
Section 2. WITHDRAWALS. Deposits and interest may be withdrawn by
the depositor or by any person authorized to act on the depositor's behalf, by
written order or by any other method permitted by the Bank, subject to such
requirements as may be established from time to time by the Bank or by
applicable law. All withdrawals may be made on demand, except that the Bank may
impose such limitations on withdrawals as may be required or permitted by
agreement with the depositor or by law. The Bank may honor withdrawals made
payable to the depositor or to one or more other payees. Any payment made by the
Bank to the depositor, to any person authorized to act on the depositor's behalf
or in accordance with the request or with the consent of the depositor or of any
such person shall discharge the liability of the Bank to all persons to the
extent of such payment. No alleged agreement with a depositor, or with any
person authorized to act on the depositor's behalf, which is inconsistent with
applicable law or these Bylaws or with any rules, regulation or requirement
established by or limitations imposed by the Bank, shall be valid or binding
upon the Bank.
The Bank may collect any fees for services authorized by the Executive
Committee by making charges against a depositor's account. Any depositor may
file with the Treasurer a permanent order, requesting payment of interest as it
is credited, except for interest on deposits in accounts in which the interest
declared thereon may not be withdrawn pursuant to the terms of the applicable
account. Payment of interest pursuant to a permanent interest order by check
payable to such depositor or to such person as he may name in such order, as
evidenced by the return of such check shall be a discharge to the Bank for the
amount paid.
Deposits standing in the name of a deceased depositor or a minor shall be
paid in accordance with law; and payments may be made to the surviving husband,
wife or next of kin of a deceased depositor or to either parent of a minor, to
the extent authorized by applicable law.
Section 3. CONVEYANCES AND FORECLOSURES. Unless otherwise
provided by law or the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, any Assistant Vice
President, the Treasurer, any Assistant Treasurer, any Mortgage Officer, any
Loan Officer and any Real Estate Officer are authorized and empowered severally
to execute, acknowledge and deliver, in the name and on behalf of the Bank,
whenever authorized by the Board of Directors or the Executive Committee by
general or specific vote, all deeds and conveyances of real estate, all
assignments, extensions, releases, partial releases and discharges of mortgages,
and all assignments and transfers of bonds and other securities, and in
connection with any of the foregoing said officers are authorized and empowered
severally to release or assign the interest of the Bank in any policy of
insurance held by it.
Unless otherwise provided by law or the Board of Directors, in the event of
a breach of condition of any mortgage held by the Bank, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, any
Assistant Vice President, the Treasurer, any Assistant Treasurer, any Mortgage
Officer, any Loan Officer and any Real Estate Officer are
-16-
<PAGE>
authorized and empowered severally, in the name and on behalf of the Bank,
whenever authorized by the Executive Committee or by the Board of Directors by
general or specific vote, to make entry for the purpose of taking possession of
the mortgaged property or of foreclosing such mortgage and to perform any and
all acts necessary or proper to consummate such foreclosure and effect the due
execution of any power of sale contained in such mortgage, including the
execution, acknowledgment and delivery of all deeds and instruments of
conveyance to the purchaser and the execution of all affidavits and certificates
required by law or deemed necessary by any of such officers.
Section 4. TRANSFER. Accounts may be transferred by the owner to
one or more other persons, subject to applicable provisions of law, and a charge
therefor may be imposed as the Board of Directors from time to time may
prescribe, provided that such charge shall not exceed the maximum amount
permitted by law. No transfer shall be valid against the Bank until recorded on
the books of the Bank.
Section 5. LOANS AND INVESTMENTS. Funds of the Bank shall be
loaned or invested in such manner, upon such terms and conditions, in such
amounts and at such rates of interest, as from time to time may be authorized or
approved by the Board of Directors or appropriate officers of the Bank in
accordance with applicable provisions of law.
Section 6. ATTORNEYS. The Board of Directors or the President may
appoint one or more attorneys to examine titles to property offered as security
for loans and to prepare papers of a legal nature required in connection
therewith. The Board of Directors or the President may approve the appointment
of the same or such other attorneys, in general or specific matters, as from
time to time the Board or such officer may deem necessary or advisable.
Section 7. CHARGES ON OVERDUE PAYMENT. The Board of Directors
shall fix the rate of charges to be imposed upon delinquent payments due the
Bank within the limits prescribed by law and shall determine the circumstances
under which and the periods in which such charges may be waived by the.
President, a Vice President, Treasurer or other officer authorized by the Board
of Directors.
Section 8. EMERGENCY. In the event of an emergency declared by a
proper governmental authority, State or Federal, and until declaration of the
termination of such emergency, or in the event of a disaster, either of which
renders ordinary operations of the Bank and/or communications in the area
practically impossible, and until the effects of such a disaster are
substantially overcome, the officers and employees of the Bank shall continue to
conduct its affairs with the assistance of those members of the Board of
Directors who are readily available. The powers and duties of the Board of
Directors may be exercised and performed by said available members with or
without formal meetings and free from the usual notice and quorum requirements.
The emergency powers herein granted shall cease upon declaration of the
termination of the emergency or the overcoming of the same, as aforesaid.
-17-
<PAGE>
ARTICLE VIII
TRANSACTIONS WITH INTERESTED PERSONS
For the purposes of this Article, "Interested Person" means any person or
organization in any way interested in the Bank, whether as a director, officer,
stockholder, employee or otherwise, and any other entity in which any director,
officer, stockholder or employee of the Bank is a director, officer, stockholder
or employee or is otherwise interested in any way. The Bank may enter into
contracts or transact business with one or more Interested Persons and may enter
into other contracts or transactions in which one or more Interested Persons are
in any way interested. In the absence of fraud, no such contract or transaction
shall be invalidated or in any way affected by the fact that any such Interested
Person has or may have any interest which is or might be adverse to the interest
of the Bank even though the vote or action of an Interested Person having such
an adverse interest may have been necessary to obligate the Bank upon such
contract or transaction.
At any meeting of the Board of Directors (or of any duly authorized
committee thereof) at which any such contract or transaction shall be authorized
or ratified, any Director having such adverse interest may vote or act thereat
with like force and effect as if he or she had no such interest, provided in
such case that the nature of such interest (though not necessarily the extent or
details thereof) shall be disclosed or shall have been known to the Directors. A
general notice that a Director or officer is interested in any corporation,
organization or other concern of any kind referred to above shall be a
sufficient disclosure as to the interest of such Director or officer with
respect to all contracts and transactions with such corporation, organization or
other concern. No Director shall be disqualified from holding office as a
Director or an officer of the Bank by reason of any such adverse interest,
unless the Board of Directors shall determine that such adverse interest is
detrimental to the Bank. In the absence of fraud, no Director, officer or
stockholder having such adverse interest shall be liable on account of such
adverse interest to the Bank or to any stockholder or creditor thereof or to any
other person for any loss incurred by it under or by reason of such contract or
transaction, nor shall any such Director, officer or stockholder be accountable
on such ground for any gains or profits realized thereon.
ARTICLE IX
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
telecommunication. 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 Bank. The time when such notice is received,
if hand delivered, or dispatched, if delivered through the mails or by
telecommunication, shall be the time of the giving of the notice.
-18-
<PAGE>
Section 2. WAIVERS. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE X
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 Bank 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 Bank, which seal shall be in the
charge of the Clerk. 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
Comptroller or by an Assistant Clerk or an assistant to the Comptroller.
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 Bank 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 Bank and upon such information, opinions, reports or statements
presented to the Bank 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 Bank.
Section 4. FISCAL YEAR. The fiscal year of the Bank 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.
Section 6. EXECUTION OF INSTRUMENTS. All deeds, leases,
transfers, contracts, bonds, notes and other instruments and obligations to be
entered into by the Bank in the ordinary course of its business without Board of
Directors action may be executed on behalf of the Bank by the Chairman of the
Board, President, any Vice President, Treasurer or any other Officer, employee
or agent of the Bank as the Board of Directors may authorize.
-19-
<PAGE>
Section 7. CHARTER. All references in these Bylaws to the Charter
shall be deemed to refer to the Charter of the Bank, as amended and in effect
from time to time.
Section 8. POWERS OF BANK. The Bank shall have and may exercise
all the powers, privileges and authority, express, implied and incidental, now
or hereafter conferred by applicable law and the Bank's Charter.
Section 9. INTERESTED STOCKHOLDER AND DISINTERESTED DIRECTORS. As
used in these Bylaws, the terms "Interested Stockholder" and "Disinterested
Director" shall have the same respective meanings assigned to them in the Bank's
Charter. Any determination of beneficial ownership of securities under these
Bylaws shall be made in the manner specified in the Charter.
ARTICLE XI
AMENDMENT
Section 1. AMENDMENT BY DIRECTORS. The Bylaws of the Bank may be
amended or repealed by the affirmative vote of two-thirds of the whole Board at
a duly constituted meeting of the Board of Directors, unless at the time of such
action there shall be an Interested Stockholder, in which case such action shall
also require the affirmative vote of a majority of the Disinterested Directors
(as such term is defined in the Charter) then in office at such meeting. Not
later than the time of giving notice of the annual meeting of stockholders next
following the amending or repealing by the Directors of any Bylaw, notice
thereof stating the substance of such change shall be given to all stockholders
entitled to vote on amending the Bylaws.
Section 2. AMENDMENT BY STOCKHOLDERS. The Bylaws of the Bank may
be amended or repealed at a duly constituted meeting of stockholders called
expressly for such purpose, by the affirmative vote of at least 80% of the total
voting power of all of the then-outstanding shares of capital stock of the Bank
entitled to vote generally in the election of Directors, voting together as a
single class.
-20-
<PAGE>
EXHIBIT 4.3
Port Financial Corp.
The shares represented by this certificate are issued subject to all the
provisions of the Articles of Organization and Bylaws of Port Financial Corp.
(the "Corporation") as from time to time amended (copies of which are on file at
the principal office of the Corporation), to all of which the holder by
acceptance hereof assents. The following description constitutes a summary of
certain provisions of, and is qualified in its entirety by reference to, the
Articles of Organization.
The Articles of Organization of the Corporation contain certain provisions,
applicable upon the consummation of the conversion of Cambridgeport Mutual
Holding Company ("MHC") into a stock holding company structure and the
concurrent acquisition by the Corporation of all of the outstanding capital
stock of Cambridgeport Bank, that restrict persons from directly or indirectly
acquiring or holding, or attempting to acquire or hold, the beneficial ownership
of, more than of 10% of the issued and outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors ("Voting
Stock"). The Articles of Organization state that contains a provision pursuant
to which the holders of shares in excess of 10% of the Voting Stock of the
Corporation are limited to one hundredth (1/100) of one vote per share with
respect to such shares in excess of the 10% limitation. In addition, the
Corporation is authorized to refuse to recognize a transfer or attempted
transfer of any shares of Voting Stock to any person who beneficially owns, or
who the Corporation believes would become by virtue of such transfer the
beneficial owner of, more than 10% of shares of the Voting Stock. These
restrictions are not applicable to underwriters in connection with a public
offering of the common stock or to acquisitions of common stock by the
Corporation, any majority-owned subsidiary of the Corporation, or any pension,
profit-sharing, stock bonus or other compensation plan maintained by the
Corporation or by a member of a controlled group of corporations or trades or
businesses of which the Corporation are members for the benefit of the employees
of the Corporation and for any subsidiary, or any trust or custodial arrangement
established in connection with any such plan.
The Articles of Organization of the Corporation contain provisions
providing that the affirmative vote of the holders of at least 80% of the Voting
Stock of the Corporation may be required to approve certain business
combinations and other transactions with persons who directly or indirectly
acquire or hold the beneficial ownership of in excess of 10% of the Voting Stock
of the Corporation.
The Corporation will furnish to any stockholder upon written request and
without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or to its
transfer agent and registrar.
_________________________
<PAGE>
PORT CUSIP
COMMON STOCK
PORT FINANCIAL CORP.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
This Certifies that ___________________________________ is the owner of
_________________________________________
Fully paid and non-assessable Shares of Common Stock, par value $.01 per
share, of Port Financial Corp. (the "Corporation"), a Massachusetts
corporation. The shares represented by this Certificate are transferable only
on the stock transfer books of the Corporation by the holder of record hereof,
or by his duly authorized attorney or legal representative, upon the surrender
of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all the provisions
of the Articles of Organization 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 until countersigned and registered by the Corporation's transfer agent
and registrar.
In Witness Whereof, the Corporation has caused this Certificate to be executed
by the facsimile signature of its duly authorized officers and has caused its
corporate seal to be hereunto affixed.
Dated _______________
___________________ __________________
Seal: Port Financial Corp. Name: Name:
Corporate Seal Title: Title:
2000
Massachusetts
<PAGE>
EXHIBIT 5.1
November __, 1999
Port Financial Corp.
c/o Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Re: Port Financial Corp.
--------------------
Ladies and Gentlemen:
We have acted as special counsel to Port Financial Corp., a Massachusetts
corporation in organization (the "Company"), in connection with the proposed
registration under the Securities Act of 1933, as amended, by the Company of an
aggregate of 11,902,500 shares of common stock, $0.01 par value per share, of
the Company (the "Shares"), and the related preparation and filing by the
Company with the Securities and Exchange Commission of a Registration Statement
on Form S-1 (the "Registration Statement") pursuant to the Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Stock Issuance Plan of
Cambridgeport Mutual Holding Company (the "Plan"). In rendering the opinion set
forth below, we do not express any opinion concerning law other than the laws of
the Commonwealth of Massachusetts and the federal law of the United States.
We have examined originals or copies, certified or otherwise identified, of
such documents, corporate records and other instruments, and have examined such
matters of law, as we have deemed necessary or advisable for purposes of
rendering the opinion set forth below. As to matters of fact, we have examined
and relied upon the representations of the Company contained in the Registration
Statement and, where we have deemed appropriate, representations or certificates
of officers of the Company or public officials. We have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, the legal capacity of natural persons and the conformity to the
originals of all documents submitted to us as copies. In making our examination
of any documents, we have assumed that all parties, other than the Company, had
the corporate power and authority to enter into and perform all obligations
thereunder, and, as to such parties, we have also assumed the due authorization
by all requisite action, the due execution and delivery of such documents, and
the validity and binding effect and enforceability thereof.
<PAGE>
Port Financial, Corp.
November __, 1999 Page 2.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued and exchanged as contemplated in the
Registration Statement and the Plan, will be validly issued and outstanding,
fully paid and non-assessable.
In rendering the opinion set forth above, we have not passed upon and do
not purport to pass upon the application of securities or "blue-sky" laws of any
jurisdiction (except federal securities laws).
This opinion is given solely for the benefit of the Company and investors
who purchase shares of common stock of the Company pursuant to the Registration
Statement, and may not be relied upon by any other person or entity, nor quoted
in whole or in part, or otherwise referred to in any document without our
express written consent.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to our name in the Prospectus contained in the
Registration Statement under the heading "Legal and Tax Opinions."
Very truly yours,
Thacher Proffitt & Wood
By:_____________________________
Richard A. Schaberg
<PAGE>
Exhibit 8.1
Internet ID: @thacherproffitt.com
, 2000
Cambridgeport Mutual Holding Company
Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Dear Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed conversion (the "Conversion"), more fully described
below, pursuant to which Cambridgeport Mutual Holding Company ("MHC") will
convert from a Massachusetts-chartered mutual holding company to a stock-form
institution under the name Port Financial Corp. pursuant to the Cambridgeport
Mutual Holding Company Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Stock Issuance adopted by the Board of Trustees of MHC on
October 19, 1999 (the "Plan"). The Conversion and its component and related
transactions are governed by the Plan and are described in the Prospectus (the
"Prospectus") filed with the Securities and Exchange Commission in connection
with the Conversion and proposed sale of MHC common stock. We are rendering
this opinion pursuant to Section 3.1 of the Plan. All capitalized terms used but
not defined in this letter shall have the meanings assigned to them in the Plan
or Prospectus.
In connection with the opinions expressed below, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan and the Prospectus and of such corporate records of
MHC and of the Bank as we have deemed appropriate. We have also relied upon,
without independent verification, the representations of the Bank contained in
its letter to us dated ________, 2000. We have assumed that such
representations are true and that MHC and the Bank will act in accordance with
the Plan. In addition, we have made such investigations of law as we have deemed
appropriate to form a basis for the opinions expressed below.
<PAGE>
Cambridgeport Mutual Holding Company
Cambridgeport Bank
____________, 2000 Page 2
Based on and subject to the foregoing, it is our opinion that for federal
income tax purposes, under current law, for federal income tax purposes:
(1) the Conversion will constitute a reorganization under Section
368(a)(1)(F) of the Code;
(2) none of the Bank, the MHC or Port Financial Corp. will recognize gain
or loss as a result of the Conversion; and
(3) Eligible Account Holders and Supplemental Eligible Account Holders will
not recognize gain or loss upon their receipt of nontransferable
Subscription Rights to purchase shares of Port Financial Corp.,
provided the amount to be paid for such shares is equal to fair market
value of such shares.
In rendering our opinion in (iii), above, we have relied, without
independent verification, on the opinion of RP Financial, LC. that the
nontransferable Subscription Rights have no value.
This opinion is given solely for the benefit of the Bank, MHC, Port
Financial Corp., Eligible Account Holders and Supplemental Eligible Account
Holders, and may not be relied upon by any other party or entity or referred to
in any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Application for Conversion filed with the
Division of Banks of the Commonwealth of Massachusetts in accordance with
Chapter 167H of the Massachusetts General Laws, as a supporting document to the
Application to the Board of Governors of the Federal Reserve System on Form FRY-
3 and as an exhibit to the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission.
Very truly yours,
THACHER PROFFITT & WOOD
By:
<PAGE>
EXHIBIT 8.3
November 19, 1999
Board of Trustees
Cambridgeport Mutual Holding Company
Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Re: Plan of Conversion: Subscription Rights
Members of the Board of Trustees and Board of Directors:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the plan of conversion adopted by the Board of
Trustees of Cambridgeport Mutual Holding Company. Pursuant to the plan of
conversion, Cambridgeport Mutual Holding Company will convert to Port Financial
Corp. ("Port Financial" or the "Holding Company"), a stock holding company,
which will 100 percent of the issued and outstanding stock of Cambridgeport
Bank.
We understand that in accordance with the plan of conversion, subscription
rights to purchase shares of common stock in the Holding Company are to be
issued to: (1) Eligible Account Holders; (2) Supplemental Eligible Account
Holders; (3) Tax-qualified employee stock benefit plans of Cambridgeport Bank,
including the ESOP of Cambridgeport Bank; and (iv) Employees, officers,
directors, trustees and corporators of Cambridgeport Bank or Cambridgeport
Mutual Holding Company. 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 in the Holding Company at the same price as
will be paid by members of the general public in the direct community offering,
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,
<PAGE>
Board of Trustee
Cambridgeport Mutual Holding Company
Cambridgeport Bank
November 19, 1999 Page 2.
(2) the price at which the subscription rights are exercisable will not be
more or less than the 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
stocks as a whole or the Holding Company's 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.
Sincerely,
/s/ Gregory E. Dunn
----------------------
Gregory E. Dunn
Senior Vice President
<PAGE>
EXHIBIT 10.1
Employee Stock Ownership Plan
of
Port Financial Corp.
Adopted on October 19, 1999
Effective as of November 1, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I
Definitions
Section 1.1 Account.................................................... 1
Section 1.2 Affiliated Employer........................................ 1
Section 1.3 Allocation Compensation.................................... 1
Section 1.4 Bank....................................................... 2
Section 1.5 Board...................................................... 2
Section 1.6 Beneficiary................................................ 2
Section 1.7 Break in Service........................................... 2
Section 1.8 Change in Control.......................................... 2
Section 1.9 Code....................................................... 2
Section 1.10 Committee.................................................. 2
Section 1.11 Designated Beneficiary..................................... 2
Section 1.12 Company.................................................... 3
Section 1.13 Disability................................................. 3
Section 1.14 Discretionary Contribution................................. 3
Section 1.15 Domestic Relations Order................................... 3
Section 1.16 Eligibility Computation Period............................. 3
Section 1.17 Effective Date............................................. 3
Section 1.18 Eligible Employee.......................................... 3
Section 1.19 Eligible Participant....................................... 4
Section 1.20 Employee................................................... 4
Section 1.21 Employment Commencement Date............................... 4
Section 1.22 Employment Recommencement Date............................. 4
Section 1.23 ERISA...................................................... 4
Section 1.24 Exchange Act............................................... 4
Section 1.25 Fair Market Value.......................................... 4
Section 1.26 Financed Share............................................. 5
Section 1.27 Five Percent Owner......................................... 5
Section 1.28 Forfeitures................................................ 5
Section 1.29 Former Participant......................................... 5
Section 1.30 General Investment Account................................. 5
Section 1.31 Highly Compensated Employee................................ 5
Section 1.32 Hour of Service............................................ 5
Section 1.33 Investment Account......................................... 6
Section 1.34 Investment Fund............................................ 6
Section 1.35 Loan Repayment Account..................................... 6
Section 1.36 Loan Repayment Contribution................................ 6
Section 1.37 Maternity or Paternity Leave............................... 6
Section 1.38 Military Service........................................... 6
Section 1.39 Named Fiduciary............................................ 7
Section 1.40 Officer.................................................... 7
Section 1.41 One-Year Break in Service.................................. 7
Section 1.42 Participant................................................ 7
Section 1.43 Participating Employer..................................... 7
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1.44 Period of Service.......................................... 7
Section 1.45 Period of Severance........................................ 7
Section 1.46 Plan....................................................... 7
Section 1.47 Plan Administrator......................................... 7
Section 1.48 Plan Year.................................................. 8
Section 1.49 Qualified Domestic Relations Order......................... 8
Section 1.50 Qualified Military Service................................. 8
Section 1.51 Qualified Participant...................................... 8
Section 1.52 Retirement................................................. 8
Section 1.53 Retroactive Contribution................................... 8
Section 1.54 Share...................................................... 8
Section 1.55 Share Acquisition Loan..................................... 8
Section 1.56 Share Investment Account................................... 8
Section 1.57 Tender Offer............................................... 8
Section 1.58 Total Compensation......................................... 8
Section 1.59 Trust...................................................... 9
Section 1.60 Trust Agreement............................................ 9
Section 1.61 Trust Fund................................................. 9
Section 1.62 Trustee.................................................... 9
Section 1.63 Valuation Date............................................. 9
Section 1.64 Year of Eligibility Service................................ 9
Section 1.65 Year of Vesting Service.................................... 9
Article II
Participation
Section 2.1 Eligibility for Participation.............................. 9
Section 2.2 Commencement of Participation.............................. 10
Section 2.3 Termination of Participation............................... 10
Section 2.4 Adjustments to Period of Service........................... 10
Article III
Special Provisions
Section 3.1 Military Service........................................... 11
Section 3.2 Maternity or Paternity Leave............................... 12
Section 3.3 Leave of Absence........................................... 12
Article IV
Contributions by Participants Not Permitted
Section 4.1 Contributions by Participants Not Permitted................ 13
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article V
Contributions by the Employer
Section 5.1 In General................................................. 13
Section 5.2 Loan Repayment Contributions............................... 13
Section 5.3 Discretionary Contributions................................ 14
Section 5.4 Retroactive Contributions.................................. 14
Section 5.5 Time and Manner of Payment................................. 15
Article VI
Share Acquisition Loans
Section 6.1 In General................................................. 15
Section 6.2 Collateral; Liability for Repayment........................ 15
Section 6.3 Loan Repayment Account..................................... 16
Section 6.4 Release of Financed Shares................................. 17
Section 6.5 Restrictions on Financed Shares............................ 17
Article VII
Allocation of Contributions
Section 7.1 Allocation Among Eligible Participants..................... 18
Section 7.2 Allocation of Released Shares or Other Property............ 18
Section 7.3 Allocation of Discretionary Contributions.................. 18
Article VIII
Limitations on Allocations
Section 8.1 Optional Limitations on Allocations........................ 19
Section 8.2 General Limitations on Contributions....................... 19
Article IX
Vesting
Section 9.1 Vesting.................................................... 22
Section 9.2 Vesting on Death, Disability, Retirement or
Change in Control.......................................... 23
Section 9.3 Forfeitures on Termination of Employment................... 23
Section 9.4 Amounts Credited Upon Re-Employment........................ 23
Section 9.5 Allocation of Forfeitures.................................. 23
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article X
The Trust Fund
Section 10.1 The Trust Fund............................................. 24
Section 10.2 Investments................................................ 24
Section 10.3 Distributions for Diversification of Investments........... 24
Section 10.4 Use of Commingled Trust Funds.............................. 25
Section 10.5 Management and Control of Assets........................... 26
Article XI
Valuation of Interests in the Trust Fund
Section 11.1 Establishment of Investment Accounts....................... 26
Section 11.2 Share Investment Accounts.................................. 26
Section 11.3 General Investment Accounts................................ 26
Section 11.4 Valuation of Investment Accounts........................... 27
Section 11.5 Annual Statements.......................................... 27
Article XII
Shares
Section 12.1 Specific Allocation of Shares.............................. 27
Section 12.2 Dividends.................................................. 27
Section 12.3 Voting Rights.............................................. 28
Section 12.4 Tender Offers.............................................. 29
Article XIII
Payment of Benefits
Section 13.1 In General................................................. 31
Section 13.2 Designation of Beneficiaries............................... 31
Section 13.3 Distributions to Participants.............................. 32
Section 13.4 Manner of Payment.......................................... 32
Section 13.5 Minimum Required Distributions............................. 32
Section 13.6 Direct Rollover of Eligible Rollover Distributions......... 34
Section 13.7 Valuation of Shares Upon Distribution...................... 35
Section 13.8 Put Options................................................ 35
Section 13.9 Right of First Refusal..................................... 36
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article XIV
Change in Control
Section 14.1 Definition of Change in Control; Pending Change in Control. 37
Section 14.2 Vesting on Change of Control............................... 39
Section 14.3 Repayment of Share Acquisition Loan........................ 39
Section 14.4 Plan Termination After Change in Control................... 39
Section 14.5 Amendment of Section XIV................................... 39
Article XV
Administration
Section 15.1 Named Fiduciaries.......................................... 39
Section 15.2 Plan Administrator......................................... 40
Section 15.3 Committee Responsibilities................................. 41
Section 15.4 Claims Procedure........................................... 42
Section 15.5 Claims Review Procedure.................................... 43
Section 15.6 Allocation of Fiduciary Responsibilities and
Employment of Advisors................................... 43
Section 15.7 Other Administrative Provisions............................ 44
Article XVI
Amendment, Termination and Tax Qualification
Section 16.1 Amendment and Termination by Port Financial Corp........... 44
Section 16.2 Amendment or Termination Other Than by
Port Financial Corp...................................... 45
Section 16.3 Conformity to Internal Revenue Code........................ 45
Section 16.4 Contingent Nature of Contributions......................... 45
Article XVII
Special Rules for Top Heavy Plan Years
Section 17.1 In General................................................. 46
Section 17.2 Definition of Top Heavy Plan............................... 46
Section 17.3 Determination Date......................................... 47
Section 17.4 Cumulative Accrued Benefits................................ 47
Section 17.5 Key Employees.............................................. 48
Section 17.6 Required Aggregation Group................................. 49
Section 17.7 Permissible Aggregation Group.............................. 49
Section 17.8 Special Requirements During Top Heavy Plan Years........... 49
</TABLE>
(v)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article XVIII
Miscellaneous Provisions
Section 18.1 Governing Law.............................................. 50
Section 18.2 No Right to Continued Employment........................... 50
Section 18.3 Construction of Language................................... 50
Section 18.4 Headings................................................... 51
Section 18.5 Merger with Other Plans.................................... 51
Section 18.6 Non-alienation of Benefits................................. 51
Section 18.7 Procedures Involving Domestic Relations Orders............. 52
Section 18.8 Leased Employees........................................... 52
Section 18.9 Status as an Employee Stock Ownership Plan................. 53
</TABLE>
<PAGE>
Employee Stock Ownership Plan
of
Port Financial Corp.
Article I
Definitions
The following definitions shall apply for the purposes of the Plan,
unless a different meaning is clearly indicated by the context:
Section 1.1 Account means an account established for each
Participant to which is allocated such Participant's share, if any, of all
Financed Shares and other property that are released from the Loan Repayment
Account in accordance with section 6.4, together with his share, if any, of any
Discretionary Contributions that may be made by a Participating Employer.
Section 1.2 Affiliated Employer means the Company; any corporation
which is a member of a controlled group of corporations (as defined in section
414(b) of the Code) that includes the Company; any trade or business (whether or
not incorporated) that is under common control (as defined in section 414(c) of
the Code) with the Company; any organization (whether or not incorporated) that
is a member of an affiliated service group (as defined in section 414(m) of the
Code) that includes the Company; any leasing organization (as defined in section
414(n) of the Code) to the extent that any of its employees are required
pursuant to section 414(n) of the Code to be treated as employees of the
Company; and any other entity that is required to be aggregated with the Company
pursuant to regulations under section 414(o) of the Code.
Section 1.3 Allocation Compensation during any period means the
compensation taken into account in determining the allocation of benefits and
contributions among Eligible Participants and consists of the aggregate
compensation paid to an Employee by all Participating Employers during such
period and reportable to the Internal Revenue Service the wages pursuant to
section 6041 of the Code, plus the amount by which such Employee's compensation
with respect to such period has been reduced pursuant to a compensation
reduction agreement under the terms of any of the following plans which may be
maintained by a Participating Employer:
(a) a qualified cash or deferred arrangement described in section
401(k) of the Code;
(b) a salary reduction simplified employee pension plan described in
section 408(k) of the Code;
<PAGE>
(c) a tax-deferred annuity plan described in section 403(b) of the
Code; or
(d) a cafeteria plan described in section 125 of the Code.
In no event, however, shall an Employee's Allocation Compensation for any Plan
Year include any compensation in excess of $160,000. The $160,000 limitation
set forth in the preceding sentence shall be indexed in accordance with
regulations prescribed under section 401(a)(17) of the Code. If there are less
than twelve (12) months in the Plan Year, the $160,000 limitation (as adjusted)
shall be prorated by multiplying such limitation by a fraction, the numerator of
which is the number of months in the Plan Year and the denominator of which is
twelve (12).
Section 1.4 Bank means Cambridgeport Bank and any successor
thereto.
Section 1.5 Board means the Board of Directors of Port Financial
Corp.
Section 1.6 Beneficiary means the person or persons designated by a
Participant or Former Participant or other person entitled to a benefit under
the Plan, or otherwise determined to be entitled to a benefit under the Plan.
If more than one person is designated, each shall have an equal share unless the
person making the designation directed otherwise. The word "person" includes an
individual, a trust, an estate or any other person that is permitted to be named
as a Beneficiary.
Section 1.7 Break in Service means a Period of Severance of at
least 365 consecutive days.
Section 1.8 Change in Control means an event described in section
14.1.
Section 1.9 Code means the Internal Revenue Code of 1986 (including
the corresponding provisions of any succeeding law).
Section 1.10 Committee means the Compensation Committee described in
section 15.3.
Section 1.11 Designated Beneficiary means a natural person
designated by a Participant or Former Participant as a Beneficiary and shall not
include any Beneficiary designated by a person other than a Participant or
Former Participant or any Beneficiary other than a natural person. If a natural
person is the beneficiary of a trust which a Participant or Former Participant
has named as his Beneficiary, such natural person shall be treated as a
Designated Beneficiary if: (a) the trust is a valid trust under applicable
state law (or would be a valid trust except for the fact that it does not have a
corpus); (b) the trust is irrevocable or will, by its terms, become irrevocable
upon the death of the Participant or Former Participant; (c) the beneficiaries
of the trust who are beneficiaries with respect to the trust's interest as a
Beneficiary are identifiable from the terms of the trust instrument; and (d) the
following information is furnished to the Committee:
(i) by the Participant or Former Participant, if any distributions are
required to be made pursuant to section 13.5 prior to the death of the
Participant or Former Participant, either: (A) a copy of the trust
instrument, together with a written
-2-
<PAGE>
undertaking by the Participant or Former Participant to furnish to the
Committee a copy of any subsequent amendment within a reasonable time after
such amendment is made; or (B)(I) a list of all of the beneficiaries of the
trust (including contingent and remainderman beneficiaries with a
description of the conditions on their entitlement); (II) a certification
of the Participant or Former Participant to the effect that, to the best of
his knowledge, such list is correct and complete and that the conditions of
section 1.11(a), (b) and (c) are satisfied; (III) a written undertaking to
provide a new certification to the extent that an amendment changes any
information previously certified; and (IV) a written undertaking to furnish
a copy of the trust instrument to the Committee on demand; and
(ii) by the trustee of the trust within nine months after the death of
the Participant or Former Participant, if any distributions are required to
be made pursuant to section 13.5 after the death of the Participant or
Former Participant, either: (A) a copy of the actual trust instrument for
the trust; or (B)(I) a final list of all of the beneficiaries of the trust
(including contingent and remainderman beneficiaries with a description of
the conditions on their entitlement) as of the date of death; (II) a
certification of the trustee to the effect that, to the best of his
knowledge, such list is correct and complete and that the conditions of
section 1.11(a), (b) and (c) are satisfied; and (III) a written undertaking
to furnish a copy of the trust instrument to the Committee on demand.
Section 1.12 Company means Port Financial Corp., a Massachusetts
corporation, and any successor thereto.
Section 1.13 Disability means a condition of total incapacity,
mental or physical, for further performance of duty with all Participating
Employers, which the Committee shall have determined, on the basis of competent
medical evidence, is likely to be permanent.
Section 1.14 Discretionary Contribution means Shares or amounts of
money contributed to the Plan by the Participating Employers in accordance with
section 5.3.
Section 1.15 Domestic Relations Order means a judgment, decree or
order (including the approval of a property settlement) that is made pursuant to
a state domestic relations or community property law and relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, child or other dependent of a Participant or Former Participant.
Section 1.16 Eligibility Computation Period with respect to any
Employee means: (a) the 12-consecutive-month period beginning on such Employee's
Employment Commencement Date or Employment Recommencement Date; and (b) each
Plan year beginning after such Employee's Employment Commencement Date or
Employment Recommencement Date and before a Break in Service.
Section 1.17 Effective Date means November 1, 1999.
Section 1.18 Eligible Employee means an Employee who is eligible for
membership in the Plan in accordance with Article II.
-3-
<PAGE>
Section 1.19 Eligible Participant means, for any Plan Year, an
Employee who is a Participant during all or any part of such Plan Year and
either remains a Participant on the last day of such Plan Year or terminated
participation during such Plan Year on account of termination of employment,
death, Disability or Retirement; provided, however, that no Employee shall be an
Eligible Participant for the Plan Year that includes the effective date of the
transaction pursuant to which the Bank becomes a wholly owned subsidiary of Port
Financial Corp. if he terminates employment for any reason with all
Participating Employers prior to such effective date.
Section 1.20 Employee means any person, including an officer, who is
employed by any Affiliated Employer.
Section 1.21 Employment Commencement Date means the date on which a
person first performs an Hour of Service, except that if an Employee separates
from service with all Affiliated Employers, incurs a Break in Service and
subsequently returns to service with any Affiliated Employer, his Employment
Commencement Date shall be the date on which he first performs an Hour of
Service following the Break in Service.
Section 1.22 Employment Recommencement Date means the date upon which
an Employee is first credited with an Hour of Service after a Break in Service.
Section 1.23 ERISA means the Employee Retirement Income Security Act
of 1974, as amended from time to time (including the corresponding provisions of
any succeeding law).
Section 1.24 Exchange Act means the Securities Exchange Act of 1934,
as amended from time to time (including the corresponding provisions of any
succeeding law).
Section 1.25 Fair Market Value on any date means:
(a) with respect to a Share:
(i) the final quoted sale price on the date in question (or,
if there is no reported sale on such date, on the last preceding date
on which any reported sale occurred) of a Share as reported in the
principal consolidated reporting system with respect to securities
listed or admitted to trading on the principal United States
securities exchange on which like Shares are listed or admitted to
trading; or
(ii) if like Shares are not listed or admitted to trading on
any such exchange, the closing bid quotation with respect to a Share
on such date on the National Association of Securities Dealers
Automated Quotation System, or, if no such quotation is provided, on
another similar system, selected by the Committee, then in use; or
(iii) if sections 1.25(a)(i) and (ii) are not applicable, the
fair market value of a Share as determined by an appraiser independent
of the Employer and experienced and expert in the field of corporate
appraisal.
-4-
<PAGE>
(b) with respect to property other than Shares, the fair market value
determined in the manner selected by the Trustee.
Section 1.26 Financed Share means: (a) a Share that has been
purchased with the proceeds of a Share Acquisition Loan, that has been allocated
to the Loan Repayment Account in accordance with section 6.3 and that has not
been released in accordance with section 6.4; or (b) a Share that constitutes a
dividend paid with respect to a Share described in section 1.26(a), that has
been allocated to the Loan Repayment Account in accordance with section 6.3 and
that has not been released in accordance with section 6.4.
Section 1.27 Five Percent Owner means, for any Plan Year, a person
who, during such Plan Year, owned (or was considered as owning for purposes of
section 318 of the Code): (a) more than 5% of the value of all classes of
outstanding stock of any Affiliated Employer; or (b) stock possessing more than
5% of the combined voting power of all classes of outstanding stock of any
Affiliated Employer.
Section 1.28 Forfeitures means the amounts forfeited by Participants
and Former Participants on termination of employment prior to full vesting,
pursuant to section 9.3, less amounts credited because of re-employment,
pursuant to section 9.4.
Section 1.29 Former Participant means a Participant whose
participation in the Plan has terminated pursuant to section 2.3.
Section 1.30 General Investment Account means an Investment Account
established and maintained in accordance with Article XI.
Section 1.31 Highly Compensated Employee means, for any Plan Year,
an Employee who:
(i) was a Five Percent Owner at any time during such Plan Year
or any prior Plan Year; or
(ii) received Total Compensation during the immediately preceding
Plan Year (A) in excess of $80,000 (or such other amount as may be
prescribed by the Secretary of the Treasury pursuant to section
401(a)(17) of the Code); and (B) if elected by the Plan Administrator
in such form and manner as the Secretary of the Treasury may
prescribe, in excess of the Total Compensation received for such
preceding Plan Year by at least 80% of the Employees.
The determination of who is a Highly Compensated Employee will be made in
accordance with section 414(q) of the Code and the regulations thereunder.
Section 1.32 Hour of Service means each hour for which a person is
paid, or entitled to payment, for the performance of duties for any Affiliated
Employer, plus, solely for the purpose of computing the Years of Eligibility
Service:
-5-
<PAGE>
(a) each hour for which such person is paid, or entitled to payments
by an Affiliated Employer on account of a period during which no duties are
performed due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence. Hours
under this section 1.32(a) shall be calculated and credited pursuant to
section 2530.200b-2 of the Department of Labor's regulations (or any
successor regulation), which are incorporated herein by reference; and
(b) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by any Affiliated Employer;
provided, however, that such hours have not previously been credited under
other provisions of this section 1.32; and provided, further, that not more
than 501 Hours of Service shall be credited under section 1.32(a) to such
person on account of a single continuous period during which such person
performs no duties for an Affiliated Employer whether or not such period
occurs in a single Plan Year. Hours under this section 1.32(b) shall be
credited to the person for the Eligibility Computation Period or
Eligibility Computation Periods to which the award or agreement pertains,
rather than the Eligibility Computation Period in which the award,
agreement or payment is made.
Anything in this section 1.32 to the contrary notwithstanding, no Hours of
Service shall be credited for a payment made or due under a plan maintained
solely for the purpose of complying with applicable workmen's compensation or
disability insurance laws, or a payment which solely reimburses any person for
medical or medically-related expenses incurred by such person.
Section 1.33 Investment Account means either a General Investment
Account or a Share Investment Account.
Section 1.34 Investment Fund means any one of the three or more
funds as may be established from time to time by the Committee which, together
with any and all Shares and other investments held under the Plan, constitute
the Trust Fund.
Section 1.35 Loan Repayment Account means an account established and
maintained in accordance with section 6.3.
Section 1.36 Loan Repayment Contribution means amounts of money
contributed to the Plan by the Participating Employers in accordance with
section 5.2.
Section 1.37 Maternity or Paternity Leave means a person's absence
from work for all Affiliated Employers: (a) by reason of the pregnancy of such
person; (b) by reason of the birth of a child of such person; (c) by reason of
the placement of a child with the person in connection with the adoption of such
child by such person; or (d) for purposes of caring for a child of such person
immediately following the birth of the child or the placement of the child with
such person.
Section 1.38 Military Service means service in the armed forces of
the United States, including but not limited to Qualified Military Service. It
may also include, if and to the extent that the Board so provides and if all
Participants and Former Participants in like circumstances are similarly
treated, special service for the government of the United States and other
public service.
-6-
<PAGE>
Section 1.39 Named Fiduciary means any person, committee,
corporation or organization described in section 15.1.
Section 1.40 Officer means an Employee who is an administrative
executive in regular and continued service with any Affiliated Employer;
provided, however, that at no time shall more than the lesser of (a) 50
Employees or (b) the greater of (i) 3 Employees or (ii) 10% of all Employees be
treated as Officers. The determination of whether an Employee is to be
considered an Officer shall be made in accordance with section 416(i) of the
Code.
Section 1.41 One-Year Break in Service means an Eligibility
Computation Period during which an Employee fails to complete more than 500
Hours of Service.
Section 1.42 Participant means any person who has satisfied the
eligibility requirements set forth in section 2.1, who has become a Participant
in accordance with section 2.2, and whose membership has not terminated under
section 2.3.
Section 1.43 Participating Employer means the Bank, and any
successor thereto and any other Affiliated Employer which, with the prior
written approval of the Board of Directors of Port Financial Corp. and subject
to such terms and conditions as may be imposed by the Board of Directors of Port
Financial Corp., shall adopt this Plan.
Section 1.44 Period of Service means a period of consecutive days
commencing on a person's Employment Commencement Date and ending on the date a
Period of Severance begins, with any adjustments required under section 2.4.
Except as otherwise provided in the Plan, a Period of Service "of year(s)" means
the quotient of the Period of Service divided by 365, and any fractional part of
a year shall be disregarded.
Section 1.45 Period of Severance means a period of consecutive days
commencing with the earlier of:
(a) the date on which a person terminates service with all Affiliated
Employers by reason of resignation, retirement, discharge or death; or
(b) the first anniversary of the date on which a person terminates
service with all Affiliated Employers for any other reason, including
layoff, disability, leave of absence or any other cessation of service not
otherwise included as service under the Plan;
and ending on the first date following such separation from service on which
such person performs an Hour of Service.
Section 1.46 Plan means the Employee Stock Ownership Plan of Port
Financial Corp., as amended from time to time.
Section 1.47 Plan Administrator means the Committee or any person,
committee, corporation or organization designated in section 15.2, or appointed
pursuant to section 15.2, to perform the responsibilities of that office.
-7-
<PAGE>
Section 1.48 Plan Year means the period commencing on the November
1, 1999 and ending on October 31, 2000 and each fiscal year ending on each
October 31/st/ thereafter.
Section 1.49 Qualified Domestic Relations Order means a Domestic
Relations Order that: (a) clearly specifies (i) the name and last known mailing
address of the Participant or Former Participant and of each person given rights
under such Domestic Relations Order, (ii) the amount or percentages of the
Participant's or Former Participant's benefits under this Plan to be paid to
each person covered by such Domestic Relations Order, (iii) the number of
payments or the period to which such Domestic Relations Order applies, and (iv)
the name of this Plan; and (b) does not require the payment of a benefit in a
form or amount that is (i) not otherwise provided for under the Plan, or (ii)
inconsistent with a previous Qualified Domestic Relations Order.
Section 1.50 Qualified Military Service means with respect to any
person on any date, any service in the uniformed services of the United States
(as defined in chapter 43 of Title 38 of the United States Code) completed prior
to such date, but only if, on such date, such person is entitled to re-
employment rights with respect to an Affiliated Employer on account of such
service.
Section 1.51 Qualified Participant means a Participant who has
attained age 55 and who has been a Participant of the Plan for at least 10
years.
Section 1.52 Retirement means: (a) any termination of membership in
the Plan at or after attainment of age 65; and (b) any retirement under an
applicable qualified defined benefit plan of the Employer as in effect from time
to time with entitlement to a normal or early (but not vested, whether immediate
or deferred) retirement allowance.
Section 1.53 Retroactive Contribution means a contribution made on a
retroactive basis in respect of a period of Qualified Military Service in
accordance with section 5.4.
Section 1.54 Share means a share of any class of stock issued by any
Affiliated Employer; provided, however, that such share is a "qualifying
employer security" within the meaning of section 409(l) of the Code and section
407(d)(5) of ERISA.
Section 1.55 Share Acquisition Loan means a loan obtained by the
Trustee in accordance with Article VI.
Section 1.56 Share Investment Account means an Investment Account
established and maintained in accordance with Article XI.
Section 1.57 Tender Offer means a tender offer made to holders of
any one or more classes of Shares generally, or any other offer made to holders
of any one or more classes of Shares generally to purchase, exchange, redeem or
otherwise transfer Shares, whether for cash or other consideration whether or
not such offer constitutes a "tender offer" or an "exchange offer" for purposes
of the Exchange Act.
Section 1.58 Total Compensation for any person during any period
means the total compensation paid to such person during such period by all
Affiliated Employers which is required to be reported to such person on a
written statement under section 6041(d), 6051(a)(3) and 6052 of the Code, plus
any elective deferrals (within the meaning of section 402(g) of the Code) under
any
-8-
<PAGE>
qualified cash or deferred arrangement described in section 401(k) of the
Code and maintained by any Affiliated Employer, any tax-deferred annuity
described in section 403(b) of the Code and maintained by any Affiliated
Employer, any salary reduction simplified employee pension plan described in
section 408(k) of the Code and maintained by any Affiliated Employer, and any
salary reduction contributions under any cafeteria plan described in section 125
of the Code and maintained by any Affiliated Employer. In no event shall a
person's Total Compensation for any Plan Year include any compensation in excess
of $160,000 (or such other amount as may be permitted under section 401(a)(17)
of the Code).
Section 1.59 Trust means the legal relationship created by the Trust
Agreement pursuant to which the Trustee holds the Trust Fund in trust.
Section 1.60 Trust Agreement means the agreement between the Bank
and the Trustee therein named or its successors pursuant to which the Trust Fund
shall be held in trust.
Section 1.61 Trust Fund means the corpus (consisting of
contributions paid over to the Trustee and investments thereof), and all
earnings, appreciation or additions thereof and thereto, held by the Trustee
under the Trust Agreement in accordance with the Plan, less any depreciation
thereof and any payments made therefrom pursuant to the Plan.
Section 1.62 Trustee means the Trustee of the Trust Fund from time
to time in office. The Trustee shall serve as Trustee until it is removed or
resigns from office and is replaced by a successor Trustee appointed in
accordance with the terms of the Trust Agreement.
Section 1.63 Valuation Date means the last business day of each Plan
Year and such other dates as the Plan Administrator may prescribe
Section 1.64 Year of Eligibility Service means an Eligibility
Computation Period during which the Employee completed at least 1,000 Hours of
Service.
Section 1.65 Year of Vesting Service means a Period of Service of
one year.
Article II
Participation
Section 2.1 Eligibility for Participation.
(a) Only Eligible Employees may be or become Participant of the Plan.
An Employee shall be an Eligible Employee if he (i) is employed by one or more
Participating Employers; (ii) has attained age 21; (iii) has completed at least
one Year of Eligibility Service; and (v) is not excluded under section 2.1(b).
(b) An Employee is not an Eligible Employee if he:
-9-
<PAGE>
(i) does not receive Allocation Compensation from at least one
Participating Employer;
(ii) is an Employee who has waived any claim to participation in the
Plan;
(iii) is an Employee or in a unit of Employees covered by a
collective bargaining agreement with the Employer where retirement
benefits were the subject of good faith bargaining, unless such agreement
expressly provides that Employees such as he be covered under the Plan;
(iv) is a "leased employee" as defined in section 18.8(a); or
(v) is classified as an "independent contractor" by the Employer,
even if considered a common-law employee under applicable law.
Section 2.2 Commencement of Participation.
Every Employee who is an Eligible Employee on the effective date of
the transaction whereby the Bank becomes a wholly owned subsidiary of Port
Financial Corp. shall automatically become a Participant as of the Effective
Date. An Employee who becomes an Eligible Employee after the Effective Date
shall automatically become a Participant on the first day of the calendar month
coincident with or next following the date on which he becomes an Eligible
Employee.
Section 2.3 Termination of Participation.
Participation in the Plan shall cease, and a Participant shall become
a Former Participant, upon termination of employment with all Participating
Employers, death, Disability or Retirement, failure to return to work upon the
expiration of a leave of absence granted pursuant to section 3.3, becoming an
Employee who is excluded under section 2.1(b) or distribution of the entire
vested interest in his Account.
Section 2.4 Adjustments to Period of Service.
(a) The Period of Service of an Employee shall include any period
during which the Employee is separated from the service of all Affiliated
Employers if such period is less than 365 consecutive days measured from the
date on which such Employee terminates service and ending with the first date
following such termination for which the Employee is credited with an Hour of
Service.
(b) The Period of Service of an Employee who returns to the service of
Affiliated Employer following a separation from service shall commence with the
first date following such separation from service for which the Employee is
credited with an Hour of Service. The Employee shall be given credit for any
Period of Service prior to such separation on if:
-10-
<PAGE>
(a) in the case of an Employee with credit for less than 2 Years
of Vesting Service when the Period of Severance began, either (i) a
Break in Service has not occurred or (ii) the Employee completes a
Period of Service of at least 1 year following the Period of Severance
and the Period of Service equals or exceeds the greater of 5 years or
the Period of Service completed prior to the Period of Severance; and
(b) in the case of an Employee with credit for at least 2 Years
of Vesting Service when the Period of Severance began either (i) a
Break in Service has not occurred or (ii) the Employee completes a
Period of Service of at least 1 year following the Period of
Severance.
(c) The Period of Service of an Employee who is absent on Maternity or
Paternity Leave shall exclude any period of such absence that occurs after the
first anniversary of the commencement of such absence except to the extent that
such period constitutes an approved leave of absence under section 3.3.
(d) An Employee's Period of Service shall also be adjusted to the
extent required by the Family and Medical Leave Act or any regulations
promulgated thereunder.
(e) Each Employee's Period of Service shall take into account periods
of employment with any Affiliated Employer prior to the Effective Date.
(f) Each Employee's Period of Service shall exclude periods of
employment prior to the attainment of age 18.
Article III
Special Provisions
Section 3.1 Military Service.
In the case of a termination of employment of any Employee to enter
directly into Military Service, the entire period of his absence shall be
treated, for purposes of vesting and eligibility for membership (but not, except
as required by law, for purposes of eligibility to share in allocations of
contributions in accordance with Article VII), as if he had continued employment
during the period of his absence. In the event of the re-employment of such
person by any Affiliated Employer within a period of not more than six months:
(a) after he becomes entitled to release or discharge, if he has
entered into the uniformed services of the United States;
(b) release from hospitalization continuing after discharge from the
uniformed services of the United States for a period of not more than one
year; or
-11-
<PAGE>
(c) after such service terminates, if he has entered into other
service defined as Military Service;
such period, also, shall be deemed to be Military Service.
Section 3.2 Maternity or Paternity Leave.
(a) Subject to this section 3.2, in the event of an Employee's absence
from work in the service of all Affiliated Employers for a period in excess of
one year that commences on or after October 1, 1985 and that constitutes
Maternity or Paternity Leave for which the person is not paid or entitled to
payment by the Employer or any Affiliated Employer, then solely for purposes of
determining when a Break in Service has occurred or when a Period of Severance
of five years has occurred, the period of such an absence commencing on the
first anniversary of such absence and ending on the second anniversary of the
commencement of such absence (or, if earlier, on the last day of such absence)
shall not be treated as a Period of Severance. In addition, solely for purposes
of determining whether a One-Year Break in Service has occurred, the Employee
shall be credited for the period of absence with the number of Hours of Service
equal to the lesser of:
(a) (i) the number of Hours of Service that would have been credited
to the Employee if he had continued working for an Affiliated Employer
during the period of such absence, or (ii) if the number of Hours of
Service prescribed under section 3.2(a)(i) cannot be determined, 8 Hours of
Service for each working day during the period of absence, or
(b) 501 Hours of Service.
Such credit shall be given during the Eligibility Computation Period in which
such absence began, if necessary to prevent a One-Year Break in Service from
occurring during such Eligibility Computation Period, and in all other cases,
such credit shall be given during the immediately following Eligibility
Computation Period.
(c) Notwithstanding anything in the Plan to the contrary, this
section 3.2 shall not apply unless the person furnishes to the Plan
Administrator such information as the Plan Administrator may reasonably require
in order to establish: (i) that the person's absence is one described in section
3.2(a); (ii) the number of working days during such absence and (iii) the number
of Hours of Service ordinarily credited on each such working day.
Section 3.3 Leave of Absence.
In the event of temporary absence from work in the service of all
Affiliated Employers for any period of two years or less for which an Employee
shall have been granted a leave of absence by a Participating Employer, the
entire period of his absence shall be treated for purposes of vesting and
eligibility for membership (but not for purposes of eligibility to share in the
allocation of contributions in accordance with Article VII), as if he had
continued employment during the period of his absence. Absence from work for a
period greater than, or failure to return to work upon the expiration of, the
period of leave of absence granted by the Employer shall terminate membership
-12-
<PAGE>
in the Plan as of the date on which such period ended. In granting leaves of
absence for purposes of the Plan, all Employees in like circumstances shall be
similarly treated.
Article IV
Contributions by Participants Not Permitted
Section 4.1 Contributions by Participants Not Permitted.
Participants shall not be required, nor shall they be permitted, to
make contributions to the Plan.
Article V
Contributions by the Employer
Section 5.1 In General.
Subject to the limitations of Article VIII, for each Plan Year, the
Participating Employers shall contribute to the Plan the amount, if any,
determined by the Board of Directors of Port Financial Corp., but in no event
less than the amount described in section 5.2(a). The amount contributed for
any Plan Year shall be treated as a Loan Repayment Contribution, a Discretionary
Contribution, or a combination thereof, in accordance with the provisions of
this Article V.
Section 5.2 Loan Repayment Contributions.
For each Plan Year, a portion of the Participating Employers'
contributions, if any, to the Plan equal to the sum of:
(a) the minimum amount required to be added to the Loan
Repayment Account in order to provide adequate funds for the
payment of the principal and interest then required to be repaid
under the terms of any outstanding Share Acquisition Loan
obtained by the Trustee; plus
(b) the additional amount, if any, designated by the
Committee to be applied to the prepayment of principal or
interest under the terms of any outstanding Share Acquisition
Loan obtained by the Trustee;
shall be treated as a Loan Repayment Contribution for such Plan Year. A Loan
Repayment Contribution for a Plan Year shall be allocated to the Loan Repayment
Account and shall be applied by the Trustee, in the manner directed by the
Committee, to the payment of accrued interest and to the reduction of the
principal balance of any Share Acquisition Loan obtained by the Trustee that is
outstanding on the date on which the Loan Repayment Contribution is made. To
the extent that a
-13-
<PAGE>
Loan Repayment Contribution for a Plan Year results in a release of Financed
Shares in accordance with section 6.4, such Shares shall be allocated among the
Accounts of Eligible Participants for such Plan Year in accordance with section
7.2.
Section 5.3 Discretionary Contributions.
In the event that the amount of the Participating Employers'
contributions to the Plan for a Plan Year exceeds the amount of the Loan
Repayment Contributions for such Plan Year, such excess shall be treated as a
Discretionary Contribution and shall be allocated among the Accounts of the
Eligible Participants for such Plan Year in accordance with section 7.3.
Section 5.4 Retroactive Contributions.
A Participating Employer shall make a Retroactive Contribution in
respect of any individual previously employed by it who is re-employed by any
Affiliated Employer after December 12, 1994 following the completion of a period
of Qualified Military Service. Such Retroactive Contribution shall be made in
the following manner for each Plan Year that includes any part of the period of
Qualified Military Service:
(a) An allocation percentage shall be computed by dividing
(i) the sum of the Fair Market Value of all Financed Shares
allocated to Eligible Participants for such Plan Year plus the
dollar amount of all Discretionary Contributions made in cash for
such Plan Year plus the Fair Market Value of all Discretionary
Contributions made in Shares for such Plan Year, divided by (ii)
the aggregate amount of Allocation Compensation used in the
allocation for such Plan Year. Fair Market Value for such
purposes shall be determined as of the last day of the Plan Year.
(b) A notional allocation shall be determined by multiplying
(A) the percentage determined under section 5.4(a) by (B) the
Allocation Compensation which the individual would have had for
such Plan Year if he had remained in the service of his
Participating Employer in the same capacity and earning
Allocation Compensation and Total Compensation at the annual
rates in effect immediately prior to the commencement of the
Qualified Military Leave (or, if such rates are not reasonably
certain, at an annual rate equal to the actual Allocation
Compensation and Total Compensation, respectively, paid to him
for the 12-month period immediately preceding the Qualified
Military Service).
(c) An actual Retroactive Contribution for the Plan Year
shall be determined by computing the excess of (A) the notional
allocation determined under section 5.4(b) over (B) the sum of
the dollar amount of any Discretionary Contribution in cash, the
Fair Market Value of any Discretionary Contribution in Shares and
the Fair Market Value of any Financed Shares actually allocated
to such individual for such Plan Year.
Section 5.5 Time and Manner of Payment.
-14-
<PAGE>
(a) Payment of contributions made pursuant to this Article V shall be
made: (i) in cash, in the case of a Loan Repayment Contribution; and (ii) in
cash, in Shares, or in a combination of cash and Shares, in the case of an
Discretionary Contribution or a Retroactive Contribution.
(b) Contributions made pursuant to this Article V for a Plan Year
shall be paid to the Trust Fund on or before the due date (including any
extensions thereof) of the Employer's federal income tax return for its taxable
year during which such Plan Year ends. All such contributions shall be allocated
to the Accounts of the Eligible Participants in the case of a Discretionary
Contribution, to the Account of the Participant for whom it is made in the case
of a Retroactive Contribution, and to the Loan Repayment Account in the case of
a Loan Repayment Contribution, as soon as is practicable following the payment
thereof to the Trust Fund.
Article VI
Share Acquisition Loans
Section 6.1 In General.
The Committee may, with the prior approval of the Board of Directors
of Port Financial Corp., direct the Trustee to obtain a Share Acquisition Loan
on behalf of the Plan, the proceeds of which shall be applied on the earliest
practicable date:
(a) to purchase Shares; or
(b) to make payments of principal or interest, or a
combination of principal and interest, with respect to such Share
Acquisition Loan; or
(c) to make payments of principal and interest, or a
combination of principal and interest, with respect to a
previously obtained Share Acquisition Loan that is then
outstanding.
Any such Share Acquisition Loan shall be obtained on such terms and conditions
as the Committee may approve; provided, however, that such terms and conditions
shall provide for the payment of interest at no more than a reasonable rate and
shall permit such Share Acquisition Loan to satisfy the requirements of section
4975(d)(3) of the Code and section 408(b)(3) of ERISA.
Section 6.2 Collateral; Liability for Repayment.
(a) The Committee may direct the Trustee to pledge, at the time a
Share Acquisition Loan is obtained, the following assets of the Plan as
collateral for such Share Acquisition Loan:
-15-
<PAGE>
(i) any Shares purchased with the proceeds of such Share
Acquisition Loan and any earnings attributable thereto;
(ii) any Financed Shares then pledged as collateral for a prior
Share Acquisition Loan which is repaid with the proceeds of such Share
Acquisition Loan and any earnings attributable thereto; and
(iii) pending the application thereof to purchase Shares or repay a
prior Share Acquisition Loan, the proceeds of such Share Acquisition Loan
and any earnings attributable thereto.
Except as specifically provided in this section 6.2(a), no assets of the Plan
shall be pledged as collateral for the repayment of any Share Acquisition Loan.
(b) No person entitled to payment under a Share Acquisition Loan
shall have any right to the assets of the Plan except for:
(i) Financed Shares that have been pledged as collateral for such
Share Acquisition Loan pursuant to section 6.2(a);
(ii) Loan Repayment Contributions made pursuant to section 5.2; and
(iii) earnings attributable to Financed Shares described in section
6.2(b)(i) and to Loan Repayment Contributions described in section
6.2(b)(ii).
Except in the event of a default or a refinancing pursuant to which an existing
Share Acquisition Loan is repaid or as provided in section 14.3, the aggregate
amount of all payments of principal and interest made by the Trustee with
respect to all Share Acquisition Loans obtained on behalf of the Plan shall at
no time exceed the aggregate amount of all Loan Repayment Contributions
theretofore made plus the aggregate amount of all earnings (other than dividends
paid in the form of Shares) attributable to Financed Shares and to such Loan
Repayment Contributions.
(c) Any Share Acquisition Loan shall be without recourse against
the Plan and Trust.
Section 6.3 Loan Repayment Account.
In the event that one or more Share Acquisition Loans shall be
obtained, a Loan Repayment Account shall be established under the Plan. The
Loan Repayment Account shall be credited with all Shares acquired with the
proceeds of a Share Acquisition Loan, all Loan Repayment Contributions and all
earnings (including dividends paid in the form of Shares) or appreciation
attributable to such Shares and Loan Repayment Contributions. The Loan
Repayment Account shall be charged with all payments of principal and interest
made by the Trustee with respect to any Share Acquisition Loan, all Shares
released in accordance with section 6.4 and all losses, depreciation or expenses
attributable to Shares or to other property credited thereto. The Financed
Shares, as well as any earnings thereon, shall be allocated to such Loan
Repayment Account and shall be accounted for separately from all other amounts
or property contributed under the Plan.
-16-
<PAGE>
Section 6.4 Release of Financed Shares.
As of the last day of each Plan Year during which a Share Acquisition
Loan is outstanding, a portion of the Financed Shares purchased with the
proceeds of such Share Acquisition Loan and allocated to the Loan Repayment
Account shall be released. The number of Financed Shares released in any such
Plan Year shall be equal to the amount determined according to one of the
following methods:
(a) by computing the product of: (i) the number of Financed
Shares purchased with the proceeds of such Share Acquisition Loan
and allocated to the Loan Repayment Account immediately before
the release is effected; multiplied by (ii) a fraction, the
numerator of which is the aggregate amount of the principal and
interest payments (other than payments made upon the refinancing
of a Share Acquisition Loan as contemplated by section 6.1(c))
made with respect to such Share Acquisition Loan during such Plan
Year, and the denominator of which is the aggregate amount of all
principal and interest remaining to be paid with respect to such
Share Acquisition Loan as of the first day of such Plan Year; or
(b) by computing the product of: (i) the number of Financed
Shares purchased with the proceeds of such Share Acquisition Loan
and allocated to the Loan Repayment Account immediately before
the release is effected; multiplied by (ii) a fraction, the
numerator of which is the aggregate amount of the principal
payments (other than payments made upon the refinancing of a
Share Acquisition Loan as contemplated by section 6.1(c)) made
with respect to such Share Acquisition Loan during such Plan
Year, and the denominator of which is the aggregate amount of all
principal remaining to be paid with respect to such Share
Acquisition Loan as of the first day of such Plan Year; provided,
however, that the method described in this section 6.4(b) may be
used only if the Share Acquisition Loan does not extend for a
period in excess of 10 years after the date of origination and
only to the extent that principal payments on such Share
Acquisition Loan are made at least as rapidly as under a loan of
like principal amount with a like interest rate and term
requiring level amortization of principal and interest.
The method to be used shall be specified in the documents governing the Share
Acquisition Loan or, if not specified therein, prescribed by the Committee, in
its discretion. In the event that property other than, or in addition to,
Financed Shares shall be held in the Loan Repayment Account and pledged as
collateral for a Share Acquisition Loan, then the property to be released
pursuant to this section 6.4 shall be property having a Fair Market Value
determined by applying the method to be used to the Fair Market Value of all
property pledged as collateral for such Share Acquisition Loan; provided,
however, that no property other than Financed Shares shall be released pursuant
to this section 6.4 unless all Financed Shares have previously been released.
Section 6.5 Restrictions on Financed Shares.
Except to the extent required under any applicable law, rule or
regulation, no Shares purchased with the proceeds of a Share Acquisition Loan
shall be subject to a put, call or other
-17-
<PAGE>
option, or to any buy-sell or similar arrangement, while held by the Trustee or
when distributed from the Plan. The provisions of this section 6.5 shall
continue to apply in the event that this Plan shall cease to be an employee
stock ownership plan, within the meaning of section 4975(e)(7) of the Code.
Article VII
Allocation of Contributions
Section 7.1 Allocation Among Eligible Participants.
Subject to the limitations of Article VIII, Discretionary
Contributions for a Plan Year made in accordance with section 5.3 and Financed
Shares and other property that are released from the Loan Repayment Account for
a Plan Year in accordance with section 6.4 shall be allocated among the Eligible
Participants for such Plan Year, in the manner provided in this Article VII.
Section 7.2 Allocation of Released Shares or Other Property.
Subject to the limitations of Article VIII, in the event that Financed
Shares or other property are released from the Loan Repayment Account for a Plan
Year in accordance with section 6.4, such released Shares or other property
shall be allocated among the Accounts of the Eligible Participants for the Plan
Year in the proportion that each such Eligible Participant's Allocation
Compensation for the portion of such Plan Year during which he was a Participant
bears to the aggregate of such Allocation Compensation of all Eligible
Participants for such Plan Year.
Section 7.3 Allocation of Discretionary Contributions.
Subject to the limitations of Article VIII, in the event that the
Participating Employers make Discretionary Contributions for a Plan Year, such
Discretionary Contributions shall be allocated among the Accounts of the
Eligible Participants for such Plan Year in the proportion that each such
Eligible Participant's Allocation Compensation for the portion of such Plan Year
during which he was a Participant bears to the aggregate of such Allocation
Compensation of all Eligible Participants for such Plan Year.
-18-
<PAGE>
Article VIII
Limitations on Allocations
Section 8.1 Optional Limitations on Allocations.
If, for any Plan Year, the application of sections 7.2 and 7.3 would
result in more than one-third of the number of Shares or of the amount of money
or property to be allocated thereunder being allocated to the Accounts of
Eligible Participants for such Plan Year who are also Highly Compensated
Employees for such Plan Year, then the Committee may, but shall not be required
to, direct that this section 8.1 shall apply in lieu of sections 7.2 and 7.3.
If the Committee gives such a direction, then the Committee shall impose a
maximum dollar limitation on the amount of Allocation Compensation that may be
taken into account for each Eligible Participant. The dollar limitation which
shall be imposed shall be the limitation which produces the result that the
aggregate Allocation Compensation taken into account for Eligible Participant
who are Highly Compensated Employees, constitutes exactly one-third of the
aggregate Allocation Compensation taken into account for all Eligible
Participants.
Section 8.2 General Limitations on Contributions.
(a) No amount shall be allocated to a Participant's Account under
this Plan for any Limitation Year to the extent that such an allocation would
result in an Annual Addition of an amount greater than the lesser of (i) $30,000
(or such other amount as is permissible under section 415(c)(1)(A) of the Code),
or (ii) 25% of the Participant's Total Compensation for such Limitation Year.
(b) In the case of a Participant who may be entitled to benefits
under any qualified defined benefit plan (whether or not terminated) now in
effect or ever maintained by the Employer, such Participant's Annual Additions
under this Plan shall, in addition to the limitations provided under section
8.2(a), be further limited so that the sum of the Participant's Defined
Contribution Plan Fraction plus his Defined Benefit Plan Fraction does not
exceed 1.0 for any Limitation Year beginning prior to January 1, 2000; provided,
however, that this limitation shall only apply if and to the extent that the
benefits under the Employer's qualified defined benefit plan or any other
qualified defined contribution plan of the Employer are not limited so that such
sum is not exceeded.
(c) For purposes of this section 8.2, the following special
definitions shall apply:
(i) Annual Addition means the sum of the following amounts
allocated on behalf of a Participant for a Limitation Year:
(A) all contributions by the Employer (including
contributions made under a salary reduction agreement
pursuant to sections 401(k), 408(k) or 403(b) of the Code)
under any qualified defined contribution plan (other than
this Plan) maintained by the Employer, as well as the
Participant's allocable share, if any, of any forfeitures
under such plans; plus
-19-
<PAGE>
(B)(I) for Limitation Years that begin prior to January 1, 1987,
the lesser of (1) one-half of all nondeductible voluntary
contributions under any other qualified defined contribution plan
(whether or not terminated) maintained by the Employer, or (2) the
amount of the nondeductible voluntary contributions under qualified
defined contribution plan (whether or not terminated) maintained by
the Employer in excess of 6% of such Participant's Total Compensation;
and (II) for Limitation Years that begin after December 31, 1986, the
sum of all of the nondeductible voluntary contributions under any
other qualified defined contribution plan (whether or not terminated)
maintained by the Employer;
(C) all Discretionary Contributions under this Plan; plus
(D) except as hereinafter provided in this section 8.2(c)(i),
a portion of the Employer's Loan Repayment Contributions to the Plan
for such Limitation Year which bears the same proportion to the total
amount of the Employer's Loan Repayment Contributions for the
Limitation Year that the number of Shares (or the Fair Market Value of
property other than Shares) allocated to the Participant's Account
pursuant to section 7.2 or 8.1, whichever is applicable, bears to the
aggregate number of Shares (or Fair Market Value of property other
than Shares) so allocated to all Participants for such Limitation
Year.
Notwithstanding section 8.2(c)(i)(D), if, for any Limitation Year, the
aggregate amount of Discretionary Contributions allocated to the Accounts
of the individuals who are Highly Compensated Employees for such Limitation
Year, when added to such Highly Compensated Employees' allocable share of
any Loan Repayment Contributions for such Limitation Year, does not exceed
one-third of the total of all Discretionary Contributions and Loan
Repayment Contributions for such Limitation Year, then that portion, if
any, of the Loan Repayment Contributions for such Limitation Year that is
applied to the payment of interest on a Share Acquisition Loan shall not be
included as an Annual Addition. In no event shall any Financed Shares, any
dividends or other earnings thereon, any proceeds of the sale thereof or
any portion of the value of the foregoing be included as an Annual
Addition.
(ii) Employer means Port Financial Corp., and all members of a
controlled group of corporations, as defined in section 414(b) of the Code,
as modified by section 415(h) of the Code, all commonly controlled trades
or businesses, as defined in section 414(c) of the Code, as modified by
section 415(h) of the Code, all affiliated service groups, as defined in
section 414(m) of the Code, of which Port Financial Corp. is a member, as
well as any leasing organization, as defined in section 18.8, that employs
any person who is considered an employee under section 18.8 and any other
entity that is required to be aggregated with the Employer pursuant to
regulations under section 414(o) of the Code.
(iii) Defined Benefit Plan Fraction means, for any individual for any
Limitation Year, a fraction, the numerator of which is the Projected Annual
Benefit (determined as of the end of such Limitation Year) of the
Participant under any qualified
-20-
<PAGE>
defined benefit plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years, and the
denominator of which is as follows: (A) for Limitation Years ending prior
to January 1, 1983, the lesser of (I) the dollar limitation in effect under
section 415(b)(1) (A) of the Code for such Limitation Year, or (II) the
amount which may be taken into account under section 415(b)(1)(B) of the
Code with respect to such Participant for such Limitation Year; and (B) in
all other cases, the lesser of (I) (except as provided in section 16.8(b)
for a Top Heavy Plan Year) the product of 1.25 multiplied by the dollar
limitation in effect under section 415(b)(1)(A) of the Code for such
Limitation Year, or (II) the product of 1.4 multiplied by the amount which
may be taken into account under section 415(b)(1)(B) of the Code with
respect to such Participant for such Limitation Year.
(iv) Defined Contribution Plan Fraction means, for any individual
for any Limitation Year, a fraction (A) the numerator of which is the sum
of such individual's Annual Additions (determined as of the end of such
Limitation Year) under this Plan and any other qualified defined
contribution plans (whether or not terminated) maintained by the Employer
for the current and all prior Limitation Years, and (B) the denominator of
which is as follows: (I) for Limitation Years ending prior to January 1,
1983, the sum of the lesser of the following amounts for such Limitation
Year and for each prior Limitation Year during which such individual was
employed by the Employer: (1) the Maximum Permissible Amount for such
Limitation Year (without regard to section 415(c)(6) of the Code), or (2)
the amount which may be taken into account under section 415(c)(1)(B) of
the Code with respect to such individual for such Limitation Year; and (II)
in all other cases, the sum of the lesser of the following amounts for such
Limitation Year and for each prior Limitation Year during which such
individual was employed by the Employer: (1) (except as provided in section
17.8(b) for a Top Heavy Plan Year) the product of 1.25 multiplied by the
Maximum Permissible Amount for such Limitation Year (determined without
regard to section 415(c)(6) of the Code), or (2) the product of 1.4
multiplied by the amount which may be taken into account under section
415(c)(1)(B) of the Code (or section 415(c)(7) of the Code, if applicable)
with respect to such individual for such Limitation Year; provided,
however, that the Plan Administrator may, at his election, adopt the
transition rule set forth in section 415(e)(6) of the Code in making the
computation set forth in this section 8.2(c)(iv). If the sum of an
individual's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction exceeded 1.0 as of September 30, 1983, then such individual's
Defined Contribution Plan Fraction shall be determined under regulations to
be prescribed by the Secretary of the Treasury so that the sum of the
fractions does not exceed 1.0.
(v) Limitation Year means the Plan Year.
(vi) Maximum Permissible Amount means (A) $25,000 (or such higher
amount as may be permitted under section 415(d) of the Code because of cost
of living increases) for Limitation Years beginning prior to January 1,
1983, and (B) the greater of (I) $30,000, or (II) 25% of the dollar
limitation in effect under section 415(b)(1)(A) of the Code for Limitation
Years beginning on or after January 1, 1983.
-21-
<PAGE>
(vii) Projected Annual Benefit means an individual's annual
retirement benefit (adjusted to the actuarial equivalent of a
straight life annuity if expressed in a form other than a
straight life or qualified joint and survivor annuity) under any
qualified defined benefit plan maintained by the Employer,
whether or not terminated, assuming that the individual will
continue employment until the later of such individual's current
age or normal retirement age under such plan, and that the
individual's Total Compensation for the Limitation Year and all
other relevant factors used to determine benefits under such plan
will remain constant for all future Limitation Years.
(d) When an individual's Annual Addition to this Plan must be
reduced to satisfy the limitations of section 8.2(a) or (b), such reduction
shall be applied to Discretionary Contributions and to Shares allocated as a
result of a Loan Repayment Contribution which are included as an Annual Addition
in such order as shall result in the smallest reduction in the number of Shares
allocable to the Individual's Account. The amount by which any Individual's
Annual Addition to this Plan is reduced shall be allocated in accordance with
Articles V and VII as a contribution by the Participating Employers in the next
succeeding Limitation Year.
(e) Prior to determining an individual's actual Total Compensation
for a Limitation Year, the Participating Employer may determine the limitations
under this section 8.2 for an individual on the basis of a reasonable estimation
of the individual's Total Compensation for the Limitation Year that is uniformly
determined for all individuals who are similarly situated. As soon as it is
administratively feasible after the end of the Limitation Year, the limitations
of this section 8.2 shall be determined on the basis of the individual's actual
Total Compensation for the Limitation Year.
Article IX
Vesting
Section 9.1 Vesting.
Subject to the provisions of sections 9.2 and 14.1(a), the balance
credited to each Participant's Account shall become vested in accordance with
the following schedule:
Years of Vesting Vested
Service Percentage
less than 2 year 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 or more years 100%
-22-
<PAGE>
Section 9.2 Vesting on Death, Disability, Retirement or Change in
Control.
Any previously unvested portion of the remainder of the balance
credited to the Account of a Participant or of a person who is a Former
Participant solely because he is excluded from membership under section 2.1(b)
shall become fully vested immediately upon his attainment of age 65 while
employer by any Applicable Employer, or, if earlier, upon the termination of his
employment with all Affiliated Employers by reason of death, Disability,
Retirement or upon the occurrence of a Change in Control.
Section 9.3 Forfeitures on Termination of Employment.
Upon the termination of employment of a Participant or Former
Participant for any reason other than death, Disability or Retirement, that
portion of the balance credited to his Account which is not vested at the date
of such termination shall be forfeited as of the last Valuation Date for the
Plan Year in which such termination of employment occurs. The proceeds of such
forfeitures, less amounts, if any, required to be credited because of
re-employment pursuant to section 9.4, shall be treated as Forfeitures and shall
be disposed of as provided in section 9.5.
Section 9.4 Amounts Credited Upon Re-Employment.
If an Employee forfeited any amount of the balance credited to his
Account upon his termination of employment, and is re-employed by any Affiliated
Employer prior to the occurrence of a Period of Severance of five years, then:
(i) an amount equal to the Fair Market Value of the Shares
forfeited, determined as of the date of forfeiture; and
(ii) the amount credited to his General Investment Account
that was forfeited, determined as of the date of forfeiture;
shall be credited back to his Account from the proceeds of Forfeitures which are
redeemed pursuant to section 9.3 during the Plan Year in which he is
re-employed, unless such proceeds are insufficient, in which case his
Participating Employer shall make an additional contribution in the
amount of such deficiency; provided, however, that if an Employee
receives a distribution of all or any portion of his vested Account on
or before the last day of the second Plan Year to end after his
termination of employment, such credit back shall not be required
unless such Employee repays to the Plan the entire amount of the
distribution (without interest) on or before the fifth (5/th/)
anniversary of his re-employment or (if earlier) the occurrence
following his re-employment of a Break in Service.
Section 9.5 Allocation of Forfeitures.
Any Forfeitures that occur during a Plan Year shall be used to reduce
the contributions required of the Employer under the Plan and shall be treated
as Loan Repayment Contributions and Discretionary Contributions in the
proportions designated by the Committee in accordance with Article V.
-23-
<PAGE>
Article X
The Trust Fund
Section 10.1 The Trust Fund.
The Trust Fund shall be held and invested under the Trust Agreement
with the Trustee. The provisions of the Trust Agreement shall vest such powers
in the Trustee as to investment, control and disbursement of the Trust Fund,
and such other provisions not inconsistent with the Plan, including provision
for the appointment of one or more "investment managers" within the meaning of
section 3(38) of ERISA to manage and control (including acquiring and disposing
of) all or any of the assets of the Trust Fund, as the Board may from time to
time authorize. Except as required by ERISA, no bond or other security shall be
required of any Trustee at any time in office.
Section 10.2 Investments.
Except to the extent provided to the contrary in section 10.3, the
Trust Fund shall be invested in:
(i) Shares;
(ii) such Investment Funds as may be established from time
to time by the Committee; and
(iii) such other investments as may be permitted under the
Trust Agreement;
in such proportions as shall be determined by the Committee or, if so provided
under the Trust Agreement, as directed by one or more investment managers or by
the Trustee, in its discretion; provided, however, that the investments of the
Trust Fund shall consist primarily of Shares. Notwithstanding the immediately
preceding sentence, the Trustee may temporarily invest the Trust Fund in
short-term obligations of, or guaranteed by, the United States
Government or an agency thereof, or may retain uninvested, or sell
investments to provide, amounts of cash required for purposes of the
Plan.
Section 10.3 Distributions for Diversification of Investments.
(a) Notwithstanding section 10.2, each Qualified Participant may:
(i) during the first 90 days of each of the first five Plan
Years to begin after the Plan Year in which he first becomes a
Qualified Participant, elect that such percentage of the balance
credited to his Account as he may specify, but in no event more
than 25% of the balance credited to his Account, be either
distributed to him
-24-
<PAGE>
pursuant to this section 10.3(a)(i) or transferred to the SBERA
401(k) Plan Adopted by Cambridgeport Bank to the extent permitted
by such plan, no later than 90 days after the last day that such
election may be made; and
(ii) during the first 90 days of the sixth Plan Year to
begin after the Plan Year in which he first becomes a Qualified
Participant or of any Plan Year thereafter, elect that such
percentage of the balance credited to his Account as he may
specify, but in no event more than 50% of the balance credited to
his Account, be either distributed to him pursuant to this
section 10.3(a)(ii) or transferred to the SBERA 401(k) Plan
Adopted by Cambridgeport Bank to the extent permitted by such
plan, no later than 90 days after the last day that such election
may be made.
For purposes of an election under this section 10.3, the balance credited to a
Participant's Account shall be the balance credited to his Account determined as
of the last Valuation Date to occur in the Plan Year immediately preceding the
Plan Year in which such election is made and the 25% and 50% limitations shall
apply to such balance after the balance has been reduced by the amount of all
amounts distributed or transferred to the SBERA 401(k) Plan Adopted by
Cambridgeport Bank under this section 10.3.
(b) An election made under section 10.3(a) shall be made in
writing, in the form and manner prescribed by the Plan Administrator, and shall
be filed with the Plan Administrator during the election period specified in
section 10.3(a). As soon as is practicable, and in no case later than 90 days
following the end of the election period during which such election is made, the
Plan Administrator shall take such actions as are necessary to cause the
specified percentage of the balance credited to the Account of the Qualified
Participant making the election to be distributed to such Qualified Participant.
(c) An election made under section 10.3(a) may be changed or
revoked at any time during the election period described in section 10.3(a)
during which it is initially made. In no event, however, shall any election
under this section 10.3 result in more than 25% of the balance credited to the
Participant's Account being distributed to the Participant or transferred to the
SBERA 401(k) Plan Adopted by Cambridgeport Bank, if such election is made during
a Plan Year to which section 10.3(a)(i) applies, or result in more than 50% of
the balance distributed to the Participant or transferred to the SBERA 401(k)
Plan Adopted by Cambridgeport Bank, if such election is made during the Plan
Year to which section 10.3(a)(ii) applies or thereafter.
Section 10.4 Use of Commingled Trust Funds.
Subject to the provisions of the Trust Agreement, amounts held in the
Trust Fund may be invested in:
(a) any commingled or group trust fund described in section
401(a) of the Code and exempt under section 501(a) of the Code;
or
(b) any common trust fund exempt under section 584 of the
Code maintained exclusively for the collective investment of the
assets of trusts that are exempt under section 501(a) of the
Code;
-25-
<PAGE>
provided that the trustee of such commingled, group or common trust fund is a
bank or trust company.
Section 10.5 Management and Control of Assets.
All assets of the Plan shall be held by the Trustee in trust for the
exclusive benefit of Participants, Former Participants and their Beneficiaries.
No part of the corpus or income of the Trust Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of Participants, Former
Participants and their Beneficiaries, and for defraying reasonable
administrative expenses of the Plan and Trust Fund. No person shall have any
interest in or right to any part of the earnings of the Trust Fund, or any
rights in, to or under the Trust Fund or any part of its assets, except to the
extent expressly provided in the Plan.
Article XI
Valuation of Interests in the Trust Fund
Section 11.1 Establishment of Investment Accounts.
The Plan Administrator shall establish, or cause to be established,
for each person for whom an Account is maintained a Share Investment Account and
a General Investment Account. Such Share Investment Accounts and General
Investment Accounts shall be maintained in accordance with this Article XI.
Section 11.2 Share Investment Accounts.
The Share Investment Account established for a person in accordance
with section 11.1 shall be credited with: (a) all Shares allocated to such
person's Account; (b) all Shares purchased with amounts of money or property
allocated to such person's Account; (c) all dividends paid in the form of Shares
with respect to Shares credited to his Account; and (d) all Shares purchased
with amounts credited to such person's General Investment Account. Such Share
Investment Account shall be charged with all Shares that are sold or exchanged
to acquire other investments or to provide cash and with all Shares that are
distributed in kind.
Section 11.3 General Investment Accounts.
The General Investment Account that is established for a person in
accordance with section 11.1 shall be credited with: (a) all amounts, other
than Shares, allocated to such person's Account; (b) all dividends paid in a
form other than Shares with respect to Shares credited to such person's Share
Investment Account; (c) the proceeds of any sale of Shares credited to such
person's Share Investment Account; and (d) any earnings attributable to amounts
credited to such person's General Investment Account. Such General Investment
Account shall be charged with all amounts
-26-
<PAGE>
credited thereto that are applied to the purchase of Shares, any losses or
depreciation attributable to amounts credited thereto, any expenses allocable
thereto and any distributions of amounts credited thereto.
Section 11.4 Valuation of Investment Accounts.
(a) The Plan Administrator shall determine, or cause to be
determined, the aggregate value of each person's Share Investment Account as of
each Valuation Date by multiplying the number of Shares credited to such Share
Investment Account on such Valuation Date by the Fair Market Value of a Share on
such Valuation Date.
(b) As of each Valuation Date, the Accounts of each Participant shall
be separately adjusted to reflect their proportionate share of any appreciation
or depreciation in the fair market value of the Investment Funds, any income
earned by the Investment Funds and any expenses incurred by the Investment
Funds, as well as any contributions, withdrawals or distributions and investment
transfers not posted as of the last Valuation Date.
Section 11.5 Annual Statements.
There shall be furnished, by mail or otherwise, at least once in each
Plan Year to each person who would then be entitled to receive all or part of
the balance credited to any Account if the Plan were then terminated, a
statement of his interest in the Plan as of such date as shall be selected by
the Plan Administrator, which statement shall be deemed to have been accepted as
correct and be binding on such person unless the Plan Administrator receives
written notice to the contrary within 30 days after the statement is mailed or
furnished to such person.
Article XII
Shares
Section 12.1 Specific Allocation of Shares.
All Shares purchased under the Plan shall be specifically allocated to
the Share Investment Accounts of Participants, Former Participants and their
Beneficiaries in accordance with section 11.2, with the exception of Financed
Shares, which shall be allocated to the Loan Repayment Account.
Section 12.2 Dividends.
(a) Dividends paid with respect to Shares held under the Plan shall be
credited to the Loan Repayment Account, if paid with respect to Financed Shares.
Such dividends shall be: (i) applied to the payment of principal and accrued
interest with respect to any Share Acquisition
-27-
<PAGE>
Loan, if paid in cash; or (ii) held in the Loan Repayment Account as Financed
Shares for release in accordance with section 6.4, if paid in the form of
Shares.
(b) Dividends paid with respect to Shares allocated to a person's
Share Investment Account shall be credited to such person's Share Investment
Account. Cash dividends credited to a person's General Investment Account shall
be, at the direction of the Committee, either: (i) held in such General
Investment Account and invested in accordance with sections 10.2 and 11.3; (ii)
distributed immediately to such person; (iii) distributed to such person within
90 days of the close of the Plan Year in which such dividends were paid; or (iv)
used to make payments of principal or interest on a Share Acquisition Loan;
provided, however, that the Fair Market Value of Financed Shares released from
the Loan Repayment Account as a result of such payment equals or exceeds the
amount of the dividend.
Section 12.3 Voting Rights.
(a) Each person shall direct the manner in which all voting rights
appurtenant to Shares allocated to his Share Investment Account will be
exercised, provided that such Shares were allocated to his Share Investment
Account as of the applicable record date. Such person shall, for such purpose,
be deemed a "named fiduciary" within the meaning of section 402(a)(2) of ERISA.
Such a direction shall be given by completing and filing with the inspector of
elections, the Trustee or such other person who shall be independent of the
Participating Employers as the Committee shall designate, at least 10 days prior
to the date of the meeting of holders of Shares at which such voting rights will
be exercised, a written direction in the form and manner prescribed by the
Committee. The inspector of elections, the Trustee or such other person
designated by the Committee shall tabulate the directions given on a strictly
confidential basis, and shall provide the Committee with only the final results
of the tabulation. The final results of the tabulation shall be followed by the
Committee in directing the Trustee as to the manner in which such voting rights
shall be exercised. The Plan Administrator shall make a reasonable effort to
furnish, or cause to be furnished, to each person for whom a Share Investment
Account is maintained all annual reports, proxy materials and other information
known by the Plan Administrator to have been furnished by the issuer of the
Shares, or by any solicitor of proxies, to the holders of Shares.
(b) To the extent that any person shall fail to give instructions
with respect to the exercise of voting rights appurtenant to Shares allocated to
his Share Investment Account:
(i) the Trustee shall, with respect to each matter to be
voted upon: (A) cast a number of affirmative votes equal to the
product of (I) the number of allocated Shares for which no
written instructions have been given, multiplied by (II) a
fraction, the numerator of which is the number of allocated
Shares for which affirmative votes will be cast in accordance
with written instructions given as provided in section 12.3(a)
and the denominator of which is the aggregate number of
affirmative and negative votes which will be cast in accordance
with written instructions given as aforesaid, and (B) cast a
number of negative votes equal to the excess (if any) of (I) the
number of allocated Shares for which no written instructions have
been given over (II) the number of affirmative votes being cast
with respect to such allocated Shares pursuant to section
12.3(b)(i)(A); or
-28-
<PAGE>
(ii) if the Trustee shall determine that it may not, consistent with
its fiduciary duties, vote the allocated Shares for which no written
instructions have been given in the manner described in section 12.3(b)(i),
it shall vote such Shares in such manner as it, in its discretion, may
determine to be in the best interests of the persons to whose Share
Investment Accounts such Shares have been allocated.
(c) (i) The voting rights appurtenant to Financed Shares shall be
exercised as follows with respect to each matter as to which holders of Shares
may vote:
(A) a number of votes equal to the product of (I) the total
number of votes appurtenant to Financed Shares allocated to the
Loan Repayment Account on the applicable record date; multiplied
by (II) a fraction, the numerator of which is the total number of
affirmative votes cast by Participants, Former Participants and
the Beneficiaries of deceased Former Participants with respect to
such matter pursuant to section 12.3(a) and the denominator of
which is the total number of affirmative and negative votes cast
by Participants, Former Participants and the Beneficiaries of
deceased Former Participants, shall be cast in the affirmative;
and
(B) a number of votes equal to the excess of (I) the total
number of votes appurtenant to Financed Shares allocated to the
Loan Repayment Account on the applicable record date, over (II)
the number of affirmative votes cast pursuant to section
12.3(c)(i)(A) shall be cast in the negative.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.3(c)(i) shall be applied separately with respect to each class
of Shares.
Section 12.4 Tender Offers.
(a) Each person shall direct whether Shares allocated to his Share
Investment Account will be delivered in response to any Tender Offer. Such
person shall, for such purpose, be deemed a "named fiduciary" within the meaning
of section 402(a)(2) of ERISA. Such a direction shall be given by completing
and filing with the Trustee or such other person who shall be independent of the
Participating Employers as the Committee shall designate, at least 10 days prior
to the latest date for exercising a right to deliver Shares pursuant to such
Tender Offer, a written direction in the form and manner prescribed by the
Committee. The Trustee or other person designated by the Committee shall
tabulate the directions given on a strictly confidential basis, and shall
provide the Committee with only the final results of the tabulation. The final
results of the tabulation shall be followed by the Committee in directing the
number of Shares to be delivered. The Plan Administrator shall make a reasonable
effort to furnish, or cause to be furnished, to each person for whom a Share
Investment Account is maintained, all information known by the Plan
Administrator to have been furnished by the issuer or by or on behalf of any
person making such Tender Offer, to the holders of Shares in connection with
such Tender Offer.
(b) To the extent that any person shall fail to give instructions
with respect to Shares allocated to his Share Investment Account:
-29-
<PAGE>
(i) the Trustee shall (A) tender or otherwise offer for
purchase, exchange or redemption a number of such Shares equal to
the product of (I) the number of allocated Shares for which no
written instructions have been given, multiplied by (II) a
fraction, the numerator of which is the number of allocated
Shares tendered or otherwise offered for purchase, exchange or
redemption in accordance with written instructions given as
provided in section 12.4(a) and the denominator of which is the
aggregate number of allocated Shares for which written
instructions have been given as aforesaid, and (B) withhold a
number of Shares equal to the excess (if any) of (I) the number
of allocated Shares for which no written instructions have been
given over (II) the number of Shares being tendered or otherwise
offered pursuant to section 12.4(b)(i)(A); or
(ii) if the Trustee shall determine that it may not,
consistent with its fiduciary duties, exercise the tender or
other rights appurtenant to allocated Shares for which no written
instructions have been given in the manner described in section
12.4(b)(i), it shall tender, or otherwise offer, or withhold such
Shares in such manner as it, in its discretion, may determine to
be in the best interests of the persons to whose Share Investment
Accounts such Shares have been allocated.
(c) In the case of any Tender Offer, any Financed Shares held in the
Loan Repayment Account shall be dealt with as follows:
(i) on the last day for delivering Shares or otherwise
responding to such Tender Offer, a number of Financed Shares
equal to the product of (A) the total number of Financed Shares
allocated to the Loan Repayment Account on the last day of the
effective period of such Tender Offer; multiplied by (B) a
fraction, the numerator of which is the total number of Shares
delivered from the Share Investment Accounts of Participants,
Former Participants and the Beneficiaries of deceased Former
Participants in response to such Tender Offer pursuant to section
12.4(a), and the denominator of which is the total number of
Shares allocated to the Share Investment Accounts of
Participants, Former Participants and Beneficiaries of deceased
Former Participants immediately prior to the last day for
delivering Shares or otherwise responding to such Tender Offer,
shall be delivered; and
(ii) a number of Financed Shares equal to the excess of (A)
the total number of Financed Shares allocated to the Loan
Repayment Account on the last day for delivering Shares or
otherwise responding to such Tender Offer; over (B) the number of
Financed Shares to be delivered pursuant to section 12.4(c)(i),
shall be withheld from delivery.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.4(c) shall be applied separately with respect to each class of
Shares.
-30-
<PAGE>
Article XIII
Payment of Benefits
Section 13.1 In General.
The balance credited to a Participant's or Former Participant's
Account under the Plan shall be paid only at the times, to the extent, in the
manner and to the persons provided in this Article XIII.
Section 13.2 Designation of Beneficiaries.
(a) Subject to section 13.2(b), any person entitled to a benefit
under the Plan may designate a Beneficiary to receive any amount to which he is
entitled that remains undistributed on the date of his death. Such person shall
designate his Beneficiary (and may change or revoke any such designation) in
writing in the form and manner prescribed by the Plan Administrator. Such
designation, and any change or revocation thereof, shall be effective only if
received by the Plan Administrator prior to such person's death and shall become
irrevocable upon such person's death.
(b) A Participant or Former Participant who is married shall
automatically be deemed to have designated his spouse as his Beneficiary,
unless, prior to the time such designation would, under section 13.2(a), become
irrevocable:
(i) the Participant or Former Participant designates an additional or
a different Beneficiary in accordance with this section 13.2; and
(ii) (A) the spouse of such Participant or Former Participant
consents to such designation in a writing that acknowledges the effect of
such consent and is witnessed by a Plan representative or a notary public;
or (B) the spouse of such Participant or Former Participant has previously
consented to such designation by signing a written waiver of any right to
consent to any designation made by the Participant or Former Participant,
and such waiver acknowledged the effect of the waiver and was witnessed by
a Plan representative or a notary public; or (C) it is established to the
satisfaction of a Plan representative that the consent required under
section 13.2(b)(ii)(A) may not be obtained because such spouse cannot be
located or because of other circumstances permitted under regulations
issued by the Secretary of the Treasury.
(c) In the event that a Beneficiary entitled to payments hereunder
shall die after the death of the person who designated him but prior to
receiving payment of his entire interest in the Account of the person who
designated him, then such Beneficiary's interest in the Account of such person,
or any unpaid balance thereof, shall be paid as provided in section 13.3 to the
Beneficiary who has been designated by the deceased Beneficiary, or if there is
none, to the executor or administrator of the estate of such deceased
Beneficiary, or if no such executor or administrator is appointed within such
time as the Plan Administrator, in his sole discretion, shall deem reasonable,
to such one or more of the spouse and descendants and blood relatives of such
deceased
-31-
<PAGE>
Beneficiary as the Plan Administrator may select. If a person entitled
to a benefit under the Plan and any of the Beneficiaries designated by him shall
die in such circumstances that there shall be substantial delete doubt as to
which of them shall have been the first to die, for all purposes of the Plan,
the person who made the Beneficiary designation shall be deemed to have survived
such Beneficiary.
(d) If no Beneficiary survives the person entitled to the benefit
under the Plan or if no Beneficiary has been designated by such person, such
benefit shall be paid to the executor or administrator of the estate of such
person, or if no such executor or administrator is appointed within such time as
the Plan Administrator, in his sole discretion, shall deem reasonable, to such
one or more of the spouse and descendants and blood relatives of such deceased
person as the Plan Administrator may select.
Section 13.3 Distributions to Participants.
(a) Except as provided in section 13.5, the vested portion of the
balance credited to a Former Participant's Account shall be distributed to him
in a single distribution as of the last Valuation Date to occur in the Plan Year
in which he terminates employment with all Affiliated Employers or the Plan Year
in which he attains age 65, whichever is later; provided, however, that if the
Former Participant elects, at such time and in such manner as the Plan
Administrator may prescribe, that distribution be made as of an earlier
Valuation Date that coincides with or follows his termination of employment with
all Affiliated Employers, distribution shall be made as of such earlier
Valuation Date. The actual distribution shall be made within sixty days after
the applicable Valuation Date.
(b) In the event of the death of a Participant or Former Participant
before the date of actual distribution of the vested portion of the balance
credited to his Account, such vested portion shall be distributed to his
Beneficiary in a single distribution as of the first Valuation Date to occur
following the latest of (i) the date on which the Plan Administrator is notified
of the Participant's or Former Participant's death; and (ii) the date on which
the Plan Administrator determines the identity and location of the Participant's
or Former Participant's Beneficiary or Beneficiaries. The actual distribution
shall be made within sixty days after the applicable Valuation Date.
Section 13.4 Manner of Payment.
Distributions made pursuant to section 13.3 or section 13.5 shall be
made in the maximum number of whole Shares that are available, plus, if
necessary, an amount of money equal to any remaining amount of the distribution
that is less than the Fair Market Value of a whole Share.
Section 13.5 Minimum Required Distributions.
(a) Required minimum distributions of a Participant's or Former
Participant's Account shall commence no later than:
-32-
<PAGE>
(i) if the Participant or Former Participant was not a Five Percent
Owner at any time during the Plan Year ending in the calendar year in which
he attained age 70 1/2, during any of the four preceding Plan Years or
during any subsequent years, the later of (A) the calendar year in which he
attains or attained age 70 1/2 or (B) the calendar year in which he
terminates employment with all Affiliated Employers; or
(ii) if the Participant or Former Participant attains age 70 1/2 after
December 31, 1998 and is or was a Five Percent Owner at any time during the
Plan Year ending in the calendar year in which he attained age 70 1/2,
during any of the four preceding Plan Years or during any subsequent years,
the later of (A) the calendar year in which he attains age 70 1/2 or (B)
the calendar year in which he first becomes a Five Percent Owner.
(b) The required minimum distributions contemplated by section
13.5(a) shall be made as follows:
(i) The minimum required distribution to be made for the calendar
year for which the first minimum distribution is required shall be no later
than April 1st of the immediately following calendar year and shall be
equal to the quotient obtained by dividing (A) the vested balance credited
to the Participant's or Former Participant's Account as of the last
Valuation Date to occur in the calendar year immediately preceding the
calendar year in which the first minimum distribution is required (adjusted
to account for any additions thereto or subtractions therefrom after such
Valuation Date but on or before December 31st of such calendar year); by
(B) the Participant's or Former Participant's life expectancy (or, if his
Beneficiary is a Designated Beneficiary, the joint life and last survivor
expectancy of him and his Beneficiary); and
(ii) the minimum required distribution to be made for each calendar
year following the calendar year for which the first minimum distribution
is required shall be made no later than December 31st of the calendar year
for which the distribution is required and shall be equal to the quotient
obtained by dividing (A) the vested balance credited to the Participant's
or Former Participant's Account as of the last Valuation Date to occur in
the calendar year prior to the calendar year for which the distribution is
required (adjusted to account for any additions thereto or subtractions
therefrom after such Valuation Date but on or before December 31st of such
calendar year and, in the case of the distribution for the calendar year
immediately following the calendar year for which the first minimum
distribution is required, reduced by any distribution for the prior
calendar year that is made in the current calendar year); by (B) the
Participant's or Former Participant's life expectancy (or, if his
Beneficiary is a Designated Beneficiary, the joint life and last survivor
expectancy of him and his Beneficiary).
For purposes of this section 13.5, the life expectancy of a Participant or
Former Participant (or the joint life and last survivor expectancy of a
Participant or Former Participant and his Designated Beneficiary) for the
calendar year in which the Participant or Former Participant attains age 70 1/2
shall be determined on the basis of Tables V and VI, as applicable, of section
1.72-9 of the Income Tax Regulations as of the Participant's or Former
Participant's and Beneficiary's birthday in such
-33-
<PAGE>
year. Such life expectancy or joint life and last survivor expectancy for any
subsequent year shall be equal to the excess of (1) the life expectancy or joint
life and last survivor expectancy for the year in which the Participant or
Former Participant attains age 70 1/2, over (2) the number of whole years that
have elapsed since the Participant or Former Participant attained age 70 1/2.
(c) Payment of the distributions required to be made to a Participant
or Former Participant under this section 13.5 shall be made in accordance with
section 13.4.
Section 13.6 Direct Rollover of Eligible Rollover Distributions.
(a) A Distributee may elect, at the time and in the manner prescribed
by the Plan Administrator, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover.
(b) The following rules shall apply with respect to Direct Rollovers
made pursuant to this section 13.6:
(i) A Distributee may only elect to make a Direct Rollover of an
Eligible Rollover Distribution if such Eligible Rollover Distribution (when
combined with other Eligible Rollover Distributions made or to be made in
the same calendar year) is reasonably expected to be at least $200;
(ii) If a Distributee elects a Direct Rollover of a portion of an
Eligible Rollover Distribution, that portion must be equal to at least
$500; and
(iii) A Distributee may not divide his or her Eligible Rollover
Distribution into separate distributions to be transferred to two or more
Eligible Retirement Plans.
(c) For purposes of this section 13.6 and any other applicable
section of the Plan, the following definitions shall have the following
meanings:
(i) Direct Rollover means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
(ii) Distributee means an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's
spouse or former spouse who is the alternate payee under a Qualified
Domestic Relations Order are considered Distributees with regard to the
interest of the spouse or former spouse.
(iii) Eligible Retirement Plan means an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) or the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust described in section
401(a) of the Code that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to
the current or former spouse who is the alternative payee under a Qualified
Domestic Relations Order or to a surviving spouse, an Eligible Retirement
Plan is an individual retirement account or individual retirement annuity.
-34-
<PAGE>
(iv) Eligible Rollover Distribution means any distribution of all or
any portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of the
Distributee's designated Beneficiary, or for a specified period of ten (10)
years or more; any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any distribution
that is not includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to employer
securities).
Section 13.7 Valuation of Shares Upon Distribution.
Notwithstanding any contrary provision in this Article XIII, in the
event that all or a portion of a payment of a distribution is to be made in
cash, the recipient shall only be entitled to receive the proceeds of the Shares
allocated to his Account that are sold in connection with such distribution and
which are valued as of the date of such sale.
Section 13.8 Put Options.
(a) Subject to section 13.8(c) and except as provided otherwise in
section 13.8(b), each Participant or Former Participant to whom Shares are
distributed under the Plan, each Beneficiary of a deceased Participant or Former
Participant, including the estate of a deceased Participant or Former
Participant, to whom Shares are distributed under the Plan, and each person to
whom such a Participant, Former Participant or Beneficiary gives Shares that
have been distributed under the Plan shall have the right to require Port
Financial Corp. to purchase from him all or any portion of such Shares. A person
shall exercise such right by delivering to Port Financial Corp. a written
notice, in such form and manner as Port Financial Corp. may by written notice to
such person prescribe, setting forth the number of Shares to be purchased by
Port Financial Corp., the number of the stock certificate evidencing such
person's ownership of such Shares, and the effective date of the purchase. Such
notice shall be given at least 30 days in advance of the effective date of
purchase, and the effective date of purchase specified therein shall be, either
within the 60 day period that begins on the date on which the Shares to be
purchased by Port Financial Corp. were distributed from the Plan or within the
60 day period that begins on the first day of the Plan Year immediately
following the Plan Year in which the Shares to be purchased by Port Financial
Corp. are distributed from the Plan. As soon as practicable following its
receipt of such a notice, Port Financial Corp. shall take such actions as are
necessary to purchase the Shares specified in such notice at a price per Share
equal to the Fair Market Value of a Share determined as of the Valuation Date
coincident with or immediately preceding the effective date of the purchase.
(b) Port Financial Corp. shall have no obligation to purchase any
Share (i) pursuant to a notice that is not timely given, or on an effective date
of purchase that is not within the periods prescribed in section 13.8(a), or
(ii) during a period in which Shares are publicly traded on an established
market.
-35-
<PAGE>
Section 13.9 Right of First Refusal.
(a) For any period during which Shares are not publicly traded on an
established market, no person who owns Shares that were distributed from the
Plan, other than a person to whom such Shares were sold in compliance with this
section 13.9, shall sell such Shares to any person other than Port Financial
Corp. without first offering to sell such Shares to Port Financial Corp. in
accordance with this section 13.9.
(b) In the event that a person to whom this section 13.9 applies
shall receive and desire to accept from a person other than Port Financial Corp.
an offer to purchase Shares to which this section 13.9 applies, he shall furnish
to Port Financial Corp. a written notice which shall:
(i) include a copy of such offer to purchase;
(ii) offer to sell to Port Financial Corp. the Shares subject to such
offer to purchase at a price per Share that is equal to the greater of:
(A) the price per Share specified in such offer to purchase; or
(B) the Fair Market Value of a Share as of the Valuation Date
coincident with or immediately preceding the date of such notice;
and otherwise upon the same terms and conditions as those specified in such
offer to purchase; and
(iii) include an indication of his intention to accept such offer to
purchase if Port Financial Corp. does not accept his offer to sell.
Such person shall refrain from accepting such offer to purchase for a period of
fourteen days following the date on which such notice is given.
(c) Port Financial Corp. shall have the right to purchase the Shares
covered by the offer to sell contained in a notice given pursuant to section
13.9(b), on the terms and conditions specified in such notice, by written notice
given to the party making the offer to sell not later than the fourteenth day
after the notice described in section 13.9(b) is given. If Port Financial Corp.
does not give such a notice during the prescribed fourteen day period, then the
person owning such Shares may accept the offer to purchase described in the
notice.
Article XIV
Change in Control
Section 14.1 Definition of Change in Control; Pending Change in
Control.
(a) A Change in Control shall be deemed to have occurred upon the
happening of any of the following events:
-36-
<PAGE>
(i) any event upon which any "person" (as such term is used in
sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended), other than (A) a trustee or other fiduciary holding securities
under any employee benefit plan maintained for the benefit of employees of
Port Financial Corp.; (B) a corporation owned, directly or indirectly, by
the stockholders of Port Financial Corp. in substantially the same
proportions as their ownership of stock of Port Financial Corp.; or (C) any
group constituting a person in which employees of Port Financial Corp. are
substantial members, becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities issued by Port Financial Corp. representing 25% or more of the
combined voting power of all of Port Financial Corp.'s then outstanding
securities; or
(ii) any event upon which the individuals who on the Effective Date
were members of the Board of Directors of Port Financial Corp. together
with individuals whose election by such Board or nomination for election by
Port Financial Corp.'s stockholders was approved by the affirmative vote of
at least two-thirds of the members of such Board then in office who were
either members of such Board on the Effective Date or whose nomination or
election was previously so approved, cease for any reason to constitute a
majority of the members of such Board, but excluding, for this purpose, any
such individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of directors
of Port Financial Corp. (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934) as
amended; or
(iii) the consummation of either:
(A) a merger or consolidation of Port Financial Corp. with any
other corporation, other than a merger or consolidation following
which both of the following conditions are satisfied:
(I) either (1) the members of the Board of Directors of Port
Financial Corp. immediately prior to such merger or consolidation
constitute at least a majority of the members of the governing
body of the institution resulting from such merger or
consolidation; or (2) the shareholders of Port Financial Corp.
own securities of the institution resulting from such merger or
consolidation representing 60% or more of the combined voting
power of all such securities then outstanding in substantially
the same proportions as their ownership of voting securities of
Port Financial Corp. before such merger or consolidation; and
(II) the entity which results from such merger or
consolidation expressly agrees in writing to assume and perform
Port Financial Corp.'s obligations under the Plan; or
-37-
<PAGE>
(B) a complete liquidation of Port Financial Corp. or an
agreement for the sale or disposition by Port Financial Corp. of all
or substantially all of its assets; or
(iv) any event that would be described in section 16.1 if
"Cambridgeport Bank" were substituted for "Port Financial Corp." therein.
In no event, however, shall the transaction by which Cambridgeport Bank converts
from a mutual institution to a stock institution, or any transaction by which a
company wholly owned by Cambridgeport Bank becomes the parent company of
Cambridgeport Bank, be deemed a Change in Control.
(b) A Pending Change of Control shall be deemed to have occurred upon
the happening of any of the following events:
(i) approval by the stockholders of Port Financial Corp. of a
transaction, or a plan for the consummation of a transaction, which, if
consummated, would result in a Change in Control;
(ii) approval by the Board of Directors of Port Financial Corp. of a
transaction, or a plan for the consummation of a transaction, which, if
consummated, would result in a Change in Control;
(iii) the commencement of a tender offer (within the meaning of
section 14(d)(i) of the Exchange Act, as amended) for securities issued by
Port Financial Corp., which, if completed, would result in a Change in
Control;
(iv) the furnishing or distribution of a proxy statement or other
document, whether or not in opposition to management, soliciting proxies,
consents or authorizations (within the meaning of section 14 of the
Exchange Act) in respect of securities issued by Port Financial Corp. in
favor of any election, transaction or other action which, if effected,
would result in a Change in Control; or
(v) any event which would be described in Sections 14.1(b)(i), (ii),
(iii) or (iv) if "Cambridgeport Bank" were substituted for "Port Financial
Corp." therein.
Section 14.2 Vesting on Change of Control.
Notwithstanding any other provision of the Plan, upon the effective
date of a Change in Control, the Account of each person who would then, upon
termination of the Plan, be entitled to a benefit, shall be fully vested and
nonforfeitable.
Section 14.3 Repayment of Share Acquisition Loan.
-38-
<PAGE>
Notwithstanding any other provision of the Plan, upon the occurrence
of a Change in Control, the Committee shall direct the Trustee to sell a
sufficient number of shares of Stock to repay any outstanding Share Acquisition
Loan, all remaining Shares which had been unallocated (or the proceeds from the
sale thereof, if applicable) shall be allocated among the accounts of all
individuals with undistributed Account balances on the effective date of such
Change in Control. Such allocation of Shares or proceeds shall be in proportion
to the balance credited to their Accounts immediately prior to such allocation.
Section 14.4 Plan Termination After Change in Control.
Notwithstanding any other provision of the Plan, after repayment of
the loan and allocation of Shares or proceeds as provided in Section 14.3, the
Plan shall be terminated and all amounts shall be distributed as soon as
practicable.
Section 14.5 Amendment of Section XIV.
Notwithstanding any other provision of the Plan, this Section 14 of
the Plan may not be amended after the earliest date on which a Change in Control
or Pending Change in Control occurs, except (i) to the extent any amendment is
required by the Internal Revenue Service as a condition to the continued
treatment of the Plan as a tax-qualified plan under section 401(a) of the Code
or (ii) to the extent that the Company, in its sole discretion, determines than
any such amendment is necessary in order to permit any transaction to which the
Company, and/or its parent or affiliate, is or proposes to be a party to qualify
for "pooling of interests" accounting treatment.
Article XV
Administration
Section 15.1 Named Fiduciaries.
The term "Named Fiduciary" shall mean (but only to the extent of the
responsibilities of each of them) the Plan Administrator, the Committee, the
Board and the Trustee. This Article XV is intended to allocate to each Named
Fiduciary the responsibility for the prudent execution of the functions assigned
to him or it, and none of such responsibilities or any other responsibility
shall be shared by two or more of such Named Fiduciaries. Whenever one Named
Fiduciary is required by the Plan or Trust Agreement to follow the directions of
another Named Fiduciary, the two Named Fiduciaries shall not be deemed to have
been assigned a shared responsibility, but the responsibility of the Named
Fiduciary giving the directions shall be deemed his sole responsibility, and the
responsibility of the Named Fiduciary receiving those directions shall be to
follow them insofar as such instructions are on their face proper under
applicable law.
-39-
<PAGE>
Section 15.2 Plan Administrator.
There shall be a Plan Administrator, who shall be the Director of
Human Resources of Cambridgeport Bank, or such Employee or officer as may be
designated by the Committee, as hereinafter provided, and who shall, subject to
the responsibilities of the Committee and the Board, have the responsibility for
the day-to-day control, management, operation and administration of the Plan
(except trust duties). The Plan Administrator shall have the following
responsibilities:
(a) To maintain records necessary or appropriate for the
administration of the Plan;
(b) To give and receive such instructions, notices, information,
materials, reports and certifications to the Trustee as may be necessary or
appropriate in the administration of the Plan;
(c) To prescribe forms and make rules and regulations consistent with
the terms of the Plan and with the interpretations and other actions of the
Committee;
(d) To require such proof of age or evidence of good health of an
Employee, Participant or Former Participant or the spouse of either, or of
a Beneficiary as may be necessary or appropriate in the administration of
the Plan;
(e) To prepare and file, distribute or furnish all reports, plan
descriptions, and other information concerning the Plan, including, without
limitation, filings with the Secretary of Labor and communications with
Participants, Former Participants and other persons, as shall be required
of the Plan Administrator under ERISA;
(f) To determine any question arising in connection with the Plan,
and the Plan Administrator's decision or action in respect thereof shall be
final and conclusive and binding upon the Employer, the Trustee,
Participants, Former Participants, Beneficiaries and any other person
having an interest under the Plan; provided, however, that any question
relating to inconsistency or omission in the Plan, or interpretation of the
provisions of the Plan, shall be referred to the Committee by the Plan
Administrator and the decision of the Committee in respect thereof shall be
final;
(g) Subject to the provisions of section 15.5, to review and dispose
of claims under the Plan filed pursuant to section 15.4;
(h) If the Plan Administrator shall determine that by reason of
illness, senility, insanity, or for any other reason, it is undesirable to
make any payment to a Participant, Former Participant, Beneficiary or any
other person entitled thereto, to direct the application of any amount so
payable to the use or benefit of such person in any manner that he may deem
advisable or to direct in his discretion the withholding of any payment
under the Plan due to any person under legal disability until a
representative competent to receive such payment in his behalf shall be
appointed pursuant to law;
-40-
<PAGE>
(i) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Committee or the Board; and
(j) To perform any duty or take any action which is allocated to the
Plan Administrator under the Plan.
The Plan Administrator shall have the power and authority necessary or
appropriate to carry out his responsibilities. The Plan Administrator may
resign only by giving at least 30 days' prior written notice of resignation to
the Committee, and such resignation shall be effective on the date specified in
such notice.
Section 15.3 Committee Responsibilities.
The Committee shall, subject to the responsibilities of the Board,
have the following responsibilities:
(a) To review the performance of the Plan Administrator;
(b) To hear and decide appeals, pursuant to the claims procedure
contained in section 15.5 of the Plan, taken from the decisions of the Plan
Administrator;
(c) To hear and decide questions, including interpretation of the
Plan, as may be referred to the Committee by the Plan Administrator;
(d) To review the performance of the Trustee and such investment
managers as may be appointed in or pursuant to the Trust Agreement in
investing, managing and controlling the assets of the Plan;
(e) To the extent required by ERISA, to establish a funding policy
and method consistent with the objectives of the Plan and the requirements
of ERISA, and to review such policy and method at least annually;
(f) To report and make recommendations to the Board regarding changes
in the Plan, including changes in the operation and management of the Plan
and removal and replacement of the Trustee and such investment managers as
may be appointed in or pursuant to the Trust Agreement;
(g) To designate an Alternate Plan Administrator to serve in the
event that the Plan Administrator is absent or otherwise unable to
discharge his responsibilities;
(h) To remove and replace the Plan Administrator or Alternate, or
both of them, and to fill a vacancy in either office;
(i) To the extent provided under and subject to the provisions of the
Trust Agreement, to appoint "investment managers" as defined in
section 3(38) of ERISA
-41-
<PAGE>
to manage and control (including acquiring and disposing of) all or any of
the assets of the Plan;
(j) With the prior approval of the Board, to direct the Trustee to
obtain one or more Share Acquisition Loans;
(k) To develop and provide procedures and forms necessary to
facilitate voting and tendering directions on a confidential basis;
(l) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Board; and
(m) To perform any duty or take any action which is allocated to the
Committee under the Plan.
The Committee shall have the power and authority necessary or appropriate to
carry out its responsibilities.
Section 15.4 Claims Procedure.
Any claim relating to benefits under the Plan shall be filed with the
Plan Administrator on a form prescribed by him. If a claim is denied in whole
or in part, the Plan Administrator shall give the claimant written notice of
such denial, which notice shall specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was based;
(c) Any additional material or information necessary for the claimant
to perfect his claim and an explanation of why such material or information
is needed; and
(d) An explanation of the Plan's procedure for review of the denial
of the claim.
In the event that the claim is not granted and notice of denial of a claim is
not furnished by the 30th day after such claim was filed, the claim shall be
deemed to have been denied on that day for the purpose of permitting the
claimant to request review of the claim.
Section 15.5 Claims Review Procedure.
Any person whose claim filed pursuant to section 15.4 has been denied
in whole or in part by the Plan Administrator may request review of the claim by
the Committee, upon a form prescribed by the Plan Administrator. The claimant
shall file such form (including a statement of
-42-
<PAGE>
his position) with the Committee no later than 60 days after the mailing or
delivery of the written notice of denial provided for in section 15.4, or, if
such notice is not provided, within 60 days after such claim is deemed denied
pursuant to section 15.4. The claimant shall be permitted to review pertinent
documents. A decision shall be rendered by the Committee and communicated to the
claimant not later than 30 days after receipt of the claimant's written request
for review. However, if the Committee finds it necessary, due to special
circumstances (for example, the need to hold a hearing), to extend this period
and so notifies the claimant in writing, the decision shall be rendered as soon
as practicable, but in no event later than 120 days after the claimant's request
for review. The Committee's decision shall be in writing and shall specifically
set forth:
(a) The reasons for the decision; and
(b) The pertinent Plan provisions on which the decision is based.
Any such decision of the Committee shall be binding upon the claimant and the
Employer, and the Plan Administrator shall take appropriate action to carry out
such decision.
Section 15.6 Allocation of Fiduciary Responsibilities and Employment
of Advisors.
Any Named Fiduciary may:
(a) Allocate any of his or its responsibilities (other than trustee
responsibilities) under the Plan to such other person or persons as he or
it may designate, provided that such allocation and designation shall be in
writing and filed with the Plan Administrator;
(b) Employ one or more persons to render advice to him or it with
regard to any of his or its responsibilities under the Plan; and
(c) Consult with counsel, who may be counsel to the Employer.
Section 15.7 Other Administrative Provisions.
(a) Any person whose claim has been denied in whole or in part must
exhaust the administrative review procedures provided in section 15.5 prior to
initiating any claim for judicial review.
(b) No bond or other security shall be required of a member of the
Committee, the Plan Administrator, or any officer or Employee of the Employer to
whom fiduciary responsibilities are allocated by a Named Fiduciary, except as
may be required by ERISA.
(c) Subject to any limitation on the application of this section
15.7(c) pursuant to ERISA, neither the Plan Administrator, nor a member of the
Committee, nor any officer or Employee of the Employer to whom fiduciary
responsibilities are allocated by a Named Fiduciary,
-43-
<PAGE>
shall be liable for any act of omission or commission by himself or by another
person, except for his own individual willful and intentional malfeasance.
(d) The Plan Administrator or the Committee may, except with respect
to actions under section 15.5, shorten, extend or waive the time (but not beyond
60 days) required by the Plan for filing any notice or other form with the Plan
Administrator or the Committee, or taking any other action under the Plan.
(e) The Plan Administrator or the Committee may direct that the costs
of services provided pursuant to section 15.6, and such other reasonable
expenses as may be incurred in the administration of the Plan, shall be paid out
of the funds of the Plan unless the Employer shall pay them.
(f) Any person, group of persons, committee, corporation or
organization may serve in more than one fiduciary capacity with respect to the
Plan.
(g) Any action taken or omitted by any fiduciary with respect to the
Plan, including any decision, interpretation, claim denial or review on appeal,
shall be conclusive and binding on all interested parties and shall be subject
to judicial modification or reversal only to the extent it is determined by a
court of competent jurisdiction that such action or omission was arbitrary and
capricious and contrary to the terms of the Plan.
Article XVI
Amendment, Termination and Tax Qualification
Section 16.1 Amendment and Termination by Port Financial Corp.
The Participating Employers expect to continue the Plan indefinitely,
but specifically reserve the right, in their sole discretion, at any time, by
appropriate action of their respective boards of directors or other authorized
officials, to amend, in whole or in part, any or all of the provisions of the
Plan and to terminate the Plan at any time. Subject to the provisions of
section 16.2, no such amendment or termination shall permit any part of the
Trust Fund to be used for or diverted to purposes other than for the exclusive
benefit of Participants, Former Participants, Beneficiaries or other persons
entitled to benefits, and no such amendment or termination shall reduce the
accrued benefit of any Participant, Former Participant, Beneficiary or other
person who may be entitled to benefits, without his consent. In the event of a
termination or partial termination of the Plan, or in the event of a complete
discontinuance of the Participating Employer's contributions to the Plan, the
Accounts of each affected person shall forthwith become nonforfeitable and shall
be payable in accordance with the provisions of Article XIII.
-44-
<PAGE>
Section 16.2 Amendment or Termination Other Than by Port Financial
Corp.
In the event that a corporation or trade or business other than Port
Financial Corp. shall adopt this Plan, such corporation or trade or business
shall, by adopting the Plan, empower Port Financial Corp., to amend or terminate
the Plan, insofar as it shall cover employees of such corporation or trade or
business, upon the terms and conditions set forth in section 16.1; provided,
however, that any such corporation or trade or business may, by action of its
board of directors or other governing body, amend or terminate the Plan, insofar
as it shall cover employees of such corporation or trade or business, at
different times and in a different manner. In the event of any such amendment
or termination by action of the board of directors or other governing body of
such a corporation or trade or business, a separate plan shall be deemed to have
been established for the employees of such corporation or trade or business, and
the assets of such plan shall be segregated from the assets of this Plan at the
earliest practicable date and shall be dealt with in accordance with the
documents governing such separate plan.
Section 16.3 Conformity to Internal Revenue Code.
The Participating Employers have established the Plan with the intent
that the Plan and Trust will at all times be qualified under section 401(a) and
exempt under section 501(a) of the Code and with the intent that contributions
under the Plan will be allowed as deductions in computing the net income of
the Participating Employers for federal income tax purposes, and the provisions
of the Plan and Trust Agreement shall be construed to effectuate such
intentions. Accordingly, notwithstanding anything to the contrary hereinbefore
provided, the Plan and the Trust Agreement may be amended at any time without
prior notice to Participants, Former Participants, Beneficiaries or any other
persons entitled to benefits, if such amendment is deemed by the Board to be
necessary or appropriate to effectuate such intent.
Section 16.4 Contingent Nature of Contributions.
(a) All Discretionary Contributions to the Plan are conditioned upon
the issuance by the Internal Revenue Service of a determination that the Plan
and Trust are qualified under section 401(a) of the Code and exempt under
section 501(a) of the Code. If the Participating Employers apply to the
Internal Revenue Service for such a determination within 90 days after the date
on which it files its federal income tax return for its taxable year that
includes the last day of the Plan Year in which the Plan is adopted, and if the
Internal Revenue Service issues a determination that the Plan and Trust are not
so qualified or exempt, all Discretionary Contributions made by the
Participating Employers prior to the date of receipt of such a determination
may, at the election of the Participating Employers, be returned to the
Participating Employers within one year after the date of such determination.
(b) All Discretionary Contributions and Loan Repayment Contributions
to the Plan are made upon the condition that such Discretionary Contributions
and Loan Repayment Contributions will be allowed as a deduction in computing the
net income of the Employer for federal income tax purposes. To the extent that
any such deduction is disallowed, the amount
-45-
<PAGE>
disallowed may, at the election of the Participating Employers, be returned to
the Participating Employers within one year after the deduction is disallowed.
(c) Any contribution to the Plan made by the Participating Employers
as a result of a mistake of fact may, at the election of the Participating
Employers, be returned to the Participating Employers within one year after such
contribution is made.
Article XVII
Special Rules for Top Heavy Plan Years
Section 17.1 In General.
As of the Determination Date for each Plan Year, the Plan
Administrator shall determine whether the Plan is a Top Heavy Plan in accordance
with the provisions of this Article XVII. If, as of such Determination Date,
the Plan is a Top Heavy Plan, then the Plan Year immediately following such
Determination Date shall be a Top Heavy Plan Year and the special provisions of
this Article XVII shall be in effect; provided, however, that if, as of the
Determination Date for the Plan Year in which the Effective Date occurs, the
Plan is a Top Heavy Plan, such Plan Year shall be a Top Heavy Plan Year, and the
provisions of this Article XVII shall be given retroactive effect for such Plan
Year.
Section 17.2 Definition of Top Heavy Plan.
(a) Subject to section 17.2(c), the Plan is a Top Heavy Plan if, as
of a Determination Date: (i) it is not a member of a Required Aggregation
Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all Key
Employees exceeds 60% of (B) the sum of the Cumulative Accrued Benefits of all
Employees (excluding former Key Employees), former Employees (excluding former
Key Employees and other former Employees who have not performed any services for
the Employer or any Affiliated Employer during the immediately preceding five
Plan Years), and their Beneficiaries.
(b) Subject to section 17.2(c), the Plan is a Top Heavy Plan if, as
of a Determination Date: (i) the Plan is a member of a Required Aggregation
Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all Key
Employees under all plans that are members of the Required Aggregation Group
exceeds 60% of (B) the sum of the Cumulative Accrued Benefits of all Employees
(excluding former Key Employees), former Employees (excluding former Key
Employees and other former Employees who have not performed any services for the
Employer or any Affiliated Employer during the immediately preceding five Plan
Years), and their Beneficiaries under all plans that are members of the Required
Aggregation Group.
(c) Notwithstanding sections 17.2(a) and 17.2(b), the Plan is not a
Top Heavy Plan if, as of a Determination Date: (i) the Plan is a member of a
Permissible Aggregation Group, and
-46-
<PAGE>
(ii)(A) the sum of the Cumulative Accrued Benefits of all Key Employees under
all plans that are members of the Permissible Aggregation Group does not exceed
60% of (B) the sum of the Cumulative Accrued Benefits of all Employees
(excluding former Key Employees), former Employees (excluding former Key
Employees and other former Employees who have not performed any services for the
Employer or any Affiliated Employer during the immediately preceding five Plan
Years), and their Beneficiaries under all plans that are members of the
Permissible Aggregation Group.
Section 17.3 Determination Date.
The Determination Date for the Plan Year in which the Effective Date
occurs shall be the last day of such Plan Year, and the Determination Date for
each Plan Year beginning after the Plan Year in which the Effective Date occurs
shall be the last day of the preceding Plan Year. The Determination Date for
any other qualified plan maintained by the Employer for a plan year shall be the
last day of the preceding plan year of each such plan, except that in the case
of the first plan year of such plan, it shall be the last day of such first plan
year.
Section 17.4 Cumulative Accrued Benefits.
(a) An individual's Cumulative Accrued Benefits under this Plan as
of a Determination Date are equal to the sum of:
(i) the balance credited to such individual's Account under this
Plan as of the most recent Valuation Date preceding the Determination Date;
(ii) the amount of any Discretionary Contributions or Loan Repayment
Contributions made after such Valuation Date but on or before the
Determination Date; and
(iii) the amount of any distributions of such individual's Cumulative
Accrued Benefits under the Plan during the five year period ending on the
Determination Date.
For purposes of this section 17.4(a), the computation of an individual's
Cumulative Accrued Benefits, and the extent to which distributions, rollovers
and transfers are taken into account, will be made in accordance with section
416 of the Code and the regulations thereunder.
(b) For purposes of this Plan, the term "Cumulative Accrued
Benefits" with respect to any other qualified plan, shall mean the cumulative
accrued benefits determined for purposes of section 416 of the Code under the
provisions of such plans.
(c) For purposes of determining the top heavy status of a Required
Aggregation Group or a Permissible Aggregation Group, the Cumulative Accrued
Benefits under this Plan and the Cumulative Accrued Benefits under any other
plan shall be determined as of the Determination
-47-
<PAGE>
Date that falls within the same calendar year as the Determination Dates for all
other members of such Required Aggregation Group or Permissible Aggregation
Group.
Section 17.5 Key Employees.
(a) For purposes of the Plan, the term Key Employee means any
employee or former employee of the Employer or any Affiliated Employer who is at
any time during the current Plan Year or was at any time during the immediately
preceding four Plan Years:
(i) a Five Percent Owner;
(ii) a person who would be described in section 1.26 if the number
"1%" were substituted for the number "5%" in section 1.26 and who has an
annual Total Compensation from the Employer and any Affiliated Employer of
more than $160,000;
(iii) an Officer of the Employer or any Affiliated Employer who has
an annual Total Compensation greater than 50% of the amount in effect under
section 415(b)(1)(A) of the Code for any such Plan Year; or
(iv) one of the ten persons owning the largest interests in the
Employer and having an annual Total Compensation from the Employer or any
Affiliated Employer in excess of the dollar limitation in effect under
section 415(c)(1)(A) of the Code for such Plan Year.
(b) For purposes of section 17.5(a):
(i) for purposes of section 17.5(a)(iii), in the event the Employer
or any Affiliated Employer has more officers than are considered Officers,
the term Key Employee shall mean those officers, up to the maximum number,
with the highest annual compensation in any one of the five consecutive
Plan Years ending on the Determination Date; and
(ii) for purposes of section 17.5(a)(iv), if two or more persons have
equal ownership interests in the Employer, each such person shall be
considered as having a larger ownership interest than any such person with
a lower annual compensation from the Employer or any Affiliated Employer.
(c) For purposes of section 17.5(a): (i) a person's compensation
from Affiliated Employers shall be aggregated, but his ownership interests in
Affiliated Employers shall not be aggregated; (ii) an employee shall only be
deemed to be an officer if he has the power and responsibility of a person who
is an officer within the meaning of section 416 of the Code; and (iii) the term
Key Employee shall also include the Beneficiary of a deceased Key Employee.
-48-
<PAGE>
Section 17.6 Required Aggregation Group.
For purposes of this Article XVII, a Required Aggregation Group shall
consist of (a) this Plan; (b) any other qualified plans maintained by the
Employer and any Affiliated Employers that cover Key Employees; and (c) any
other qualified plans that are required to be aggregated for purposes of
satisfying the requirements of sections 401(a)(4) or 410(b) of the Code.
Section 17.7 Permissible Aggregation Group.
For purposes of this Article XVII, a Permissible Aggregation Group
shall consist of (a) the Required Aggregation Group and (b) any other qualified
plans maintained by the Employer and any Affiliated Employers; provided,
however, that the Permissible Aggregation Group must satisfy the requirements of
sections 401(a)(4) and 410(b) of the Code.
Section 17.8 Special Requirements During Top Heavy Plan Years.
(a) Notwithstanding any other provision of the Plan to the contrary,
for each Top Heavy Plan Year, in the case of a Participant (other than a Key
Employee) on the last day of such Top Heavy Plan Year who is not also a
participant in another qualified plan which satisfies the minimum contribution
and benefit requirements of section 416 of the Code with respect to such
Participant, the sum of the Discretionary Contributions and Loan Repayment
Contributions made with respect to such Participant, when expressed as a
percentage of his Total Compensation for such Top Heavy Plan Year, shall not be
less than 3% of such Participant's Total Compensation for such Top Heavy Plan
Year or, if less, the highest combined rate, expressed as a percentage of Total
Compensation at which Discretionary Contributions and Loan Repayment
Contributions were made on behalf of a Key Employee for such Top Heavy Plan
Year. The Employer shall make an additional contribution to the Account of each
Participant to the extent necessary to satisfy the foregoing requirement.
(b) For any Top Heavy Plan Year beginning before January 1, 2000,
the number "1.0" shall be substituted for the number "1.25" in sections
8.2(c)(iii) and 8.2(c)(iv), except that:
(i) this section 17.8(b) shall not apply to any individual for a Top
Heavy Plan Year that is not a Super Top Heavy Plan Year if the requirements
of section 17.8(a) would be satisfied for such Super Top Heavy Plan Year if
the number "4%" were substituted for the number 3% in section 17.8(a); and
(ii) this section 17.8(b) shall not apply to an individual for a Top
Heavy Plan Year if, during such Top Heavy Plan Year, there are no
Discretionary Contributions or Loan Repayment Contributions allocated to
such individual under this Plan, there are no contributions under any other
qualified defined contribution plan maintained by the Employer, and there
are no accruals for such individual under any qualified defined benefit
plan maintained by the Employer.
-49-
<PAGE>
For purposes of this section 17.8(b), the term Super Top Heavy Plan Year means a
Top Heavy Plan Year in which the Plan would meet the definitional requirements
of sections 17.2(a) or 17.2(b) if the term "90%" were substituted for the term
"60%" in sections 17.2(a), 17.2(b) and 17.2(c).
Article XVIII
Miscellaneous Provisions
Section 18.1 Governing Law.
The Plan shall be construed, administered and enforced according to
the laws of the Commonwealth of Massachusetts without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by federal law.
Section 18.2 No Right to Continued Employment.
Neither the establishment of the Plan, nor any provisions of the Plan
or of the Trust Agreement establishing the Trust Fund nor any action of the Plan
Administrator, the Committee or the Trustee, shall be held or construed to
confer upon any Employee any right to a continuation of employment by any
Affiliated Employer. Each Affiliated Employer reserves the right to dismiss any
Employee or otherwise deal with any Employee to the same extent as though the
Plan had not been adopted.
Section 18.3 Construction of Language.
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to the
feminine and the neuter. Any reference to an Article or section number shall
refer to an Article or section of the Plan, unless otherwise indicated.
Section 18.4 Headings.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and
the text of the Plan, the text shall control.
Section 18.5 Merger with Other Plans.
-50-
<PAGE>
The Plan shall not be merged or consolidated with, nor transfer its
assets or liabilities to, any other plan unless each Participant, Former
Participant, Beneficiary and other person entitled to benefits, would (if that
plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he would
have been entitled to receive if the Plan had terminated immediately before the
merger, consolidation or transfer.
Section 18.6 Non-alienation of Benefits.
(a) Except as provided in section 18.6(b) and (c), the right to
receive a benefit under the Plan shall not be subject in any manner to
anticipation, alienation or assignment, nor shall such right be liable for or
subject to debts, contracts, liabilities or torts. Should any Participant,
Former Participant or other person attempt to anticipate, alienate or assign his
interest in or right to a benefit, or should any person claiming against him
seek to subject such interest or right to legal or equitable process, all the
interest or right of such Participant or Former Participant or other person
entitled to benefits in the Plan shall cease, and in that event such interest or
right shall be held or applied, at the direction of the Plan Administrator, for
or to the benefit of such Participant or Former Participant, or other person or
his spouse, children or other dependents in such manner and in such proportions
as the Plan Administrator may deem proper.
(b) This section 18.6 shall not prohibit the Plan Administrator from
recognizing a Domestic Relations Order that is determined to be a Qualified
Domestic Relations Order in accordance with section 18.7.
(c) Notwithstanding anything in the Plan to the contrary, a
Participant's, Former Participant's or Beneficiary's Accounts under the Plan may
be offset by any amount such Participant, Former Participant or Beneficiary is
required or ordered to pay to the Plan if:
(i) the order or requirement to pay arises: (A) under a judgment
issued on or after August 5, 1997 of conviction for a crime involving the
Plan; (B) under a civil judgment (including a consent order or decree)
entered by a court on or after August 5, 1997 in an action brought in
connection with a violation (or alleged violation) of part 4 of subtitle B
of title I of ERISA; or (C) pursuant to a settlement agreement entered into
on or after August 5, 1997 between the Participant, Former Participant or
Beneficiary and one or both of the United States Department of Labor and
the Pension Benefit Guaranty Corporation in connection with a violation (or
alleged violation) of part 4 of subtitle B of title I of ERISA by a
fiduciary or any other person; and
(ii) the judgment, order, decree or settlement agreement expressly
provides for the offset of all or part of the amount ordered or required to
be paid to the Plan against the Participant's, Former Participant's or
Beneficiary's benefits under the Plan.
Section 18.7 Procedures Involving Domestic Relations Orders.
-51-
<PAGE>
Upon receiving a Domestic Relations Order, the Plan Administrator
shall segregate in a separate account or in an escrow account or separately
account for the amounts payable to any person pursuant to such Domestic
Relations Order, pending a determination whether such Domestic Relations Order
constitutes a Qualified Domestic Relations Order, and shall give notice of the
receipt of the Domestic Relations Order to the Participant or Former Participant
and each other person affected thereby. If, within 18 months after receipt of
such Domestic Relations Order, the Plan Administrator, a court of competent
jurisdiction or another appropriate authority determines that such Domestic
Relations Order constitutes a Qualified Domestic Relations Order, the Plan
Administrator shall direct the Trustee to pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto under the Qualified
Domestic Relations Order. If it is determined that the Domestic Relations Order
is not a Qualified Domestic Relations Order or if no determination is made
within the prescribed 18-month period, the segregated amounts shall be
distributed as though the Domestic Relations Order had not been received, and
any later determination that such Domestic Relations Order constitutes a
Qualified Domestic Relations Order shall be applied only with respect to
benefits that remain undistributed on the date of such determination. The Plan
Administrator shall be authorized to establish such reasonable administrative
procedures as he deems necessary or appropriate to administer this section 18.7.
This section 18.7 shall be construed and administered so as to comply with the
requirements of section 401(a)(13) of the Code.
Section 18.8 Leased Employees.
(a) Subject to section 18.8(b), a leased employee shall be treated
as an Employee for purposes of the Plan. For purposes of this section 18.8, the
term "leased employee" means any person (i) who would not, but for the
application of this section 18.8, be an Employee and (ii) who pursuant to an
agreement between an Affiliated Employer and any other person ("leasing organiza
tion") has performed for the Affiliated Employer (or for the Affiliated Employer
and related persons determined in accordance with section 414(n)(6) of the
Code), on a substantially full-time basis for a period of at least one year,
services of a type historically performed by employees in the business field of
the Employer under the primary direction or control of an Affiliated Employer.
(b) For purposes of the Plan:
(i) contributions or benefits provided to the leased employee by the
leasing organization which are attributable to services performed for the
Employer shall be treated as provided by the Employer; and
(ii) section 18.8(a) shall not apply to a leased employee if:
(A) the number of leased employees performing services for the
Employer does not exceed 20% of the number of the Employer's Employees
who are not Highly Compensated Employees; and
(B) such leased employee is covered by a money purchase pension
plan providing (I) a nonintegrated contribution rate of at least 10%
of the leased employee's compensation; (II) immediate participation;
(III) full and immediate vesting; and (IV) coverage for all of the
employees of the leasing
-52-
<PAGE>
organization (other than employees who perform substantially all of
their services for the leasing organization).
Section 18.9 Status as an Employee Stock Ownership Plan.
It is intended that the Plan constitute an "employee stock ownership
plan," as defined in section 4975(e)(7) of the Code and section 407(d)(6) of
ERISA. The Plan shall be construed and administered to give effect to such
intent.
-53-
<PAGE>
EXHIBIT 10.2
ESOP Restoration Plan
Of
Port Financial Corp.
________________________________
Effective on [the Date of Conversion]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I
---------
Definitions
-----------
Section 1.1 Affiliated Employer.................................... 1
-------------------
Section 1.2 Applicable Limitation.................................. 1
---------------------
Section 1.3 Bank................................................... 1
----
Section 1.4 Beneficiary............................................ 1
-----------
Section 1.5 Board.................................................. 1
-----
Section 1.6 Change in Control...................................... 2
-----------------
Section 1.7 Code................................................... 3
----
Section 1.8 Committee.............................................. 3
---------
Section 1.9 Company................................................ 3
-------
Section 1.10 Eligible Employee...................................... 3
-----------------
Section 1.11 Employee............................................... 3
--------
Section 1.12 Employer Contributions................................. 3
----------------------
Section 1.13 Erisa.................................................. 3
-----
Section 1.14 Esop................................................... 3
----
Section 1.15 Exchange Act........................................... 3
------------
Section 1.16 Fair Market Value of a Share........................... 3
----------------------------
Section 1.17 Former Participant..................................... 4
------------------
Section 1.18 Participant............................................ 4
-----------
Section 1.19 Participating Employer................................. 4
----------------------
Section 1.20 Plan................................................... 4
----
Section 1.21 Share.................................................. 4
-----
Section 1.22 Stock Unit............................................. 4
----------
Section 1.23 Termination of Service................................. 4
----------------------
Article II
----------
Participation
-------------
Section 2.1 Eligibility for Participation.......................... 5
-----------------------------
Section 2.2 Commencement of Participation.......................... 5
-----------------------------
Section 2.3 Termination of Participation........................... 5
----------------------------
Article III
-----------
Benefits to Participants
------------------------
Section 3.1 Supplemental ESOP Benefits............................. 5
--------------------------
Section 3.2 Restored ESOP Benefits................................. 7
-----------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article IV
----------
Death Benefits
--------------
Section 4.1 Supplemental Esop Death Benefits...................... 8
--------------------------------
Section 4.2 Restored Esop Death Benefits.......................... 8
----------------------------
Section 4.3 Beneficiaries......................................... 8
-------------
Article V
---------
Trust Fund
----------
Section 5.1 Establishment of Trust................................ 9
----------------------
Section 5.2 Contributions to Trust................................ 9
----------------------
Section 5.3 Unfunded Character of Plan............................ 9
--------------------------
Article VI
----------
Administration
--------------
Section 6.1 The Committee......................................... 10
-------------
Section 6.2 Liability of Committee Members and their Delegates.... 11
--------------------------------------------------
Section 6.3 Plan Expenses......................................... 11
-------------
Section 6.4 Facility of Payment................................... 11
-------------------
Article VII
-----------
Amendment and Termination
-------------------------
Section 7.1 Amendment by the Company.............................. 11
------------------------
Section 7.2 Termination........................................... 12
-----------
Section 7.3 Amendment or Termination by Other Employers........... 12
-------------------------------------------
Article VIII
------------
Miscellaneous Provisions
------------------------
Section 8.1 Construction and Language............................. 12
-------------------------
Section 8.2 Headings.............................................. 13
--------
Section 8.3 Non-Alienation of Benefits............................ 13
--------------------------
Section 8.4 Indemnification....................................... 13
---------------
Section 8.5 Severability.......................................... 13
------------
Section 8.6 Waiver................................................ 13
------
Section 8.7 Governing Law......................................... 14
-------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.8 Withholding.......................................... 14
-----------
Section 8.9 No Deposit Account................................... 14
------------------
Section 8.10 Rights of Employees.................................. 14
-------------------
Section 8.11 Status of Plan Under Erisa........................... 14
--------------------------
Section 8.12 Successors and Assigns............................... 14
----------------------
</TABLE>
(iii)
<PAGE>
Esop Restoration Plan
---------------------
Of
--
Port Financial Corp.
--------------------
Article I
---------
Definitions
-----------
Wherever appropriate to the purposes of the Plan, capitalized terms
shall have the meanings assigned to them under the ESOP; provided, however, that
the following special definitions shall apply for purposes of the Plan, unless a
different meaning is clearly indicated by the context:
Section 1.1 Affiliated Employer means the Bank; any corporation
-------------------
which is a member of a controlled group of corporations (as defined in section
414(b) of the Code) that includes the Bank; any trade or business (whether or
not incorporated) that is under common control (as defined in section 414(c) of
the Code) with the Bank; any organization (whether or not incorporated) that is
a member of an affiliated service group (as defined in section 414(m) of the
Code) that includes the Bank; any leasing organization (as defined in section
414(n) of the Code) to the extent that any of its employees are required
pursuant to section 414(n) of the Code to be treated as employees of the Bank;
and any other entity that is required to be aggregated with the Bank pursuant to
regulations under section 414(o) of the Code.
Section 1.2 Applicable Limitation means any of the following: (a)
---------------------
the limitation on annual compensation that may be recognized under a tax-
qualified plan for benefit computation purposes pursuant to section 401(a)(17)
of the Code; (b) the maximum limitation on annual benefits payable by a tax-
qualified defined benefit plan pursuant to section 415(b) of the Code; (c) the
maximum limitation on annual additions to a tax-qualified defined contribution
plan pursuant to section 415(c) of the Code; (d) the maximum limitation on
aggregate annual benefits and annual additions under a combination of tax-
qualified defined benefit and defined contribution plans maintained by a single
employer pursuant to section 415(e) of the Code; (e) the maximum limitation on
annual elective deferrals to a qualified cash or deferred arrangement pursuant
to section 402(g) of the Code; (f) the annual limitation on elective deferrals
under a qualified cash or deferred arrangement by highly compensated employees
pursuant to section 401(k) of the Code; and (g) the annual limitation on
voluntary employee contributions by, and employer matching contributions for,
highly compensated employees pursuant to section 401(m) of the Code.
Section 1.3 Bank means Cambridgeport Bank and any successor
----
thereto.
Section 1.4 Beneficiary means any person, other than a Member or
-----------
Former Member, who is determined to be entitled to benefits under the terms of
the Plan.
Section 1.5 Board means the Board of Directors of the Company.
-----
<PAGE>
Section 1.6 Change In Control means the happening of any of the
-----------------
following events:
(i) the consummation of a reorganization, merger or consolidation of
the Company with one or more other persons, other than a transaction following
which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act")) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the outstanding
equity ownership interests in the Company; and
(B) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Company entitled to vote generally in the election of
directors by any person or by any persons acting in concert;
(iii) a complete liquidation or dissolution of the Company;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of the Company
do not belong to any of the following groups:
(A) individuals who were members of the Board of Directors of
the Company on the Effective Date; or
(B) individuals who first became members of the Board of
Directors of the Company after the Effective Date either:
(1) upon election to serve as a member of the Board of
Directors of the Company by affirmative vote of three-quarters of
the members of such board, or of a nominating committee thereof,
in office at the time of such first election; or
2
<PAGE>
(2) upon election by the shareholders of the Board of
Directors of the Company to serve as a member of such board, but
only if nominated for election by affirmative vote of three-
quarters of the members of the Board of Directors of the Company,
or of a nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf of the
Board of Directors of the Company; or
(v) any event which would be described in section 1.6(i), (ii), (iii)
or (iv) if the term "Bank" were substituted for the term "Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 1.6, the term "person" shall have the meaning assigned
to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
Section 1.7 Code means the Internal Revenue Code of 1986 (including
----
the corresponding provisions of any prior law or succeeding law).
Section 1.8 Committee means the Compensation Committee of the Board
---------
of Directors of the Company, or such other person, committee or other entity as
shall be designated by or on behalf of the Board to perform the duties set forth
in Article VI.
Section 1.9 Company means Port Financial Corp. or any successor
-------
thereto.
Section 1.10 Eligible Employee means an Employee who is eligible for
-----------------
participation in the Plan in accordance with the provisions of Article II.
Section 1.11 Employee means any person, including an officer, who is
--------
employed by any Affiliated Employer.
Section 1.12 Employer Contributions means contributions by any
----------------------
Participating Employer to the ESOP.
Section 1.13 ERISA means the Employee Retirement Income Security Act
-----
of l974, as amended from time to time (including the corresponding provisions of
any succeeding law).
3
<PAGE>
Section 1.14 ESOP means the Employee Stock Ownership Plan of [Port
----
Financial Corp.], as amended from time to time (including the corresponding
provisions of any successor qualified employee stock ownership plan adopted by
the Company).
Section 1.15 Exchange Act means the Securities Exchange Act of 1934,
------------
as amended from time to time (including the corresponding provisions of any
succeeding law).
Section 1.16 Fair Market Value Of A Share means, with respect to a
----------------------------
Share on a specified date:
(a) the final quoted sales price on the date in question (or if there
is no reported sale on such date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated reporting
system with respect to securities listed or admitted to trading on the
principal United States securities exchange on which like Shares are listed
or admitted to trading; or
(b) if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date on
the National Association of Securities Dealers Automated Quotations System,
or, if no such quotation is provided, on another similar system, selected
by the Committee, then in use; or
(c) if sections 1.16(a) and (b) are not applicable, the fair market
value of a Share as determined by an appraiser independent of any
Participating Employer and experienced and expert in the field of corporate
appraisal.
Section 1.17 Former Participant means a person whose participation
------------------
in the Plan has terminated as provided under section 2.3.
Section 1.18 Participant means any person who is participating in
-----------
the Plan in accordance with its terms.
Section 1.19 Participating Employer means the Bank and any successor
----------------------
thereto and the Company and any successor thereto and any other Affiliated
Employer which, with the prior written approval of the Board of Directors of
Port Financial Corp. and subject to such terms and conditions as may be imposed
by the Board of Directors of Port Financial Corp., shall adopt this Plan.
Section 1.20 Plan means the ESOP Restoration Plan of Cambridgeport
----
Bank, as amended from time to time (including the corresponding provisions of
any successor plan adopted by the Bank).
Section 1.21 Share means a share of common stock, par value $.01
-----
per share, of Port Financial Corp.
4
<PAGE>
Section 1.22 Stock Unit means a right to receive a payment under
----------
the Plan in an amount equal, on the date as of which such payment is made, to
the Fair Market Value of a Share.
Section 1.23 Termination Of Service means an Employee's separation
----------------------
from service with all Affiliated Employers as an Employee, whether by
resignation, discharge, death, disability, retirement or otherwise.
5
<PAGE>
Article II
----------
PARTICIPATION
-------------
Section 2.1 Eligibility for Participation.
-----------------------------
Only Eligible Employees may be or become Participants. An Employee
shall become an Eligible Employee if:
(a) he or she holds the office of Chairman, Chief Executive Officer,
President or Executive Vice President of the Bank or the Company, or he or
she has been designated an Eligible Employee by resolution of the Board;
and
(b) he or she is a Participant in the ESOP and the benefits to which
he or she is entitled thereunder are limited by one or more of the
Applicable Limitations;
provided, however, that no person shall be named an Eligible Employee, nor shall
any person who has been an Eligible Employee continue as an Eligible Employee,
to the extent that such person's participation, or continued participation, in
the Plan would cause the Plan to fail to be considered maintained for the
primary purpose of providing deferred compensation for a select group of
management or highly compensated employees for purposes of ERISA.
Section 2.2 Commencement of Participation.
-----------------------------
An Employee shall become a Participant on the date when he or she
first becomes an Eligible Employee, unless the Committee shall, by resolution,
establish an earlier or later effective date of participation for a Participant.
Section 2.3 Termination of Participation.
----------------------------
Participation in the Plan shall cease on the earlier of (a) the date
of the Participant's Termination of Service or (b) the date on which he or she
ceases to be an Eligible Employee.
Article III
-----------
Benefits to Participants
------------------------
Section 3.1 Supplemental ESOP Benefits.
--------------------------
(a) A Participant whose benefits under the ESOP are limited by one or
more of the Applicable Limitations shall be eligible for a supplemental ESOP
benefit under this Plan in an amount equal to the sum of:
6
<PAGE>
(i) a number of Stock Units equal to the excess (if any) of (A) the
aggregate number of Shares (including any reallocation of Shares forfeited
upon the termination of employment of others participating in the ESOP)
that would have been credited to the Participant's account under the ESOP
in the absence of the Applicable Limitations over (B) the number of Shares
actually credited to his account under the ESOP; plus
(ii) if and to the extent that Employer Contributions to the ESOP
result in allocations to the Participant's account of assets other than
Shares, an amount equal to the excess (if any) of (A) the aggregate amount
of Employer Contributions (including any reallocation of amounts forfeited
upon the termination of employment of others participating in the ESOP)
that would have been credited to the Participant's account under the ESOP
in the absence of the Applicable Limitations over (B) the aggregate amount
of Employer Contributions (including any reallocation of amounts forfeited
upon the termination of employment of others participating in the ESOP)
actually credited to the Participant's account under the ESOP;
adjusted for earnings and losses as provided section 31(b); provided, however,
that if the Participant dies before the payment of such supplemental ESOP
benefit begins, no benefit shall be payable under this section 31 and the
survivor benefit, if any, which may be payable shall be determined under section
4.1.
(b) The Committee shall cause to be maintained a bookkeeping account
to reflect all Shares and Employer Contributions (including any reallocation of
amounts forfeited upon the termination of employment of others participating in
the ESOP) that cannot be allocated to a Participant's account under the ESOP due
to the Applicable Limitations and shall cause such bookkeeping account to be
credited with such Employer Contributions and Stock Units reflecting such Shares
as of the date on which such Employer Contributions and Shares, respectively,
would have been credited to the Participant's account in the ESOP in the absence
of the Applicable Limitations. The balance credited to such bookkeeping account
shall be adjusted for earnings or losses as follows:
(i) all Stock Units shall be adjusted from time to time so that the
value of a Stock Unit on any date is equal to the Fair Market Value of a
Share on such date, and the number of Stock Units shall be adjusted as and
when appropriate to reflect any stock dividend, stock split, reverse stock
split, exchange, conversion, or other event generally affecting the number
of Shares held by all holders of Shares; and
(ii) (A) except as provided in section 31(b)(ii)(B), the balance
credited to such bookkeeping account that does not consist of Stock Units
shall be credited with interest as of the last day of each calendar quarter
at the highest rate of interest credited on certificates of deposit issued
by the Bank during that calendar quarter; or
(B) if and to the extent permitted by the Committee, the balance
credited to such bookkeeping account that does not consist of Stock Units
shall be adjusted as though such Employer Contributions had been
contributed to a trust fund and
7
<PAGE>
invested, for the benefit of the Participant, in such investments at such
time or times as the Participant shall have designated in such form and
manner as the Committee shall prescribe;
provided, however, that to the extent that the Participant shall receive on a
current basis any dividend paid with respect to Shares credited to his account
under the ESOP, the bookkeeping account established for him under this Plan
shall not be adjusted to reflect such dividend and, instead, the Participant
shall be paid an amount per Stock Unit equal to the dividend per Share received
by the Participant under the ESOP, at substantially the same time as such
dividend is paid under the ESOP.
(c) The supplemental ESOP benefit payable to a Participant hereunder
shall be paid in a single lump sum as soon as practicable following the last day
of the calendar year in which the Participant's Termination of Service occurs
and shall be in an amount equal to the balance credited to his bookkeeping
account. Notwithstanding the foregoing, a Participant may, within 30 days after
first becoming eligible to participate in the Plan for purposes of receiving a
supplemental ESOP benefit, specify that such supplemental ESOP benefit be paid
in a different form or commencing at a different time by filing a written
election, in such form and manner as the Committee may prescribe, within such 30
day period.
Section 3.2 Restored ESOP Benefits.
-----------------------
(a) A Participant who satisfies section 2.1 shall be entitled,
upon his Termination of Service upon or after attaining normal retirement age or
being eligible for an early retirement benefit under the terms of the tax-
qualified defined benefit plan maintained by the Company or the Bank, to an
unfunded, unsecured promise from the Bank to receive an amount determined by:
(i) projecting the total number of Shares that would have been
allocated to the Participant's account under the terms of the ESOP had the
Participant continued in the employ of the Bank measured from the date the
Participant was first eligible to participate in the ESOP until the ESOP
loan was repaid in full and the final allocation of Shares acquired when
the ESOP loan was made; and then
(ii) reducing the number of Shares projected in section 3.2(a)(i)
above, by the actual number of Shares allocated to the Participant under
the terms of the ESOP as of the last day of the final plan year of the ESOP
in which the Participant was an active Participant for purposes of
allocations under the ESOP; and
(iii) multiplying the number of Shares determined in section
3.2(a)(ii) above by the average of the closing prices of such Shares at the
end of each fiscal quarter during the preceding twelve fiscal quarters
immediately preceding (or such fewer quarters as the Participant has been a
Participant) the Participant's retirement.
(b) The projection of Shares required by section 3.2(a)(i) above
shall be performed by a certified public accountant or legal counsel selected by
the Committee based on assumptions which the Committee has approved as
reasonable at the time the calculation of the benefit payable to the Participant
is performed.
8
<PAGE>
(c) The restored ESOP benefit payable to a Participant hereunder
shall be paid in a single lump sum as soon as practicable following the last day
of the calendar year in which the Participant's Termination of Service occurs
and shall be in an amount determined pursuant to section 3.2(a) above.
Notwithstanding the foregoing, a Participant may, within 30 days after first
becoming eligible to participate in the Plan for purposes of receiving a
restored ESOP benefit, specify that such restored ESOP benefit be paid in a
different form or commencing at a different time by filing a written election,
in such form and manner as the Committee may prescribe, within such 30-day
period.
Article IV
----------
Death Benefits
--------------
Section 4.1 Supplemental ESOP Death Benefits.
--------------------------------
If a Participant who is eligible for a supplemental ESOP benefit under
section 31 dies before the payment of such benefit begins, a supplemental ESOP
benefit shall be payable to the Participant's Beneficiary under this Plan in
amount equal to the balance credited to the bookkeeping account established for
the Participant under section 31(b). Such benefit shall be paid in a single lump
as soon as practicable following the death of the Participant, and the
bookkeeping account established for such Participant pursuant to section 31(b)
shall continue to be adjusted as provided therein through the last day of the
last calendar month to end prior to the date of payment.
Section 4.2 Restored ESOP Death Benefits.
----------------------------
If a Participant who is eligible for a restored ESOP benefit under
section 3.2 dies before the payment of such benefit begins, a restored ESOP
benefit shall be payable to the Participant's Beneficiary under this Plan in
amount determined pursuant to section 3.2(b). Such benefit shall be paid in a
single lump as soon as practicable following the death of the Participant.
Section 4.3 Beneficiaries.
-------------
A Participant or Former Participant may designate a Beneficiary or
Beneficiaries to receive any survivor benefits payable under the Plan upon his
or her death. Any such designation, or change therein or revocation thereof,
shall be made in writing in the form and manner prescribed by the Committee,
shall be revocable until the death of the Participant, and shall thereafter be
irrevocable; provided, however, that any change or revocation shall be effective
only if received by the Committee prior to the Participant's or Former
Participant's death. If a Participant or Former Participant shall die without
having effectively named a Beneficiary, he or she shall be deemed to have named
his or her estate as his sole Beneficiary. If a Participant or Former
Participant and his or her designated Beneficiary shall die in circumstances
which give rise to doubt as to which of them shall have been the first to die,
the Participant or Former Participant shall be deemed to have survived the
Beneficiary. If a Participant or Former Participant designates more than one
Beneficiary, all shall be deemed to have equal shares unless the Participant or
Former Participant shall expressly provide otherwise.
9
<PAGE>
Article V
---------
Trust Fund
----------
Section 5.1 Establishment Of Trust.
----------------------
The Company may establish a trust fund which may be used to accumulate
funds to satisfy benefit liabilities to Participants, Former Participants and
their Beneficiaries under the Plan; provided, however, that the assets of such
trust shall be subject to the claims of the creditors of the Company in the
event that it is determined that the Company is insolvent; and provided,
further, that the trust agreement shall contain such terms, conditions and
provisions as shall be necessary to cause the Company to be considered the owner
of the trust fund for federal, state or local income tax purposes with respect
to all amounts contributed to the trust fund or any income attributable to the
investments of the trust fund. The Company shall pay all costs and expenses
incurred in establishing and maintaining such trust. Any payments made to a
Participant, Former Participant or Beneficiary from a trust established under
this section 51 shall offset payments which would otherwise be payable by the
Company in the absence of the establishment of such trust. Any such trust will
conform to the terms of the model trust prescribed by Revenue Procedure 92-64,
as the same may be modified from time to time.
Section 5.2 Contributions To Trust.
----------------------
If a trust is established in accordance with section 51, the Company
shall make contributions to such trust in such amounts and at such times as may
be specified by the Committee or as may be required pursuant to the terms of the
agreement governing the establishment and operation of such trust.
Section 5.3 Unfunded Character Of Plan.
--------------------------
Notwithstanding the establishment of a trust pursuant to section 51,
the Plan shall be unfunded for purposes of the Code and ERISA. Any liability of
the Bank, the Company or another Participating Employer to any person with
respect to benefits payable under the Plan shall be based solely upon such
contractual obligations, if any, as shall be created by the Plan, and shall give
rise only to a claim against the general assets of the Bank, the Company or such
other Participating Employer. No such liability shall be deemed to be secured by
any pledge or any other encumbrance on any specific property of the Bank, the
Company or any other Participating Employer.
10
<PAGE>
Article VI
----------
Administration
--------------
Section 6.1 The Committee.
-------------
Except for the functions reserved to the Company or the Board, the
administration of the Plan shall be the responsibility of the Committee. The
Committee shall have the power and the duty to take all actions and to make all
decisions necessary or proper to carry out the Plan. The determination of the
Committee as to any question involving the general administration and
interpretation of the Plan shall be final, conclusive and binding. Any
discretionary actions to be taken under the Plan by the Committee shall be
uniform in their nature and applicable to all persons similarly situated.
Without limiting the generality of the foregoing, the Committee shall have the
following powers:
(a) to furnish to all Participants, upon request, copies of the Plan
and to require any person to furnish such information as it may request for
the purpose of the proper administration of the Plan as a condition to
receiving any benefits under the Plan;
(b) to make and enforce such rules and regulations and prescribe the
use of such forms as it shall deem necessary for the efficient
administration of the Plan;
(c) to interpret the Plan, and to resolve ambiguities, inconsistencies
and omissions, and the determinations of the Committee in respect thereof
shall be binding, final and conclusive upon all interested parties;
(d) to decide on questions concerning the Plan in accordance with the
provisions of the Plan;
(e) to determine the amount of benefits which shall be payable to any
person in accordance with the provisions of the Plan, to hear and decide
claims for benefits, and to provide a full and fair review to any
Participant whose claim for benefits has been denied in whole or in part;
(f) to designate a person, who may or may not be a member of the
Committee, as "plan administrator" for purposes of the ERISA;
(g) to allocate any such powers and duties to or among individuals of
the Committee; and
(h) the power to designate persons other than Committee members to
carry out any duty or power which would otherwise be a responsibility of
the Committee or Administrator, under the terms of the Plan.
11
<PAGE>
Section 6.2 Liability of Committee Members and Their Delegates.
--------------------------------------------------
To the extent permitted by law, the Committee and any person to whom
it may delegate any duty or power in connection with administering the Plan, the
Bank, the Company, any Participating Employer, and the officers and directors
thereof, shall be entitled to rely conclusively upon, and shall be fully
protected in any action taken or suffered by them in good faith in the reliance
upon, any actuary, counsel, accountant, other specialist, or other person
selected by the Committee, or in reliance upon any tables, valuations,
certificates, opinions or reports which shall be furnished by any of them.
Further, to the extent permitted by law, no member of the Committee, nor the
Bank, the Company, any Participating Employer, nor the officers or directors
thereof, shall be liable for any neglect, omission or wrongdoing of any other
members of the Committee, agent, officer or employee of the Bank, the Company or
any Participating Employer. Any person claiming benefits under the Plan shall
look solely to the Participating Employer for redress.
Section 6.3 Plan Expenses.
-------------
All expenses incurred prior to the termination of the Plan that shall
arise in connection with the administration of the Plan (including, but not
limited to administrative expenses, proper charges and disbursements,
compensation and other expenses and charges of any actuary, counsel, accountant,
specialist, or other person who shall be employed by the Committee in connection
with the administration of the Plan), shall be paid by the Company.
Section 6.4 Facility of Payment.
-------------------
If the Company is unable to make payment to any Participant, Former
Participant, Beneficiary, or any other person to whom a payment is due under the
Plan, because it cannot ascertain the identity or whereabouts of such
Participant, Former Participant, Beneficiary, or other person after reasonable
efforts have been made to identify or locate such person (including a notice of
the payment so due mailed to the last known address of such Participant, Former
Participant, Beneficiary, or other person shown on the records of the Employer),
such payment and all subsequent payments otherwise due to such Participant,
Former Participant, Beneficiary or other person shall be forfeited 24 months
after the date such payment first became due; provided, however, that such
payment and any subsequent payments shall be reinstated, retroactively, no later
than 60 days after the date on which the Participant, Former Participant,
Beneficiary, or other person is identified or located.
Article VII
-----------
Amendment and Termination
-------------------------
Section 7.1 Amendment by the Company.
------------------------
The Company reserves the right, in its sole and absolute discretion,
at any time and from to time, by action of the Board, to amend the Plan in whole
or in part. In no event, however,
12
<PAGE>
shall any such amendment adversely affect the right of any Participant, Former
Participant or Beneficiary to receive any benefits under the Plan in respect of
participation for any period ending on or before the later of the date on which
such amendment is adopted or the date on which it is made effective.
Section 7.2 Termination.
-----------
The Company also reserves the right, in its sole and absolute
discretion, by action of the Board, to terminate the Plan. In such event,
undistributed benefits attributable to participation prior to the date of
termination shall be distributed as though each Participant terminated
employment with the Bank, the Company and all other Participating Employers as
of the effective date of termination of the Plan.
Section 7.3 Amendment Or Termination By Other Employers.
-------------------------------------------
In the event that a corporation or trade or business other than the
Company shall adopt this Plan, such corporation or trade or business shall, by
adopting the Plan, empower the Company to amend or terminate the Plan, insofar
as it shall cover employees of such corporation or trade or business, upon the
terms and conditions set forth in sections 71 and 72; provided, however, that
any such corporation or trade or business may, by action of its board of
directors or other governing body, amend or terminate the Plan, insofar as it
shall cover employees of such corporation or trade or business, at different
times and in a different manner. In the event of any such amendment or
termination by action of the board of directors or other governing body of such
a corporation or trade or business, a separate plan shall be deemed to have been
established for the employees of such corporation or trade or business, and any
amounts set aside to provide for the satisfaction of benefit liabilities with
respect to employees of such corporation or trade or business shall be
segregated from the assets set aside for the purposes of this Plan at the
earliest practicable date and shall be dealt with in accordance with the
documents governing such separate plan.
Article VII
-----------
Miscellaneous Provisions
------------------------
Section 8.1 Construction And Language.
-------------------------
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
the masculine gender may be read as referring equally to the feminine gender or
the neuter. Any reference to an Article or section shall be to an Article or
section of the Plan, unless otherwise indicated. If there is any conflict
between such headings and the text of the Plan, the text shall control.
13
<PAGE>
Section 8.2 Headings.
--------
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Agreement, the text shall control.
Section 8.3 Non-Alienation of Benefits.
--------------------------
Except as may otherwise be required by law, no distribution or payment
under the Plan to any Participant, Former Participant or Beneficiary shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, whether voluntary or involuntary, and any attempt
to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge
the same shall be void; nor shall any such distribution or payment be in any way
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person entitled to such distribution or payment. If any Participant,
Former Participant or Beneficiary is adjudicated bankrupt or purports to
anticipate, alienate, sell, transfer, assign, pledge encumber or charge any such
distribution or payment, voluntarily or involuntarily, the Committee, in its
sole discretion, may cancel such distribution or payment or may hold or cause to
be held or applied such distribution or payment, or any part thereof, to or for
the benefit of such Participant, Former Participant or Beneficiary, in such
manner as the Committee shall direct; provided, however, that no such action by
the Committee shall cause the acceleration or deferral of any benefit payments
from the date on which such payments are scheduled to be made.
Section 8.4 Indemnification.
---------------
The Company shall indemnify, hold harmless and defend each
Participant, Former Participant and Beneficiary, against their reasonable costs,
including legal fees, incurred by them or arising out of any action, suit or
proceeding in which they may be involved, as a result of their efforts, in good
faith, to defend or enforce the obligations of the Bank, the Company and any
other Participating Employer under the terms of the Plan.
Section 8.5 Severability.
------------
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 8.6 Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of the Plan shall not be deemed a waiver of such term,
covenant or condition. A waiver of any provision of the Plan must be made in
writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
14
<PAGE>
Section 8.7 Governing Law.
-------------
The Plan shall be construed, administered and enforced according to
the laws of the Commonwealth of Massachusetts without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by federal law. Any payments made pursuant to this Plan are subject to
and conditioned upon their compliance with 12 U.S.C. (S) 1828(k) and any
regulations promulgated thereunder.
Section 8.8 Withholding.
-----------
Payments from this Plan shall be subject to all applicable federal,
state and local income withholding taxes.
Section 8.9 No Deposit Account.
------------------
Nothing in this Plan shall be held or construed to establish any
deposit account for any Participant or any deposit liability on the part of the
Bank. Participants' rights hereunder shall be equivalent to those of a general
unsecured creditor of each Employer.
Section 8.10 Rights of Employees.
-------------------
No Employee shall have any right or claim to any benefit under the
Plan except in accordance with the provisions of the Plan. The establishment of
the Plan shall not be construed as conferring upon any Employee or other person
any legal right to a continuation of employment or to any terms or conditions of
employment, nor as limiting or qualifying the right of a Participating Employer
to discharge any Employee.
Section 8.11 Status of Plan Under ERISA.
--------------------------
The Plan is intended to be (a) to the maximum extent permitted under
applicable laws, an unfunded, non-qualified excess benefit plan as contemplated
by section 3(36) of ERISA for the purpose of providing benefits in excess of the
limitations imposed under section 415 of the Code, and (b) to the extent not so
permitted, an unfunded, non-qualified plan maintained primarily for the purpose
of providing deferred compensation for highly compensated employees, as
contemplated by sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan is
not intended to comply with the requirements of section 401(a) of the Code or to
be subject to Parts 2, 3 and 4 of Title I of ERISA. The Plan shall be
administered and construed so as to effectuate this intent.
Section 8.12 Successors and Assigns.
----------------------
The provisions of the Plan will inure to the benefit of and be binding
upon the Participants and their respective legal representatives and testate or
intestate distributes, and each Participating Company and their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the assets and business of any Participating Company may be
sold or otherwise transferred.
15
<PAGE>
EXHIBIT 10.3
Employment Agreement
This Employment Agreement (the "Agreement") is made and entered into
as of November 1 , 1999 by and among Cambridgeport Bank, a savings bank
organized and operating under the laws of the Commonwealth of Massachusetts and
having an office at 689 Massachusetts Avenue, Cambridge, Massachusetts 02134
(the "Bank"), Port Financial Corp., a business corporation organized and
existing under the laws of the Commonwealth of Massachusetts and having an
office at 689 Massachusetts Avenue, Cambridge, Massachusetts 02134 (the
"Company") and James B. Keegan an individual residing at 60 Columbine Road,
Milton, MA 02186 (the "Executive").
Introductory Statement
The Bank is undergoing a reorganization through which the Bank will
become the wholly owned subsidiary of the Company, and the Company will sell
its outstanding common stock to the public in an initial public offering (the
"Reorganization"). The Executive has served the Bank in an executive capacity
for many years and is familiar with the Bank's operations.
The Board of Directors of the Bank and the Board of Directors of the
Company have concluded that it is in the best interests of the Bank, the Company
and their prospective shareholders to secure a continuity in management
following the Reorganization. They also consider it desirable to establish a
working environment for the Executive which minimizes the personal distractions
that might result from possible business combinations in which the Company or
the Bank might be involved. For these reasons, the Board of Directors of the
Bank and the Board of Directors of the Company have decided to offer to enter
into a contract with the Executive for his future services. The Executive has
accepted this offer.
The terms and conditions which the Bank, the Company and the Executive
have agreed to are as follows.
Agreement
Section 1. Employment.
----------
The Company and the Bank hereby continue to employ the Executive, and
the Executive hereby accepts such continued employment, during the period and
upon the terms and conditions set forth in this Agreement.
Section 2. Employment Period; Remaining Unexpired Employment
-------------------------------------------------
Period.
- ------
(a) The Company and the Bank shall employ the Executive during an
initial period of three (3) years beginning on November 1, 1999 (the "Employment
Commencement Date") and ending on the day before the third (3/rd/) anniversary
of the Employment Commencement Date, and during the period of any additional
extensions described in section 2(b) (the "Employment Period").
<PAGE>
(b) The Employment Period shall be subject to extension in the
following manner:
(i) For purposes of determining the rights and obligations of the
Executive and the Company with respect to each other, on the day after the
Employment Commencement Date and on each day thereafter, the Employment
Period shall be extended by one day, such that on any date the Employment
Period will expire on the day before the third (3/rd/) anniversary of such
date. These extensions shall continue in perpetuity until discontinued by:
(i) notice to the Executive given by the Company that it has elected to
discontinue the extensions; (ii) notice by the Executive to the Company
that he has elected to discontinue the extensions; or (iii) termination of
the Executive's employment with the Company, whether by resignation,
discharge or otherwise. On the date on which such a notice is deemed
given, or on the effective date of a termination of the Executive's
employment with the Company, the Employment Period shall be converted to a
fixed period of three (3) years ending on the day before the third (3/rd/)
anniversary of such date.
(ii) For purposes of determining the rights and obligations of the
Executive and the Bank with respect to each other, the Board of Directors
of the Bank shall conduct an annual review of the Executive's performance
on or about each anniversary of the Employment Commencement Date (each, an
"Anniversary Date") and may, on the basis of such review and by written
notice to the Executive, offer to extend the Employment Period through the
day before the third (3/rd/) anniversary of the relevant Anniversary Date.
In such event, the Employment Period shall be deemed extended in the
absence of objection from the Executive by written notice to Bank given
within ten (10) business days after his receipt of the Bank's offer of
extension.
(c) Except as otherwise expressly provided in this Agreement, any
reference in this Agreement to the term "Remaining Unexpired Employment Period"
as of any date shall mean (i) for purposes of determining the rights and
obligations of the Company and the Executive to each other, the period beginning
on such date and ending on the day before the third (3/rd/) anniversary of the
earliest of the date in question, any earlier date on which the Executive or the
Company is deemed to have given a notice to discontinue extensions of the
Employment Period, and any earlier date on which the Executive's employment with
the Company was terminated; and (ii) for purposes of determining the rights and
obligations of the Bank and the Executive to each other, the period beginning on
such date and ending on the day before the third (3/rd/) anniversary of the
Employment Commencement Date or, if later, on the day before the third (3/rd/)
anniversary of the last Anniversary Date as of which the Employment Period was
extended pursuant to section 2(b)(ii).
(d) Nothing in this Agreement shall be deemed to prohibit the Company
or the Bank from terminating the Executive's employment before the end of the
Employment Period with or without notice for any reason. This Agreement shall
determine the relative rights and obligations of the Bank, the Company and the
Executive in the event of any such termination. In addition, nothing in this
Agreement shall require the termination of the Executive's employment at the
expiration of the Employment Period. Any continuation of the Executive's
employment beyond the expiration of the Employment Period shall be on an "at-
will" basis unless the Bank, the Company and the Executive agree otherwise.
-2-
<PAGE>
Section 3. Duties.
------
The Executive shall serve as Chief Executive Officer and President of
the Company and as Chief Executive Officer and President of the Bank, having
such power, authority and responsibility and performing such duties as are
prescribed by or under their respective By-Laws and as are customarily
associated with such positions. Subject to section 7 of this Agreement, the
Executive shall devote his full business time and attention (other than during
weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Bank and the
Company and shall use his best efforts to advance their respective best
interests.
Section 4. Cash Compensation.
-----------------
In consideration for the services to be rendered by the Executive
hereunder, the Bank and the Company shall pay to him a salary at an initial
annual rate of Three Hundred and Seventy-five Thousand Dollars ($375,000),
payable in approximately equal installments in accordance with their respective
customary payroll practices for senior officers. The Bank's and the Company's
respective Boards of Directors shall review the Executive's annual rate of
salary at such times during the Employment Period as they deem appropriate, but
not less frequently than once every twelve (12) months, and may, in their
discretion, approve a salary increase. In addition to salary, the Executive may
receive other cash compensation from the Company or the Bank for services
hereunder at such times, in such amounts and on such terms and conditions as the
Boards of Directors of the Bank and the Company may determine. If the Executive
is discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Bank, he shall
continue to perform services for the Company in accordance with this Agreement
but shall not directly or indirectly provide services to or participate in the
affairs of the Bank in a manner inconsistent with the terms of such discharge or
suspension or any applicable regulatory order.
Section 5. Employee Benefit Plans and Programs.
-----------------------------------
During the Employment Period, the Executive shall be treated as an
employee of the Company and the Bank and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Company and the Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Company's and the Bank's customary practices. Such plans
shall include, but not be limited to, the 1999 Non-Qualified Pension Plan for
Executive Officers.
Section 6. Indemnification and Insurance.
-----------------------------
(a) During the Employment Period and for a period of six years
thereafter, the Company and the Bank shall cause the Executive to be covered by
and named as an insured under any
-3-
<PAGE>
policy or contract of insurance obtained by them to insure their directors and
officers against personal liability for acts or omissions in connection with
service as an officer or director of the Company or the Bank or service in other
capacities at their request. The coverage provided to the Executive pursuant to
this section 6 shall be of the same scope and on the same terms and conditions
as the coverage (if any) provided to other officers or directors of the Company
and the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company and the
Bank shall indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company and the Bank or any subsidiary or affiliate
thereof.
Section 7. Outside Activities.
------------------
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Boards of Directors of the Company and the Bank (which
approval shall not be unreasonably withheld); provided, however, that such
service shall not materially interfere with the performance of his duties under
this Agreement. The Executive may also engage in personal business and
investment activities which do not materially interfere with the performance of
his duties hereunder; provided, however, that such activities are not prohibited
under any code of conduct or investment or securities trading policy established
by the Company or the Bank and generally applicable to all similarly situated
executives .
Section 8. Working Facilities and Expenses.
-------------------------------
The Executive's principal place of employment shall be at the Bank's
executive offices at the address first above written, or at such other location
as the Bank, the Company and the Executive may mutually agree upon. The Bank and
the Company shall provide the Executive at his principal place of employment
with a private office, secretarial services and other support services and
facilities suitable to his positions with the Company and the Bank and necessary
or appropriate in connection with the performance of his assigned duties under
this Agreement. The Company shall provide to the Executive for his exclusive use
an automobile owned or leased by the Company and appropriate to his position, to
be used in the performance of his duties hereunder, including commuting to and
from his personal residence. The Bank or the Company shall reimburse the
Executive for his ordinary and necessary business expenses, including, without
limitation, all expenses associated with his business use of the aforementioned
automobile, fees for memberships in such clubs and organizations as the
Executive, the Company and the Bank shall mutually agree are necessary and
appropriate for business purposes, and his travel and entertainment expenses
incurred in connection with the performance of his duties under this Agreement,
in each case upon presentation to the payer of an itemized account of such
expenses in such form as the payer may reasonably require.
-4-
<PAGE>
Section 9. Termination Due to Death.
------------------------
The Executive's employment with the Bank and the Company shall
terminate, automatically and without any further action on the part of any party
to this Agreement, on the date of the Executive's death. In such event:
(a) The Bank and the Company shall pay to the Executive's estate his
earned but unpaid compensation (including, without limitation, salary and
all other items which constitute wages under applicable law) as of the date
of his termination of employment. This payment shall be made at the time
and in the manner prescribed by law applicable to the payment of wages but
in no event later than thirty (30) days after the date of the Executive's
termination of employment.
(b) The Company and the Bank shall provide the benefits, if any, due
to the Executive's estate, surviving dependents or his designated
beneficiaries under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the officers
and employees of the Company and the Bank. The time and manner of payment
or other delivery of these benefits and the recipients of such benefits
shall be determined according to the terms and conditions of the applicable
plans and programs.
The payments and benefits described in sections 9(a) and (b) shall be referred
to in this Agreement as the "Standard Termination Entitlements."
Section 10. Termination Due to Disability.
-----------------------------
The Bank and the Company may terminate the Executive's employment upon
a determination, by separate votes of a majority of the members of the Boards of
Directors of the Company and the Bank, acting in reliance on the written advice
of a medical professional acceptable to them, that the Executive is suffering
from a physical or mental impairment which, at the date of the determination,
has prevented the Executive from performing his assigned duties on a
substantially full-time basis for a period of at least one hundred and eighty
(180) days during the period of one (1) year ending with the date of the
determination or is likely to result in death or prevent the Executive from
performing his assigned duties on a substantially full-time basis for a period
of at least one hundred and eighty (180) days during the period of one (1) year
beginning with the date of the determination. In such event:
(a) The Bank and the Company shall pay and deliver to the Executive
(or in the event of his death before payment, to his estate and surviving
dependents and beneficiaries, as applicable) the Standard Termination
Entitlements.
(b) In addition to the Standard Termination Entitlements, the Bank and
the Company shall continue to pay the Executive his base salary, at the
annual rate in effect for him immediately prior to the termination of his
employment, during a period ending on the earliest of: (i) the expiration
of one hundred and eighty (180) days after the date of termination of his
employment; (ii) the date on which long-term disability
-5-
<PAGE>
insurance benefits are first payable to him under any long-term disability
insurance plan covering employees of the Bank or the Company (the "LTD
Eligibility Date"); (iii) the date of his death; and (iv) the expiration of
the Remaining Unexpired Employment Period (the "Initial Continuation
Period"). If the end of the Initial Continuation Period is neither the LTD
Eligibility Date nor the date of his death, the Company and the Bank shall
continue to pay the Executive his base salary, at an annual rate equal to
sixty percent (60%) of the annual rate in effect for him immediately prior
to the termination of his employment, during an additional period ending on
the earliest of the LTD Eligibility Date, the date of his death and the
expiration of the Remaining Unexpired Employment Period.
A termination of employment due to disability under this section 10 shall be
effected by joint notice of termination given to the Executive by the Company
and the Bank and shall take effect on the later of the effective date of
termination specified in such notice or the date on which the notice of
termination is deemed given to the Executive.
Section 11. Discharge with Cause.
--------------------
(a) The Bank and the Company may terminate the Executive's
employment during the Employment Period, and such termination shall be deemed to
have occurred with "Cause", only if:
(i) the Board of Directors of the Bank and the Board of Directors
of the Company, by separate majority votes of their entire membership,
determine that the Executive (A) has willfully and intentionally failed to
perform his assigned duties under this Agreement in any material respect
(including, for these purposes, the Executive's inability to perform such
duties as a result of drug or alcohol dependency); (B) has willfully and
intentionally engaged in dishonest or illegal conduct in connection with
his performance of services for the Company or the Bank or has been
convicted of a felony; (C) has willfully violated, in any material respect,
any law, rule, regulation, written agreement or final cease-and-desist
order with respect to his performance of services for the Company or the
Bank; or (D) has willfully and intentionally breached the material terms of
this Agreement in any material respect; and
(ii) at least forty-five (45) days prior to the votes contemplated
by section 11(a)(i), the Bank and the Company have provided the Executive
with notice of their intent to discharge the Executive for Cause, detailing
with particularity the facts and circumstances which are alleged to
constitute Cause (the "Notice of Intent to Discharge"); and
(iii) after the giving of the Notice of Intent to Discharge and
before the taking of the votes contemplated by section 11(a)(i), the
Executive (together with his legal counsel, if he so desires) is afforded a
reasonable opportunity to make both written and oral presentations before
the Boards of Directors of the Company and the Bank for the purpose of
refuting the alleged grounds for Cause for his discharge; and
-6-
<PAGE>
(iv) after the votes contemplated by section 11(a)(i), the Company
and the Bank have furnished to the Executive a notice of termination which
shall specify the effective date of his termination of employment (which
shall in no event be earlier than the date on which such notice is deemed
given) and include a copy of a resolution or resolutions adopted by the
Board of Directors of the Bank and the Board of Directors of the Company,
certified by their corporate secretaries and signed by each member of their
respective Board of Directors voting in favor of adoption of the
resolution(s), authorizing the termination of the Executive's employment
with Cause and stating with particularity the facts and circumstances found
to constitute Cause for his discharge (the "Final Discharge Notice").
For purposes of this section 11, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company and the
Bank. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board and the Bank Board or based upon the
written advice of counsel for the Company or the Bank shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company and the Bank.
(b) If the Executive is discharged during the Employment Period with
Cause, the Company and the Bank shall pay and provide to him (or, in the event
of his death, to his estate, his surviving beneficiaries and his dependents) the
Standard Termination Entitlements only. Following the giving of a Notice of
Intent to Discharge, the Bank and the Company may temporarily suspend the
Executive's duties and authority and, in such event, may also suspend the
payment of salary and other cash compensation, but not the Executive's
participation in retirement, insurance and other employee benefit plans. If the
Executive is not discharged, or is discharged without Cause, within forty-five
(45) days after the giving of a Notice of Intent to Discharge, payments of
salary and cash compensation shall resume, and all payments withheld during the
period of suspension shall be promptly restored. If the Executive is discharged
with Cause not later than forty-five (45) days after the giving of the Notice of
Intent to Discharge, all payments withheld during the period of suspension shall
be deemed forfeited and shall not be included in the Standard Termination
Entitlements. If a Final Discharge Notice is given later than forty-five (45)
days, but sooner than ninety (90) days, after the giving of the Notice of Intent
to Discharge, all payments made to the Executive during the period beginning
with the giving of the Notice of Intent to Discharge and ending with the
Executive's discharge with Cause shall be retained by the Executive and shall
not be applied to offset the Standard Termination Entitlements. If the Bank and
the Company do not give a Final Discharge Notice to the Executive within ninety
(90) days after giving a Notice of Intent to Discharge, the Notice of Intent to
Discharge shall be deemed withdrawn and any future action to discharge the
Executive with Cause shall require the giving of a new Notice of Intent to
Discharge.
Section 12. Discharge without Cause.
-----------------------
The Bank and the Company may discharge the Executive at any time
during the Employment Period and, unless such discharge constitutes a discharge
with Cause:
-7-
<PAGE>
(a) The Bank and the Company shall pay and deliver to the Executive
(or in the event of his death before payment, to his estate and surviving
dependents and beneficiaries, as applicable) the Standard Termination
Entitlements.
(b) In addition to the Standard Termination Entitlements:
(i) During the Remaining Unexpired Employment Period, the Bank
and the Company shall provide for the Executive and his dependents
continued group life, health (including hospitalization, medical and
major medical), dental, accident and long-term disability insurance
benefits on substantially the same terms and conditions (including any
required premium-sharing arrangements, co-payments and deductibles) in
effect for them immediately prior to the Executive's termination. The
coverage provided under this section 12(b)(i) may, at the election of
the Bank and the Company, be secondary to the coverage provided as
part of the Standard Termination Entitlements and to any employer-paid
coverage provided by a subsequent employer or through Medicare, with
the result that benefits under the other coverages will offset the
coverage required by this section 12(b)(i).
(ii) The Bank and the Company shall make a lump sum payment to
the Executive (or, in the event of his death before payment, to his
estate), in an amount equal to the estimated present value of the
salary that the Executive would have earned if he had continued
working for the Company and the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the period of three (3) years ending immediately prior to the date of
termination (the "Salary Severance Payment"). The Salary Severance
Payment shall be computed using the following formula:
(BS/PR)
SSP=(the sum of) /n/ [-------------------------]
\\1\\ [1 + (I/PR)]/n/
where "SSP" is the amount of the Salary Severance Payment (before the
deduction of applicable federal, state and local withholding taxes);
"BS" is the highest annual rate of salary achieved by the Executive
during the period of three (3) years ending immediately prior to the
date of termination; "PR" is the number of payroll periods that occur
during a year under the Company's and the Bank's normal payroll
practices; "I" equals the applicable federal short term rate
established under section 1274 of the Internal Revenue Code of 1986
(the "Code") for the month in which the Executive's termination of
employment occurs (the "Short Term AFR") and "n" equals the product of
the Remaining Unexpired Employment Period at the Executive's
termination of employment (expressed in years and fractions of years)
multiplied by the number of payroll periods that occur during a year
under the Company's and
-8-
<PAGE>
the Bank's normal payroll practices. The Salary Severance Payment
shall be made within five (5) business days after the Executive's
termination of employment and shall be in lieu of any claim to a
continuation of base salary which the Executive might otherwise have
and in lieu of cash severance benefits under any severance benefits
program which may be in effect for officers or employees of the Bank
or the Company.
(iii) The Bank and the Company shall make a lump sum payment to
the Executive (or, in the event of his death before payment, to his
estate), in an amount equal to the estimated present value of the
annual bonuses that the Executive would have earned if he had
continued working for the Company and the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during the period of three (3) years ending immediately prior
to the date of termination (the "Bonus Severance Payment"). The Bonus
Severance Payment shall be computed using the following formula:
BSP = SSP x (ABP / ASP)
where "BSP" is the amount of the Bonus Severance Payment (before the
deduction of applicable federal, state and local withholding taxes);
"SSP" is the amount of the Salary Severance Payment (before the
deduction of applicable federal, state and local withholding taxes);
"ABP" is the aggregate of the annual bonuses paid or declared (whether
or not paid) for the most recent period of three (3) calendar years to
end on or before the Executive's termination of employment; and "ASP"
is the aggregate base salary actually paid to the Executive during
such period of three (3) calendar years (excluding any year for which
no bonus was declared or paid). The Bonus Severance Payment shall be
made within five (5) business days after the Executive's termination
of employment and shall be in lieu of any claim to a continuation of
participation in annual bonus plans of the Bank or the Company which
the Executive might otherwise have.
(iv) The Bank and the Company shall make a lump sum payment to
the Executive (or, in the event of his death before payment, to his
estate), in an amount equal to the estimated present value of the
long-term incentive bonuses that the Executive would have earned if he
had continued working for the Company and the Bank during the
Remaining Unexpired Employment
-9-
<PAGE>
Period (the "Incentive Severance Payment"). The Incentive Severance
Payment shall be computed using the following formula:
ISP = (SSP / RUP) x (ALTIP / ALTSP) x Y
where "ISP" is the amount of the Incentive Severance Payment (before
the deduction of applicable federal, state and local withholding
taxes); "SSP" is the amount of the Salary Severance Payment (before
the deduction of applicable federal, state and local withholding
taxes); "ALTIP" is the aggregate of the most recently paid or declared
(whether or not paid) long-term incentive compensation payments (but
not more than three (3) such payments) for performance periods that
end on or before the Executive's termination of employment; "ALTSP" is
the aggregate base salary actually paid to the Executive during the
performance periods covered by the payments included in "ALTIP" and
excluding base salary paid for any period for which no long-term
incentive compensation payment was declared or paid; "RUP" is the
Remaining Unexpired Employment Period, expressed in years and
fractions of years; and "Y" is the aggregate (expressed in years and
fractions of years) of the Remaining Unexpired Employment Period plus
the number of years and fraction of years that have elapsed since the
end of the last performance period for which a long-term incentive
payment has been declared and paid. The Incentive Severance Payment
shall be made within five (5) business days after the Executive's
termination of employment and shall be in lieu of any claim to a
continuation of participation in cash long-term incentive compensation
plans of the Bank or the Company which the Executive might otherwise
have.
(v) The Company and the Bank shall pay to the Executive (or in
the event of his death before payment, to his estate), a lump sum
payment in an amount equal to the excess (if any) of: (A) the present
value of the aggregate benefits to which he would be entitled under
any and all tax-qualified and non-tax-qualified defined benefit plans,
including but not limited to the 1999 Non-Qualified Pension Plan for
Executive Officers, maintained by, or covering employees of, the
Company or the Bank (the "Pension Plans") if he had continued working
for the Company and the Bank during the Remaining Unexpired Employment
Period; over (B) the present value of the benefits to which the
Executive and his spouse and/or designated beneficiaries
-10-
<PAGE>
are actually entitled under such plans (the "Pension Severance
Payment"). The Pension Severance Payment shall be computed according
to the following formula:
PSP = PPB - APB
where "PSP" is the amount of the Pension Severance Payment (before
deductions for applicable federal, state and local withholding taxes);
"APB" is the aggregate lump sum present value of the actual vested
pension benefits payable under the Pension Plans in the form of a
straight life annuity beginning at the earliest date permitted under
the Pension Plans, computed on the basis of the Executive's life
expectancy at the earliest date on which payments under the Pension
Plans could begin, determined by reference to Table VI of section
1.72-9 of the Income Tax Regulations (the "Assumed Life Expectancy"),
and on the basis of an interest rate assumption equal to the average
bond-equivalent yield on United States Treasury Securities with a
Constant Maturity of 30 Years for the month prior to the month in
which the Executive's termination of employment occurs (the "30-Year
Treasury Rate"); and "PPB" is the lump sum present value of the
pension benefits (whether or not vested) that would be payable under
the Pension Plans in the form of a straight life annuity beginning at
the earliest date permitted under the Pension Plans, computed on the
basis that the Executive's actual age at termination of employment is
his attained age as of his last birthday that would occur during the
Remaining Unexpired Employment Period, that his service for benefit
accrual purposes under the Pension Plans is equal to the aggregate of
his actual service plus the Remaining Unexpired Employment Period,
that his average compensation figure used in determining his accrued
benefit is equal to the highest annual rate of salary achieved by the
Executive during the period of three (3) years ending immediately
prior to the date of termination, that the Executive's life expectancy
at the earliest date on which payments under the Pension Plans could
begin is the Assumed Life Expectancy and that the interest rate
assumption used is equal to the 30-Year Treasury Rate. The Pension
Severance Payment shall be made within five (5) business days after
the Executive's termination of employment and shall be in lieu of any
claim to any actual increase in his accrued benefit in the Pension
Plans in respect of the Remaining Unexpired Employment Period.
(vi) The Company and the Bank shall pay to the Executive (or in
the event of his death, to his estate) a lump sum payment in an amount
equal to the present value of the additional employer contributions
that would have been credited directly to his account(s) under any and
all tax-qualified and non-tax-qualified defined contribution plans,
including but not limited to the Officers' Deferred Compensation Plan,
maintained by, or covering employees of, the Bank and the Company (the
"Non-ESOP DC Plans"), plus the fair market value of the additional
shares of employer securities or other property
-11-
<PAGE>
that would have been allocated to his account as a result of employer
contributions or dividends under any tax-qualified leveraged employee
stock ownership plan and any related non-tax-qualified supplemental
plan, including but not limited to the ESOP Restoration Plan,
maintained by, or covering employees of, the Bank and the Company (the
"ESOP Plans") if he had continued in employment during the Remaining
Unexpired Employment Period (the "Defined Contribution Severance
Payment"). The Defined Contribution Severance Payment shall be
computed according to the following formula:
DCSP = [SSP x (EC / BS)] + [(STK + PROP) x Y]
where: "DCSP" is the amount of the Defined Contribution Severance
Payment (before deductions for applicable federal, state and local
withholding taxes); "SSP" is the amount of the Salary Severance
Payment (before deductions for applicable federal, state and local
withholding taxes); "EC" is the amount of employer contributions
actually credited to the Executive's accounts under the Non-ESOP Plans
for the last plan year to end before his termination of employment;
"BS" is the Executive's compensation taken into account in computing
EC; "Y" is the aggregate (expressed in years and fractions of years)
of the Remaining Unexpired Employment Period and the number of years
and fractions of years that have elapsed between the end of plan year
for which EC was computed and the date of the Executive's termination
of employment; "STK" is the fair market value (determined on the basis
of the mid-point of the highest and lowest reported sales price for a
share of stock of the same class during the 30-day period ending on
the day of the Executive's termination of employment (the "Fair Market
Value of a Share")) of the employer securities actually allocated to
the Executive's accounts under the ESOP Plans in respect of employer
contributions and dividends applied to loan amortization payments for
the last plan year to end before his termination of employment; and
"PROP" is the fair market value (determined as of the day before the
Executive's termination of employment using the same valuation
methodology used to value the assets of the ESOP Plans) of the
property other than employer securities actually allocated to the
Executive's accounts under the ESOP Plans in respect of employer
contributions and dividends applied to loan amortization payments for
the last plan year to end before his termination of employment.
(vii) At the election of the Company made within 30 days
following the Executive's termination of employment, upon the
surrender of options or appreciation rights issued to the Executive
under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Company or the Bank, a
lump sum payment in an amount equal to the product of:
-12-
<PAGE>
(A) the excess of (I) the Fair Market Value of a Share, over
(II) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For the purpose of computing this payment, the Executive shall be
deemed fully vested in all options and appreciation rights under any
stock option or appreciation rights plan or program maintained by, or
covering employees of, the Company or the Bank, even if he is not
vested under such plan or program.
(viii) At the election of the Company made within 30 days
following the Executive's termination of employment, upon the
surrender of any shares awarded to the Executive under any restricted
stock plan maintained by, or covering employees of, the Company or the
Bank, the Company and the Bank shall make a lump sum payment in an
amount equal to the product of:
(A) the Fair Market Value of a Share granted under such
plan; multiplied by
(B) the number of shares which are being surrendered.
For purposes of computing this payment, the Executive shall be deemed
fully vested in all shares awarded under any restricted stock plan
maintained by, or covering employees of, the Company or the Bank, even
if he is not vested under such plan.
(ix) Within the 60-day period following Executive's
termination of employment, Executive shall have the right to purchase,
in cash, the automobile provided to Executive by the Company or the
Bank for use during Executive's employment at a price equal to the
wholesale value of such automobile as reported in the most recently
published version of the Kelley Blue Book or such similar publication
as mutually agreed to by Executive and the Bank or Company. In the
event that the automobile used by Executive is leased by the Company
or the Bank and Executive elects to purchase the automobile under this
provision, the Bank or the Company shall arrange to purchase the
automobile from the lessor for immediate resale to Executive at a like
price.
The payments and benefits described in section 12(b) are referred to in this
Agreement as the "Additional Termination Entitlements".
-13-
<PAGE>
Section 13. Resignation.
-----------
(a) The Executive may resign from his employment with the Bank and the
Company at any time. A resignation under this section 13 shall be effected by
notice of resignation given by the Executive to the Company and the Bank and
shall take effect on the later of the effective date of termination specified in
such notice or the date on which the notice of termination is deemed given by
the Executive; provided, however, that in the case of resignation other than for
Good Reason (as defined below) the effective date shall be no earlier than six
months after the giving of the notice of termination, unless the Executive, the
Bank and the Company agree otherwise. The Executive's resignation of any of the
positions within the Bank or the Company to which he has been assigned shall be
deemed a resignation from all such positions.
(b) The Executive's resignation shall be deemed to be for "Good
Reason" if the effective date of resignation occurs within ninety (90) days
after any of the following:
(i) the failure of the Company or the Bank (whether by act or
omission of their respective Boards of Directors, or otherwise) to appoint
or re-appoint or elect or re-elect the Executive to the position(s) with
the Company and the Bank, specified in section 3 of this Agreement or to a
more senior office;
(ii) if the Executive is or becomes a member of the Board of
Directors of the Company or the Bank, the failure of their respective
shareholders (whether in an election in which the Executive stands as a
nominee or in an election where the Executive is not a nominee) to elect or
re-elect the Executive to membership at the expiration of his term of
membership, unless such failure is a result of the Executive's refusal to
stand for election;
(iii) a material failure by the Company or the Bank, whether by
amendment of their respective certificates of incorporation or
organization, by-laws, action of their respective Boards of Directors or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement; provided that
the Executive shall have given notice of such failure to the Company and
the Bank, and the Company or the Bank have not fully cured such failure
within thirty (30) days after such notice is deemed given;
(iv) any reduction of the Executive's rate of base salary in effect
from time to time, whether or not material, or any failure (other than due
to reasonable administrative error that is cured promptly upon notice) to
pay any portion of the Executive's compensation as and when due;
(v) any change in the terms and conditions of any compensation or
benefit program in which the Executive participates which, either
individually or together with other changes, has a material adverse effect
on the aggregate value of his total compensation package; provided that the
Executive shall have given notice of such material adverse effect to the
Company and the Bank, and the Company or the Bank
-14-
<PAGE>
has not fully cured such failure within thirty (30) days after such notice
is deemed given;
(vi) any material breach by the Company or the Bank of any material
term, condition or covenant contained in this Agreement; provided that the
Executive shall have given notice of such material adverse effect to the
Company and the Bank, and the Company or the Bank have not fully cured such
failure within thirty (30) days after such notice is deemed given; or
(vii) a change in the Executive's principal place of employment to a
place that is not the principal executive office of the Bank, or a
relocation of the Bank's principal executive office to a location that is
both more than twenty-five (25) miles away from the Executive's principal
residence and more than twenty-five (25) miles away from the location of
the Bank's principal executive office on the date of this Agreement.
In all other cases, a resignation by the Executive shall be deemed to be without
Good Reason.
(c) In the event of the Executive's resignation before the
expiration of the Employment Period, the Company and the Bank shall pay and
deliver the Standard Termination Entitlements. In addition, if the Executive's
resignation is deemed to be a resignation with Good Reason, the Company and the
Bank shall also pay and deliver the Additional Termination Entitlements.
Section 14. Terms and Conditions of the Additional Termination
Entitlements.
--------------------------------------------------
The Company, the Bank and the Executive hereby stipulate that the
damages which may be incurred by the Executive following any termination of
employment are not capable of accurate measurement as of the date first above
written and that the Additional Termination Entitlements constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company, the Bank and the Executive further agree that
the Company and the Bank may condition the payment and delivery of the
Additional Termination Entitlements on the receipt of the Executive's
resignation from any and all positions which he holds as an officer, director or
committee member with respect to the Company, the Bank or any subsidiary or
affiliate of either of them.
Section 15. Termination Upon or Following a Change of Control.
-------------------------------------------------
(a) A "Change of Control" shall be deemed to have occurred upon the
happening of any of the following events:
(i) the consummation of a reorganization, merger or consolidation
of the Company with one or more other persons, other than a transaction
following which:
-15-
<PAGE>
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended ("Exchange Act")) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the outstanding equity ownership
interests in the Company; and
(B) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Company entitled to vote generally in the election of
directors by any person or by any persons acting in concert;
(iii) a complete liquidation or dissolution of the Company;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of the Company
do not belong to any of the following groups:
(A) individuals who were members of the Board of Directors of the
Company on the date of this Agreement; or
(B) individuals who first became members of the Board of
Directors of the Company after the date of this Agreement either:
(1) upon election to serve as a member of the Board of
Directors of the Company by affirmative vote of three-quarters of
the members of such board, or of a nominating committee thereof,
in office at the time of such first election; or
(2) upon election by the shareholders of the Board of
Directors of the Company to serve as a member of such board, but
only if nominated for election by affirmative vote of three-
quarters of the members of the Board of Directors of the Company,
or of a nominating committee thereof, in office at the time of
such first nomination;
-16-
<PAGE>
provided, however, that such individual's election or nomination
did not result from an actual or threatened election contest
(within the meaning of Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened
solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
other than by or on behalf of the Board of Directors of the
Company; or
(v) any event which would be described in section 15(a)(i), (ii),
(iii) or (iv) if the term "Bank" were substituted for the term
"Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred
as a result of any acquisition of securities or assets of the Company, the
Bank, or a subsidiary of either of them, by the Company, the Bank, or any
subsidiary of either of them, or by any employee benefit plan maintained by
any of them. For purposes of this section 15(a), the term "person" shall
have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
(b) For purposes of this Agreement, a "Pending Change of Control"
shall mean: (i) the signing of a definitive agreement for a transaction
which, if consummated, would result in a Change of Control; (ii) the
commencement of a tender offer which, if successful, would result in a
Change of Control; or (iii) the circulation of a proxy statement seeking
proxies in opposition to management in an election contest which, if
successful, would result in a Change of Control.
(c) Notwithstanding anything in this Agreement to the contrary,
if the Executive's employment with the Bank and the Company terminates due
to death or disability within one (1) year after the occurrence of a
Pending Change of Control and if a Change of Control occurs within two (2)
years after such termination of employment, he (or in the event of his
death, his estate) shall be entitled to receive the Standard Termination
Entitlements and the Additional Termination Entitlements that would have
been payable if a Change of Control had occurred on the date of his
termination of employment and he had resigned with Good Reason immediately
thereafter; provided, that payment shall be deferred without interest
until, and shall be payable immediately upon, the actual occurrence of a
Change of Control.
(d) Notwithstanding anything in this Agreement to the contrary:
(i) in the event of the Executive's resignation within sixty (60) days
after the occurrence of a Change of Control, he shall be entitled to
receive the Standard Termination Entitlements and Additional Termination
Entitlements that would be payable if his resignation were a resignation
for Good Reason, without regard to the actual circumstances of his
resignation; and (ii) for a period of one (1) year after the occurrence of
a Change of Control, no discharge of the Executive shall be deemed a
discharge with Cause unless the votes contemplated by section 11(a) of this
Agreement are supported by at least two-thirds of the members of the Board
of Directors of the Company and the Bank at the time the vote is taken who
were also members of the Board of Directors of the Company and the Bank
immediately prior to the Change of Control.
-17-
<PAGE>
(e) Notwithstanding anything in this Agreement to the contrary,
for purposes of computing the Additional Termination Entitlements due upon
a termination of employment that occurs, or is deemed to have occurred,
after a Change of Control, the Remaining Unexpired Employment Period shall
be deemed to be three (3) full years.
Section 16. Other Termination.
-----------------
If the Executive's employment with the Bank or the Company
continues beyond the expiration of the Employment Period, neither the
Company nor the Bank shall, following the expiration of the Employment
Period, discharge the Executive for any reason other than Cause without
giving the Executive, at the option of the Company or the Bank, either: (a)
at least one year's advance notice of such termination; (b) a severance
payment equal to one year's base salary at the annual rate in effective
immediately prior to the giving of such notice, or (c) a combination of
advance notice and a pro-rated severance payment for a period totaling at
least one year.
Section 17. Tax Indemnification.
-------------------
(a) If the Executive's employment terminates under circumstances
entitling him (or in the event of his death, his estate) to the Additional
Termination Entitlements, the Company shall pay to the Executive (or in the
event of his death, his estate) an additional amount intended to indemnify
him against the financial effects of the excise tax imposed on excess
parachute payments under section 280G of the Code (the "Tax Indemnity
Payment"). The Tax Indemnity Payment shall be determined under the
following formula:
X = E x P
--------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the percentage rate at which an 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 16;
FI = the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax applicable to the
Executive under the Code for the taxable year in question.
-18-
<PAGE>
Such computation shall be made at the expense of the Company by an attorney
or a firm of independent certified public accountants selected by the
Executive and reasonably satisfactory to the Company (the "Tax Advisor")
and shall be based on the following assumptions: (i) that a change in
ownership, a change in effective ownership or control, or a change in the
ownership of a substantial portion of the assets, of the Bank or the
Company has occurred within the meaning of section 280G of the Code (a
"280G Change of Control"); (ii) that all direct or indirect payments made
to or benefits conferred upon the Executive on account of his termination
of employment are "parachute payments" within the meaning of section 280G
of the Code; and (iii) that no portion of such payments is reasonable
compensation for services rendered prior to the Executive's termination of
employment.
(b) With respect to any payment that is presumed to be a
parachute payment for purposes of section 280G of the Code, the Tax
Indemnity Payment shall be made to the Executive on the earlier of the date
the Company, the Bank or any direct or indirect subsidiary or affiliate of
the Company or the Bank is required to withhold such tax or the date the
tax is required to be paid by the Executive, unless, prior to such date,
the Company delivers to the Executive the written opinion, in form and
substance reasonably satisfactory to the Executive, of the Tax Advisor or
of an attorney or firm of independent certified public accountants selected
by the Company and reasonably satisfactory to the Executive, to the effect
that the Executive has a reasonable basis on which to conclude that (i) no
280G Change in Control has occurred, or (ii) all or part of the payment or
benefit in question is not a parachute payment for purposes of section 280G
of the Code, or (iii) all or a part of such payment or benefit constitutes
reasonable compensation for services rendered prior to the 280G Change of
Control, or (iv) for some other reason which shall be set forth in detail
in such letter, no excise tax is due under section 4999 of the Code with
respect to such payment or benefit (the "Opinion Letter"). If the Company
delivers an Opinion Letter, the Tax Advisor shall recompute, and the
Company shall make, the Tax Indemnity Payment in reliance on the
information contained in the Opinion Letter.
(c) In the event that the Executive's liability for the excise
tax under section 4999 of the Code for a taxable year is subsequently
determined to be different than the amount with respect to which the Tax
Indemnity Payment is made, the Executive or the Company, as the case may
be, shall pay to the other party at the time that the amount of such excise
tax is finally determined, an appropriate amount, plus interest, such that
the payment made under section 17(b), when increased by the amount of the
payment made to the Executive under this section 17(c), or when reduced by
the amount of the payment made to the Company under this section 17(c),
equals the amount that should have properly been paid to the Executive
under this section 17(c). The interest paid to the Company under this
section 17(c) shall be determined at the rate provided under section
1274(b)(2)(B) of the Code. The payment made to the Executive shall include
such amount of interest as is necessary to satisfy any interest assessment
made by the Internal Revenue Service and an additional amount equal to any
monetary penalties assessed by the Internal Revenue Service on account of
an underpayment of the excise tax. To confirm that the proper amount, if
any, was paid to the Executive under this section 17, the Executive shall
furnish to the Company a copy of each tax return which reflects a liability
for an excise tax, at least 20 days before the date on which such return is
required to be filed with the Internal Revenue Service. Nothing in this
Agreement shall give the Company any right to control or otherwise
participate in any action, suit or proceeding to which the Executive is a
party as a result of positions taken on his federal income tax return with
respect to his liability for excise taxes under section 4999 of the Code.
-19-
<PAGE>
Section 18. Covenant Not To Compete.
-----------------------
The Executive hereby covenants and agrees that, in the event of
his termination of employment with the Company prior to the expiration of
the Employment Period, for a period of one year following the date of his
termination of employment with the Company or the Bank, he shall not,
without the written consent of the Company, become an officer, employee,
consultant, director or trustee of any savings bank, savings and loan
association, savings and loan holding company, bank or bank holding
company, any other entity engaged in the business of accepting deposits or
making loans or any direct or indirect subsidiary or affiliate of any such
entity, that entails working within the Commonwealth of Massachusetts or
any other city or county in which the Company or the Bank maintains an
office; provided, however, that this section 18 shall not apply if the
Executive is entitled to the Additional Termination Entitlements.
Section 19. Confidentiality.
---------------
Unless he obtains the prior written consent of the Company, the
Executive shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Company or any
entity which is a subsidiary of the Company or of which the Company is a
subsidiary, any material document or information obtained from the Company,
or from its parent or subsidiaries, in the course of his employment with
any of them concerning their properties, operations or business (unless
such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available
to the public through no fault of his own) until the same ceases to be
material (or becomes so ascertainable or available); provided, however,
that nothing in this section 19 shall prevent the Executive, with or
without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation
or disclosure is required under applicable law.
Section 20. Solicitation.
------------
The Executive hereby covenants and agrees that, for a period of
one year following his termination of employment with the Company or the
Bank, he shall not, without the written consent of the Company and the
Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Company, the Bank or any of their respective subsidiaries or
affiliates to terminate his or her employment and accept employment or
become affiliated with, or provide services for compensation in any
capacity what soever to, any savings bank, savings and loan
association, bank, bank holding company, savings and loan holding
company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified
in section 18;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank,
-20-
<PAGE>
bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making
loans or doing business within the counties specified in section 18;
that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any officer
or employee of the Company, the Bank, or any of their respective
subsidiaries or affiliates to terminate his employment and accept
employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits, making loans or doing business within the counties
specified in section 18;
(c) solicit, provide any information, advice or recommendation or
take any other action intended, or that a reasonable person acting in
like circumstances would expect, to have the effect of causing any
customer of the Company to terminate an existing business or
commercial relationship with the Company.
Section 21. No Effect on Employee Benefit Plans or Programs.
-----------------------------------------------
The termination of the Executive's employment during the term of
this Agreement or thereafter, whether by the Company, by the Bank or by the
Executive, shall have no effect on the rights and obligations of the
parties hereto under the Company's or the Bank's qualified or non-qualified
retirement, pension, savings, thrift, profit-sharing or stock bonus plans,
group life, health (including hospitalization, medical and major medical),
dental, accident and long term disability in surance plans or such other
employee benefit plans or programs, or compensation plans or programs, as
may be maintained by, or cover employees of, the Company or the Bank from
time to time; provided, however, that nothing in this Agreement shall be
deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Executive to which the Company is a
party and any duplicative amount payable under any such agreement, plan or
program shall be applied as an offset to reduce the amounts otherwise
payable hereunder.
Section 22. Successors and Assigns.
----------------------
This Agreement will inure to the benefit of and be binding upon
the Executive, his legal representatives and testate or intestate
distributees, and the Company and the Bank and their respective successors
and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all
or substantially all of the assets and business of the Company may be sold
or otherwise transferred. Failure of the Company to obtain from any
successor its express written assumption of the Company's obligations
hereunder at least sixty (60) days in advance of the scheduled effective
date of any such succession shall be deemed a material breach of this
Agreement.
Section 23. Notices.
-------
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent,
instruction, objection or waiver, shall be in writing and shall be deemed
to have been given at such time as it is delivered personally, or five (5)
days after
-21-
<PAGE>
mailing if mailed, postage prepaid, by registered or certified mail, return
receipt requested, addressed to such party at the address listed below or
at such other address as one such party may by written notice specify to
the other party:
If to the Executive:
James B. Keegan
60 Columbine Road
Milton, Massachusetts 02186
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Thomas E. Shirley, Esq.
If to the Company or the Bank:
Port Financial Corp.
689 Massachusetts Avenue
Cambridge, Massachusetts 02134
Attention: Chairman, Compensation Committee of the Board of
Directors
with a copy to:
Section 24. Indemnification for Attorneys' Fees.
-----------------------------------
(a) The Company shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees and expenses,
incurred by him in connection with or arising out of any action, suit or
proceeding (including any tax controversy) in which he may be involved, as
a result of his efforts, in good faith, to defend or enforce the terms of
this Agreement. For purposes of this Agreement, any settlement agreement
which provides for payment of any amounts in settlement of the Company's or
the Bank's obligations hereunder shall be conclusive evidence of the
Executive's entitlement to indemnification hereunder, and any such
indemnification payments shall be in addition to amounts payable pursuant
to such settlement agreement, unless such settlement agreement expressly
provides otherwise.
-22-
<PAGE>
(b) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
such amounts shall not be reduced whether or not the Executive obtains
other employment. Unless it is determined that the Executive has acted
frivolously or in bad faith, the Company shall pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive
may reasonably incur as a result of or in connection with his consultation
with legal counsel or arising out of any action, suit, proceeding, tax
controversy or contest (regardless of the outcome thereof) by the Company,
the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the applicable federal rate
provided for in section 7872(f)(2)(A) of the Code. This section 23(b) shall
apply whether such consultation, action, suit, proceeding or contest arises
before, on, after or as a result of a Change of Control.
(c) The Company shall pay, or reimburse the Executive for,
reasonable attorneys' fees and the disbursements of such attorneys incurred
by the Executive in connection with the negotiation and execution of this
Agreement.
Section 25. Severability.
------------
A determination that any provision of this Agreement is invalid
or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
Section 26. Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be
made in writing, designated as a waiver, and signed by the party against
whom its enforcement is sought. Any waiver or relinquishment of any right
or power hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 27. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, and all of which shall constitute one
and the same Agreement.
Section 28. Governing Law.
-------------
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced in accordance with the laws
of the Commonwealth of Massachusetts
-23-
<PAGE>
applicable to contracts entered into and to be performed entirely within
the Commonwealth of Massachusetts.
Section 29. Headings and Construction.
-------------------------
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this
Agreement, unless otherwise stated.
Section 30. Entire Agreement; Modifications.
-------------------------------
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any
and all prior agreements, understandings or representations relating to the
subject matter hereof. No modifications of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
Section 31. Non-duplication.
---------------
In the event that the Executive shall perform services for the
Bank or any other direct or indirect subsidiary or affiliate of the Company
or the Bank, any compensation or benefits provided to the Executive by such
other employer shall be applied to offset the obligations of the Company
hereunder, it being intended that this Agreement set forth the aggregate
compensation and benefits payable to the Executive for all services to the
Company, the Bank and all of their respective direct or indirect
subsidiaries and affiliates.
Section 32. Relative Obligations of the Bank and the Company.
------------------------------------------------
The Company shall, with respect to the Executive's services
hereunder and the compensation therefor and with respect to any termination
of the Executive's employment, have all of the obligations imposed on the
Bank under this Agreement to the same extent as though the name of the
Company were substituted for the name of the Bank herein and the Executive
shall, with respect to the services hereunder and the compensation therefor
and with respect to any termination of the Executive's employment, have all
of the rights, privileges and duties relative to the Company as though the
name of the Company were substituted for the name of the Bank herein. If
the Executive performs services for both the Bank and the Company, any
entitlement of the Executive to severance compensation and other
termination benefits under this Agreement shall be determined on the basis
of the aggregate compensation payable to the Executive by the Bank and the
Company, and liability therefor shall be apportioned between the Bank and
the Company in the same manner as compensation paid to the Executive for
services to each of them; provided, however, that the Company shall be
jointly and severally liable with the Bank for all obligations of the Bank
under this Agreement; and provided, further, that in no event shall the
Bank bear any liability for actions of, or obligations undertaken by, the
Company under this Agreement. It is the intent and purpose of this section
32 that the Executive have the same legal and economic rights that he would
have if all of his services were rendered to and all of his compensation
were paid by the Company. This section 32 shall be construed and enforced
to give effect to such intent and purpose.
-24-
<PAGE>
Section 33. Dispute Resolution.
------------------
[To be provided by Choate, Hall & Stewart]
Section 34. Survival.
--------
Any provision of this Agreement which, by its terms, contemplates
performance after the expiration of the Employment Period or other
termination of this Agreement shall be deemed to survive the expiration of
this Agreement.
Section 35. Required Regulatory Provisions.
------------------------------
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company or the Bank, whether pursuant to
this Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act, 12
U.S.C. (S)1828(k), and any regulations promulgated thereunder.
-25-
<PAGE>
In Witness Whereof, the Bank and the Company have caused this
Agreement to be executed and the Executive has hereunto set his hand, all
as of the day and year first above written.
________________________________
James B. Keegan
Cambridgeport Bank
Attest:
By _________________________ By _____________________________
Name: Name:
Title: Title:
[Seal]
Port Financial Corp.
Attest:
By _________________________ By _____________________________
Name: Name:
Title: Title:
[Seal]
-26-
<PAGE>
EXHIBIT 10.4
Employment Agreement
This Employment Agreement (the "Agreement") is made and entered into
as of November 1, 1999 by and among Cambridgeport Bank, a savings bank organized
and operating under the laws of the Commonwealth of Massachusetts and having an
office at 689 Massachusetts Avenue, Cambridge, Massachusetts 02134 (the "Bank"),
Port Financial Corp., a business corporation organized and existing under the
laws of the Commonwealth of Massachusetts and having an office at 689
Massachusetts Avenue, Cambridge, Massachusetts 02134 (the "Company") and Jane L.
Lundquist an individual residing at 21 Appleton Lane, Boxford, Massachusetts
01921 (the "Executive").
Introductory Statement
The Bank is undergoing a reorganization through which the Bank will
become the wholly owned subsidiary of the Company, a stock holding company, and
the Company will sell its outstanding common stock to the public in an initial
public offering (the "Reorganization"). The Executive has served the Bank in an
executive capacity for many years and is familiar with the Bank's operations.
The Board of Directors of the Bank and the Board of Directors of the
Company have concluded that it is in the best interests of the Bank, the Company
and their prospective shareholders to secure a continuity in management
following the Reorganization. They also consider it desirable to establish a
working environment for the Executive which minimizes the personal distractions
that might result from possible business combinations in which the Company or
the Bank might be involved. For these reasons, the Board of Directors of the
Bank and the Board of Directors of the Company have decided to offer to enter
into a contract with the Executive for his future services. The Executive has
accepted this offer.
The terms and conditions which the Bank, the Company and the Executive
have agreed to are as follows.
Agreement
Section 1. Employment.
----------
The Company and the Bank hereby continue to employ the Executive, and
the Executive hereby accepts such continued employment, during the period and
upon the terms and conditions set forth in this Agreement.
Section 2. Employment Period; Remaining Unexpired Employment
-------------------------------------------------
Period.
- ------
(a) The Company and the Bank shall employ the Executive during an
initial period of three (3) years beginning on November 1, 1999 (the "Employment
Commencement Date") and ending on the day before the third (3/rd/) anniversary
of the Employment Commencement Date, and during the period of any additional
extensions described in section 2(b) (the "Employment Period").
<PAGE>
(b) The Employment Period shall be subject to extension in the
following manner:
(i) For purposes of determining the rights and obligations of the
Executive and the Company with respect to each other, on the day after the
Employment Commencement Date and on each day thereafter, the Employment
Period shall be extended by one day, such that on any date the Employment
Period will expire on the day before the third (3/rd/) anniversary of such
date. These extensions shall continue in perpetuity until discontinued by:
(i) notice to the Executive given by the Company that it has elected to
discontinue the extensions; (ii) notice by the Executive to the Company
that she has elected to discontinue the extensions; or (iii) termination of
the Executive's employment with the Company, whether by resignation,
discharge or otherwise. On the date on which such a notice is deemed given,
or on the effective date of a termination of the Executive's employment
with the Company, the Employment Period shall be converted to a fixed
period of three (3) years ending on the day before the third (3/rd/)
anniversary of such date.
(ii) For purposes of determining the rights and obligations of the
Executive and the Bank with respect to each other, the Board of Directors
of the Bank shall conduct an annual review of the Executive's performance
on or about each anniversary of the Employment Commencement Date (each, an
"Anniversary Date") and may, on the basis of such review and by written
notice to the Executive, offer to extend the Employment Period through the
day before the third (3/rd/) anniversary of the relevant Anniversary Date.
In such event, the Employment Period shall be deemed extended in the
absence of objection from the Executive by written notice to Bank given
within ten (10) business days after his receipt of the Bank's offer of
extension.
(c) Except as otherwise expressly provided in this Agreement, any
reference in this Agreement to the term "Remaining Unexpired Employment Period"
as of any date shall mean (i) for purposes of determining the rights and
obligations of the Company and the Executive to each other, the period beginning
on such date and ending on the day before the third (3/rd/) anniversary of the
earliest of the date in question, any earlier date on which the Executive or the
Company is deemed to have given a notice to discontinue extensions of the
Employment Period, and any earlier date on which the Executive's employment with
the Company was terminated; and (ii) for purposes of determining the rights and
obligations of the Bank and the Executive to each other, the period beginning on
such date and ending on the day before the third (3/rd/) anniversary of the
Employment Commencement Date or, if later, on the day before the third (3/rd/)
anniversary of the last Anniversary Date as of which the Employment Period was
extended pursuant to section 2(b)(ii).
(d) Nothing in this Agreement shall be deemed to prohibit the Company
or the Bank from terminating the Executive's employment before the end of the
Employment Period with or without notice for any reason. This Agreement shall
determine the relative rights and obligations of the Bank, the Company and the
Executive in the event of any such termination. In addition, nothing in this
Agreement shall require the termination of the Executive's employment at the
expiration of the Employment Period. Any continuation of the Executive's
employment beyond the
-2-
<PAGE>
expiration of the Employment Period shall be on an "at-will" basis unless the
Bank, the Company and the Executive agree otherwise.
Section 3. Duties.
------
The Executive shall serve as Executive Vice President of the Company
and as Executive Vice President of the Bank, having such power, authority and
responsibility and performing such duties as are prescribed by or under their
respective By-Laws and as are customarily associated with such positions.
Subject to section 7 of this Agreement, the Executive shall devote her full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Bank and the Company and shall use her best efforts
to advance their respective best interests.
Section 4. Cash Compensation.
-----------------
In consideration for the services to be rendered by the Executive
hereunder, the Bank and the Company shall pay to her a salary at an initial
annual rate of Two Hundred and Twenty Thousand Dollars ($220,000), payable in
approximately equal installments in accordance with their respective customary
payroll practices for senior officers. The Bank's and the Company's respective
Boards of Directors shall review the Executive's annual rate of salary at such
times during the Employment Period as they deem appropriate, but not less
frequently than once every twelve (12) months, and may, in their discretion,
approve a salary increase. In addition to salary, the Executive may receive
other cash compensation from the Company or the Bank for services hereunder at
such times, in such amounts and on such terms and conditions as the Boards of
Directors of the Bank and the Company may determine. If the Executive is
discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Bank, she shall
continue to perform services for the Company in accordance with this Agreement
but shall not directly or indirectly provide services to or participate in the
affairs of the Bank in a manner inconsistent with the terms of such discharge or
suspension or any applicable regulatory order.
Section 5. Employee Benefit Plans and Programs.
-----------------------------------
During the Employment Period, the Executive shall be treated as an
employee of the Company and the Bank and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long-term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Company and the Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Company's and the Bank's customary practices. Such plans and
programs shall include, but not be limited to, the 1999 Non-Qualified Pension
Plan for Executive Officers.
-3-
<PAGE>
Section 6. Indemnification and Insurance.
-----------------------------
(a) During the Employment Period and for a period of six years
thereafter, the Company and the Bank shall cause the Executive to be covered by
and named as an insured under any policy or contract of insurance obtained by
them to insure their directors and officers against personal liability for acts
or omissions in connection with service as an officer or director of the Company
or the Bank or service in other capacities at their request. The coverage
provided to the Executive pursuant to this section 6 shall be of the same scope
and on the same terms and conditions as the coverage (if any) provided to other
officers or directors of the Company and the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company and the
Bank shall indemnify the Executive against and hold her harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company and the Bank or any subsidiary or affiliate
thereof.
Section 7. Outside Activities.
------------------
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as she may disclose to and as
may be approved by the Boards of Directors of the Company and the Bank (which
approval shall not be unreasonably withheld); provided, however, that such
service shall not materially interfere with the performance of her duties under
this Agreement. The Executive may also engage in personal business and
investment activities which do not materially interfere with the performance of
her duties hereunder; provided, however, that such activities are not prohibited
under any code of conduct or investment or securities trading policy established
by the Company or the Bank and generally applicable to all similarly situated
executives.
Section 8. Working Facilities and Expenses.
-------------------------------
The Executive's principal place of employment shall be at the Bank's
executive offices at the address first above written, or at such other location
as the Bank, the Company and the Executive may mutually agree upon. The Bank and
the Company shall provide the Executive at her principal place of employment
with a private office, secretarial services and other support services and
facilities suitable to her positions with the Company and the Bank and necessary
or appropriate in connection with the performance of her assigned duties under
this Agreement. The Company shall provide to the Executive for her exclusive use
an automobile owned or leased by the Company and appropriate to her position, to
be used in the performance of his duties hereunder, including commuting to and
from her personal residence. The Bank or the Company shall reimburse the
Executive for her ordinary and necessary business expenses, including, without
limitation, all expenses associated with her business use of the aforementioned
automobile, fees for memberships in such clubs and organizations as the
Executive, the Company and the Bank shall mutually agree are necessary and
appropriate for business purposes, and her travel and entertainment expenses
incurred in connection with the performance of her duties under this Agreement,
in each case upon presentation
-4-
<PAGE>
to the payer of an itemized account of such expenses in such form as the payer
may reasonably require.
Section 9. Termination Due to Death.
------------------------
The Executive's employment with the Bank and the Company shall
terminate, automatically and without any further action on the part of any party
to this Agreement, on the date of the Executive's death. In such event:
(a) The Bank and the Company shall pay to the Executive's estate her
earned but unpaid compensation (including, without limitation, salary and
all other items which constitute wages under applicable law) as of the date
of her termination of employment. This payment shall be made at the time
and in the manner prescribed by law applicable to the payment of wages but
in no event later than thirty (30) days after the date of the Executive's
termination of employment.
(b) The Company and the Bank shall provide the benefits, if any, due
to the Executive's estate, surviving dependents or her designated
beneficiaries under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the officers
and employees of the Company and the Bank. The time and manner of payment
or other delivery of these benefits and the recipients of such benefits
shall be determined according to the terms and conditions of the applicable
plans and programs.
The payments and benefits described in sections 9(a) and (b) shall be referred
to in this Agreement as the "Standard Termination Entitlements."
Section 10. Termination Due to Disability.
-----------------------------
The Bank and the Company may terminate the Executive's employment upon
a determination, by separate votes of a majority of the members of the Boards of
Directors of the Company and the Bank, acting in reliance on the written advice
of a medical professional acceptable to them, that the Executive is suffering
from a physical or mental impairment which, at the date of the determination,
has prevented the Executive from performing her assigned duties on a
substantially full-time basis for a period of at least one hundred and eighty
(180) days during the period of one (1) year ending with the date of the
determination or is likely to result in death or prevent the Executive from
performing her assigned duties on a substantially full-time basis for a period
of at least one hundred and eighty (180) days during the period of one (1) year
beginning with the date of the determination. In such event:
(a) The Bank and the Company shall pay and deliver to the Executive
(or in the event of her death before payment, to her estate and surviving
dependents and beneficiaries, as applicable) the Standard Termination
Entitlements.
(b) In addition to the Standard Termination Entitlements, the Bank
and the Company shall continue to pay the Executive her base salary, at the
annual rate in
-5-
<PAGE>
effect for her immediately prior to the termination of her employment,
during a period ending on the earliest of: (i) the expiration of one
hundred and eighty (180) days after the date of termination of her
employment; (ii) the date on which long-term disability insurance benefits
are first payable to her under any long-term disability insurance plan
covering employees of the Bank or the Company (the "LTD Eligibility Date");
(iii) the date of her death; and (iv) the expiration of the Remaining
Unexpired Employment Period (the "Initial Continuation Period"). If the end
of the Initial Continuation Period is neither the LTD Eligibility Date nor
the date of her death, the Company and the Bank shall continue to pay the
Executive her base salary, at an annual rate equal to sixty percent (60%)
of the annual rate in effect for her immediately prior to the termination
of her employment, during an additional period ending on the earliest of
the LTD Eligibility Date, the date of her death and the expiration of the
Remaining Unexpired Employment Period.
A termination of employment due to disability under this section 10 shall be
effected by joint notice of termination given to the Executive by the Company
and the Bank and shall take effect on the later of the effective date of
termination specified in such notice or the date on which the notice of
termination is deemed given to the Executive.
Section 11. Discharge with Cause.
--------------------
(a) The Bank and the Company may terminate the Executive's employment
during the Employment Period, and such termination shall be deemed to have
occurred with "Cause", only if:
(i) the Board of Directors of the Bank and the Board of Directors of
the Company, by separate majority votes of their entire membership,
determine that the Executive (A) has willfully and intentionally failed to
perform her assigned duties under this Agreement in any material respect
(including, for these purposes, the Executive's inability to perform such
duties as a result of drug or alcohol dependency); (B) has willfully and
intentionally engaged in dishonest or illegal conduct in connection with
her performance of services for the Company or the Bank or has been
convicted of a felony; (C) has willfully violated, in any material respect,
any law, rule, regulation, written agreement or final cease-and-desist
order with respect to her performance of services for the Company or the
Bank; or (D) has willfully and intentionally breached the material terms of
this Agreement in any material respect; and
(ii) at least forty-five (45) days prior to the votes contemplated by
section 11(a)(i), the Bank and the Company have provided the Executive with
notice of their intent to discharge the Executive for Cause, detailing with
particularity the facts and circumstances which are alleged to constitute
Cause (the "Notice of Intent to Discharge"); and
(iii) after the giving of the Notice of Intent to Discharge and before
the taking of the votes contemplated by section 11(a)(i), the Executive
(together with her
-6-
<PAGE>
legal counsel, if she so desires) is afforded a reasonable opportunity to
make both written and oral presentations before the Boards of Directors of
the Company and the Bank for the purpose of refuting the alleged grounds
for Cause for her discharge; and
(iv) after the votes contemplated by section 11(a)(i), the Company
and the Bank have furnished to the Executive a notice of termination which
shall specify the effective date of her termination of employment (which
shall in no event be earlier than the date on which such notice is deemed
given) and include a copy of a resolution or resolutions adopted by the
Board of Directors of the Bank and the Board of Directors of the Company,
certified by their corporate secretaries and signed by each member of their
respective Board of Directors voting in favor of adoption of the
resolution(s), authorizing the termination of the Executive's employment
with Cause and stating with particularity the facts and circumstances found
to constitute Cause for her discharge (the "Final Discharge Notice").
For purposes of this section 11, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company and the
Bank. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board and the Bank Board or based upon the
written advice of counsel for the Company or the Bank shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company and the Bank.
(b) If the Executive is discharged during the Employment Period with
Cause, the Company and the Bank shall pay and provide to her (or, in the event
of her death, to her estate, her surviving beneficiaries and her dependents) the
Standard Termination Entitlements only. Following the giving of a Notice of
Intent to Discharge, the Bank and the Company may temporarily suspend the
Executive's duties and authority and, in such event, may also suspend the
payment of salary and other cash compensation, but not the Executive's
participation in retirement, insurance and other employee benefit plans. If the
Executive is not discharged, or is discharged without Cause, within forty-five
(45) days after the giving of a Notice of Intent to Discharge, payments of
salary and cash compensation shall resume, and all payments withheld during the
period of suspension shall be promptly restored. If the Executive is discharged
with Cause not later than forty-five (45) days after the giving of the Notice of
Intent to Discharge, all payments withheld during the period of suspension shall
be deemed forfeited and shall not be included in the Standard Termination
Entitlements. If a Final Discharge Notice is given later than forty-five (45)
days, but sooner than ninety (90) days, after the giving of the Notice of Intent
to Discharge, all payments made to the Executive during the period beginning
with the giving of the Notice of Intent to Discharge and ending with the
Executive's discharge with Cause shall be retained by the Executive and shall
not be applied to offset the Standard Termination Entitlements. If the Bank and
the Company do not give a Final Discharge Notice to the Executive within ninety
(90) days after giving a Notice of Intent to Discharge, the Notice of Intent to
Discharge shall be deemed withdrawn and any future action to discharge the
Executive with Cause shall require the giving of a new Notice of Intent to
Discharge.
-7-
<PAGE>
Section 12. Discharge without Cause.
-----------------------
The Bank and the Company may discharge the Executive at any time
during the Employment Period and, unless such discharge constitutes a discharge
with Cause:
(a) The Bank and the Company shall pay and deliver to the Executive
(or in the event of her death before payment, to her estate and surviving
dependents and beneficiaries, as applicable) the Standard Termination
Entitlements.
(b) In addition to the Standard Termination Entitlements:
(i) During the Remaining Unexpired Employment Period, the Bank
and the Company shall provide for the Executive and her dependents
continued group life, health (including hospitalization, medical and
major medical), dental, accident and long-term disability insurance
benefits on substantially the same terms and conditions (including any
required premium-sharing arrangements, co-payments and deductibles) in
effect for them immediately prior to the Executive's termination. The
coverage provided under this section 12(b)(i) may, at the election of
the Bank and the Company, be secondary to the coverage provided as
part of the Standard Termination Entitlements and to any employer-paid
coverage provided by a subsequent employer or through Medicare, with
the result that benefits under the other coverages will offset the
coverage required by this section 12(b)(i).
(ii) The Bank and the Company shall make a lump sum payment to
the Executive (or, in the event of her death before payment, to her
estate), in an amount equal to the estimated present value of the
salary that the Executive would have earned if she had continued
working for the Company and the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the period of three (3) years ending immediately prior to the date of
termination (the "Salary Severance Payment"). The Salary Severance
Payment shall be computed using the following formula:
SSP=(the sum of) /n/ [ (BS/PR) ]
---------------------
\\1\\ [1 + (I / PR)]/n/
where "SSP" is the amount of the Salary Severance Payment (before the
deduction of applicable federal, state and local withholding taxes);
"BS" is the highest annual rate of salary achieved by the Executive
during the period of three (3) years ending immediately prior to the
date of termination; "PR" is the number of payroll periods that occur
during a year under the Company's and the Bank's normal payroll
practices; "I" equals the applicable federal short term rate
established under section 1274 of the Internal Revenue Code of 1986
-8-
<PAGE>
(the "Code") for the month in which the Executive's termination of
employment occurs (the "Short Term AFR") and "n" equals the product of
the Remaining Unexpired Employment Period at the Executive's
termination of employment (expressed in years and fractions of years)
multiplied by the number of payroll periods that occur during a year
under the Company's and the Bank's normal payroll practices. The
Salary Severance Payment shall be made within five (5) business days
after the Executive's termination of employment and shall be in lieu
of any claim to a continuation of base salary which the Executive
might otherwise have and in lieu of cash severance benefits under any
severance benefits program which may be in effect for officers or
employees of the Bank or the Company.
(iii) The Bank and the Company shall make a lump sum payment to
the Executive (or, in the event of her death before payment, to her
estate), in an amount equal to the estimated present value of the
annual bonuses that the Executive would have earned if she had
continued working for the Company and the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during the period of three (3) years ending immediately prior
to the date of termination (the "Bonus Severance Payment"). The Bonus
Severance Payment shall be computed using the following formula:
BSP = SSP x (ABP / ASP)
where "BSP" is the amount of the Bonus Severance Payment (before the
deduction of applicable federal, state and local withholding taxes);
"SSP" is the amount of the Salary Severance Payment (before the
deduction of applicable federal, state and local withholding taxes);
"ABP" is the aggregate of the annual bonuses paid or declared (whether
or not paid) for the most recent period of three (3) calendar years to
end on or before the Executive's termination of employment; and "ASP"
is the aggregate base salary actually paid to the Executive during
such period of three (3) calendar years (excluding any year for which
no bonus was declared or paid). The Bonus Severance Payment shall be
made within five (5) business days after the Executive's termination
of employment and shall be in lieu of any claim to a continuation of
participation in annual bonus plans of the Bank or the Company which
the Executive might otherwise have.
(iv) The Bank and the Company shall make a lump sum payment to
the Executive (or, in the event of her death before payment, to her
estate), in an amount equal to the estimated present value of the
long-term incentive bonuses that the Executive would have earned if
she had continued working
-9-
<PAGE>
for the Company and the Bank during the Remaining Unexpired
Employment Period (the "Incentive Severance Payment"). The Incentive
Severance Payment shall be computed using the following formula:
ISP = (SSP / RUP) x (ALTIP / ALTSP) x Y
where "ISP" is the amount of the Incentive Severance Payment (before
the deduction of applicable federal, state and local withholding
taxes); "SSP" is the amount of the Salary Severance Payment (before
the deduction of applicable federal, state and local withholding
taxes); "ALTIP" is the aggregate of the most recently paid or declared
(whether or not paid) long-term incentive compensation payments (but
not more than three (3) such payments) for performance periods that
end on or before the Executive's termination of employment; "ALTSP" is
the aggregate base salary actually paid to the Executive during the
performance periods covered by the payments included in "ALTIP" and
excluding base salary paid for any period for which no long-term
incentive compensation payment was declared or paid; "RUP" is the
Remaining Unexpired Employment Period, expressed in years and
fractions of years; and "Y" is the aggregate (expressed in years and
fractions of years) of the Remaining Unexpired Employment Period plus
the number of years and fraction of years that have elapsed since the
end of the last performance period for which a long-term incentive
payment has been declared and paid. The Incentive Severance Payment
shall be made within five (5) business days after the Executive's
termination of employment and shall be in lieu of any claim to a
continuation of participation in long-term incentive compensation
plans of the Bank or the Company which the Executive might otherwise
have.
(v) The Company and the Bank shall pay to the Executive (or in
the event of her death before payment, to her estate), a lump sum
payment in an amount equal to the excess (if any) of: (A) the present
value of the aggregate benefits to which she would be entitled under
any and all tax-qualified and non-tax-qualified defined benefit plans,
including but not limited to the 1999 Non-Qualified Pension Plan for
Executive Officers, maintained by, or covering employees of, the
Company or the Bank (the "Pension Plans") if she had continued working
for the Company and the Bank during the Remaining Unexpired Employment
Period; over (B) the present value of the benefits to which the
Executive and her spouse and/or designated beneficiaries
-10-
<PAGE>
are actually entitled under such plans (the "Pension Severance
Payment"). The Pension Severance Payment shall be computed according
to the following formula:
PSP = PPB - APB
where "PSP" is the amount of the Pension Severance Payment (before
deductions for applicable federal, state and local withholding taxes);
"APB" is the aggregate lump sum present value of the actual vested
pension benefits payable under the Pension Plans in the form of a
straight life annuity beginning at the earliest date permitted under
the Pension Plans, computed on the basis of the Executive's life
expectancy at the earliest date on which payments under the Pension
Plans could begin, determined by reference to Table VI of
section 1.72-9 of the Income Tax Regulations (the "Assumed Life
Expectancy"), and on the basis of an interest rate assumption equal to
the average bond-equivalent yield on United States Treasury Securities
with a Constant Maturity of 30 Years for the month prior to the month
in which the Executive's termination of employment occurs (the "30-
Year Treasury Rate"); and "PPB" is the lump sum present value of the
pension benefits (whether or not vested) that would be payable under
the Pension Plans in the form of a straight life annuity beginning at
the earliest date permitted under the Pension Plans, computed on the
basis that the Executive's actual age at termination of employment is
her attained age as of her last birthday that would occur during the
Remaining Unexpired Employment Period, that her service for benefit
accrual purposes under the Pension Plans is equal to the aggregate of
her actual service plus the Remaining Unexpired Employment Period,
that her average compensation figure used in determining her accrued
benefit is equal to the highest annual rate of salary achieved by the
Executive during the period of three (3) years ending immediately
prior to the date of termination, that the Executive's life expectancy
at the earliest date on which payments under the Pension Plans could
begin is the Assumed Life Expectancy and that the interest rate
assumption used is equal to the 30-Year Treasury Rate. The Pension
Severance Payment shall be made within five (5) business days after
the Executive's termination of employment and shall be in lieu of any
claim to any actual increase in her accrued benefit in the Pension
Plans in respect of the Remaining Unexpired Employment Period.
(vi) The Company and the Bank shall pay to the Executive (or in
the event of her death, to her estate) a lump sum payment in an amount
equal to the present value of the additional employer contributions
that would have been credited directly to her account(s) under any and
all tax-qualified and non-tax-qualified defined contribution plans,
including but not limited to the Officers' Deferred Compensation Plan,
maintained by, or covering employees of, the Bank and the Company (the
"Non-ESOP DC Plans"), plus the fair market value of the additional
shares of employer securities or other property
-11-
<PAGE>
that would have been allocated to her account as a result of employer
contributions or dividends under any tax-qualified leveraged employee
stock ownership plan and any related non-tax-qualified supplemental
plan, including but not limited to the ESOP Restoration Plan,
maintained by, or covering employees of, the Bank and the Company (the
"ESOP Plans") if she had continued in employment during the Remaining
Unexpired Employment Period (the "Defined Contribution Severance
Payment"). The Defined Contribution Severance Payment shall be
computed according to the following formula:
DCSP = [SSP x (EC / BS)] + [(STK + PROP) x Y]
where: "DCSP" is the amount of the Defined Contribution Severance
Payment (before deductions for applicable federal, state and local
withholding taxes); "SSP" is the amount of the Salary Severance
Payment (before deductions for applicable federal, state and local
withholding taxes); "EC" is the amount of employer contributions
actually credited to the Executive's accounts under the Non-ESOP Plans
for the last plan year to end before her termination of employment;
"BS" is the Executive's compensation taken into account in computing
EC; "Y" is the aggregate (expressed in years and fractions of years)
of the Remaining Unexpired Employment Period and the number of years
and fractions of years that have elapsed between the end of plan year
for which EC was computed and the date of the Executive's termination
of employment; "STK" is the fair market value (determined on the basis
of the mid-point of the highest and lowest reported sales price for a
share of stock of the same class during the 30-day period ending on
the day of the Executive's termination of employment the ("Fair Market
Value of a Share")) of the employer securities actually allocated to
the Executive's accounts under the ESOP Plans in respect of employer
contributions and dividends applied to loan amortization payments for
the last plan year to end before her termination of employment; and
"PROP" is the fair market value (determined as of the day before the
Executive's termination of employment using the same valuation
methodology used to value the assets of the ESOP Plans) of the
property other than employer securities actually allocated to the
Executive's accounts under the ESOP Plans in respect of employer
contributions and dividends applied to loan amortization payments for
the last plan year to end before her termination of employment.
(vii) At the election of the Company made within 30 days
following the Executive's termination of employment, upon the
surrender of options or appreciation rights issued to the Executive
under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Company or the Bank, a
lump sum payment in an amount equal to the product of:
-12-
<PAGE>
(A) the excess of (I) the Fair Market Value of a
Share, over (II) the exercise price per share for such
option or appreciation right, as specified in or under the
relevant plan or program; multiplied by
(B) the number of shares with respect to which options
or appreciation rights are being surrendered.
For the purpose of computing this payment, the Executive shall be deemed
fully vested in all options and appreciation rights under any stock option
or appreciation rights plan or program maintained by, or covering employees
of, the Company or the Bank, even if she is not vested under such plan or
program.
(viii) At the election of the Company made within 30 days
following the Executive's termination of employment, upon the
surrender of any shares awarded to the Executive under any
restricted stock plan maintained by, or covering employees of,
the Company or the Bank, the Company and the Bank shall make a
lump sum payment in an amount equal to the product of:
(A) the Fair Market Value of a Share granted under such
plan; multiplied by
(B) the number of shares which are being surrendered.
For purposes of computing this payment, the Executive shall be
deemed fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Company
or the Bank, even if she is not vested under such plan.
(ix) Within the 60-day period following Executive's termination of
employment, Executive shall have the right to purchase, in cash, the
automobile provided to Executive by the Company or the Bank for use during
Executive's employment at a price equal to the wholesale value of such
automobile as reported in the most recently published version of the Kelley
Blue Book or a similar publication mutually agreed to by Executive and the
Bank or Company. In the event that the automobile used by Executive is
leased by the Company or the Bank and Executive elects to purchase the
automobile under this provision, the Bank or the Company shall arrange to
purchase the automobile from the lessor for immediate resale to Executive
at a like price.
The payments and benefits described in section 12(b) are referred to in this
Agreement as the "Additional Termination Entitlements".
-13-
<PAGE>
Section 13. Resignation.
-----------
(a) The Executive may resign from her employment with the Bank and
the Company at any time. A resignation under this section 13 shall be effected
by notice of resignation given by the Executive to the Company and the Bank and
shall take effect on the later of the effective date of termination specified in
such notice or the date on which the notice of termination is deemed given by
the Executive; provided, however, that in the case of resignation other than for
Good Reason (as defined below) the effective date shall be no earlier than six
months after the giving of the notice of termination, unless the Executive, the
Bank and the Company agree otherwise. The Executive's resignation of any of the
positions within the Bank or the Company to which she has been assigned shall be
deemed a resignation from all such positions.
(b) The Executive's resignation shall be deemed to be for "Good
Reason" if the effective date of resignation occurs within ninety (90) days
after any of the following:
(i) the failure of the Company or the Bank (whether by act
or omission of their respective Boards of Directors, or
otherwise) to appoint or re-appoint or elect or re-elect the
Executive to the position(s) with the Company and the Bank,
specified in section 3 of this Agreement or to a more senior
office;
(ii) if the Executive is or becomes a member of the Board of
Directors of the Company or the Bank, the failure of their
respective shareholders (whether in an election in which the
Executive stands as a nominee or in an election where the
Executive is not a nominee) to elect or re-elect the Executive to
membership at the expiration of her term of membership, unless
such failure is a result of the Executive's refusal to stand for
election;
(iii) a material failure by the Company or the Bank, whether
by amendment of their respective certificates of incorporation or
organization, by-laws, action of their respective Boards of
Directors or otherwise, to vest in the Executive the functions,
duties, or responsibilities prescribed in section 3 of this
Agreement; provided that the Executive shall have given notice of
such failure to the Company and the Bank, and the Company or the
Bank have not fully cured such failure within thirty (30) days
after such notice is deemed given;
(iv) any reduction of the Executive's rate of base salary in
effect from time to time, whether or not material, or any failure
(other than due to reasonable administrative error that is cured
promptly upon notice) to pay any portion of the Executive's
compensation as and when due;
(v) any change in the terms and conditions of any
compensation or benefit program in which the Executive
participates which, either individually or together with other
changes, has a material adverse effect on the aggregate value of
her total compensation package; provided that the Executive shall
have given notice of such material adverse effect to the Company
and the Bank, and the Company or the Bank
-14-
<PAGE>
has not fully cured such failure within thirty (30) days after
such notice is deemed given;
(vi) any material breach by the Company or the Bank of any
material term, condition or covenant contained in this Agreement;
provided that the Executive shall have given notice of such
material adverse effect to the Company and the Bank, and the
Company or the Bank have not fully cured such failure within
thirty (30) days after such notice is deemed given; or
(vii) a change in the Executive's principal place of
employment to a place that is not the principal executive office
of the Bank, or a relocation of the Bank's principal executive
office to a location that is both more than twenty-five (25)
miles away from the Executive's principal residence and more than
twenty-five (25) miles away from the location of the Bank's
principal executive office on the date of this Agreement.
In all other cases, a resignation by the Executive shall be deemed to be without
Good Reason.
(c) In the event of the Executive's resignation before the expiration
of the Employment Period, the Company and the Bank shall pay and deliver the
Standard Termination Entitlements. In addition, if the Executive's resignation
is deemed to be a resignation with Good Reason, the Company and the Bank shall
also pay and deliver the Additional Termination Entitlements.
Section 14. Terms and Conditions of the Additional Termination
Entitlements.
--------------------------------------------------
The Company, the Bank and the Executive hereby stipulate that the
damages which may be incurred by the Executive following any termination of
employment are not capable of accurate measurement as of the date first above
written and that the Additional Termination Entitlements constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company, the Bank and the Executive further agree that the
Company and the Bank may condition the payment and delivery of the Additional
Termination Entitlements on the receipt of the Executive's resignation from any
and all positions which she holds as an officer, director or committee member
with respect to the Company, the Bank or any subsidiary or affiliate of either
of them.
Section 15. Termination Upon or Following a Change of Control.
-------------------------------------------------
(a) A "Change of Control" shall be deemed to have occurred upon the
happening of any of the following events:
(i) the consummation of a reorganization, merger or
consolidation of the Company with one or more other persons,
other than a transaction following which:
-15-
<PAGE>
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended ("Exchange Act")) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the outstanding equity ownership
interests in the Company; and
(B) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of
the Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Company entitled to vote generally in the election of
directors by any person or by any persons acting in concert;
(iii) a complete liquidation or dissolution of the Company;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of the Company
do not belong to any of the following groups:
(A) individuals who were members of the Board of Directors
of the Company on the date of this Agreement; or
(B) individuals who first became members of the Board of
Directors of the Company after the date of this Agreement either:
(1) upon election to serve as a member of the Board of
Directors of the Company by affirmative vote of three-quarters of
the members of such board, or of a nominating committee thereof,
in office at the time of such first election; or
(2) upon election by the shareholders of the Board of
Directors of the Company to serve as a member of such board, but
only if nominated for election by affirmative vote of
three-quarters of the members of the Board of Directors of the
Company, or of a nominating committee thereof, in office at the
time of such first nomination;
-16-
<PAGE>
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on
behalf of the Board of Directors of the Company; or
(v) any event which would be described in section 15(a)(i),
(ii), (iii) or (iv) if the term "Bank" were substituted for the
term "Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 15(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) For purposes of this Agreement, a "Pending Change of Control"
shall mean: (i) the signing of a definitive agreement for a transaction which,
if consummated, would result in a Change of Control; (ii) the commencement of a
tender offer which, if successful, would result in a Change of Control; or (iii)
the circulation of a proxy statement seeking proxies in opposition to management
in an election contest which, if successful, would result in a Change of
Control.
(c) Notwithstanding anything in this Agreement to the contrary, if
the Executive's employment with the Bank and the Company terminates due to death
or disability within one (1) year after the occurrence of a Pending Change of
Control and if a Change of Control occurs within two (2) years after such
termination of employment, she (or in the event of her death, her estate) shall
be entitled to receive the Standard Termination Entitlements and the Additional
Termination Entitlements that would have been payable if a Change of Control had
occurred on the date of her termination of employment and she had resigned with
Good Reason immediately thereafter; provided, that payment shall be deferred
without interest until, and shall be payable immediately upon, the actual
occurrence of a Change of Control.
(d) Notwithstanding anything in this Agreement to the contrary: (i)
in the event of the Executive's resignation within sixty (60) days after the
occurrence of a Change of Control, she shall be entitled to receive the Standard
Termination Entitlements and Additional Termination Entitlements that would be
payable if her resignation were a resignation for Good Reason, without regard to
the actual circumstances of her resignation; and (ii) for a period of one (1)
year after the occurrence of a Change of Control, no discharge of the Executive
shall be deemed a discharge with Cause unless the votes contemplated by section
11(a) of this Agreement are supported by at least two-thirds of the members of
the Board of Directors of the Company and the Bank at the time the vote is taken
who were also members of the Board of Directors of the Company and the Bank
immediately prior to the Change of Control.
-17-
<PAGE>
(e) Notwithstanding anything in this Agreement to the contrary, for
purposes of computing the Additional Termination Entitlements due upon a
termination of employment that occurs, or is deemed to have occurred, after a
Change of Control, the Remaining Unexpired Employment Period shall be deemed to
be three (3) full years.
Section 16. Other Termination.
-----------------
If the Executive's employment with the Bank or the Company continues
beyond the expiration of the Employment Period, neither the Company nor the Bank
shall, following the expiration of the Employment Period, discharge the
Executive for any reason other than Cause without giving the Executive, at the
option of the Company or the Bank, either: (a) at least one year's advance
notice of such termination; (b) a severance payment equal to one year's base
salary at the annual rate in effect immediately prior to the giving of such
notice, or (c) a combination of advance notice and a pro-rated severance payment
for a period totaling at least one year.
Section 17. Tax Indemnification.
-------------------
(a) If the Executive's employment terminates under circumstances
entitling her (or in the event of her death, her estate) to the Additional
Termination Entitlements, the Company shall pay to the Executive (or in the
event of her death, her estate) an additional amount intended to indemnify her
against the financial effects of the excise tax imposed on excess parachute
payments under section 280G of the Code (the "Tax Indemnity Payment"). The Tax
Indemnity Payment shall be determined under the following formula:
X = E x P
---------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the percentage rate at which an 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
16;
FI = the highest marginal rate of income tax applicable to
the Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state
and local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax applicable
to the Executive under the Code for the taxable year
in question.
-18-
<PAGE>
Such computation shall be made at the expense of the Company by an attorney or a
firm of independent certified public accountants selected by the Executive and
reasonably satisfactory to the Company (the "Tax Advisor") and shall be based on
the following assumptions: (i) that a change in ownership, a change in effective
ownership or control, or a change in the ownership of a substantial portion of
the assets, of the Bank or the Company has occurred within the meaning of
section 280G of the Code (a "280G Change of Control"); (ii) that all direct or
indirect payments made to or benefits conferred upon the Executive on account of
her termination of employment are "parachute payments" within the meaning of
section 280G of the Code; and (iii) that no portion of such payments is
reasonable compensation for services rendered prior to the Executive's
termination of employment.
(b) With respect to any payment that is presumed to be a parachute
payment for purposes of section 280G of the Code, the Tax Indemnity Payment
shall be made to the Executive on the earlier of the date the Company, the Bank
or any direct or indirect subsidiary or affiliate of the Company or the Bank is
required to withhold such tax or the date the tax is required to be paid by the
Executive, unless, prior to such date, the Company delivers to the Executive the
written opinion, in form and substance reasonably satisfactory to the Executive,
of the Tax Advisor or of an attorney or firm of independent certified public
accountants selected by the Company and reasonably satisfactory to the
Executive, to the effect that the Executive has a reasonable basis on which to
conclude that (i) no 280G Change in Control has occurred, or (ii) all or part of
the payment or benefit in question is not a parachute payment for purposes of
section 280G of the Code, or (iii) all or a part of such payment or benefit
constitutes reasonable compensation for services rendered prior to the 280G
Change of Control, or (iv) for some other reason which shall be set forth in
detail in such letter, no excise tax is due under section 4999 of the Code with
respect to such payment or benefit (the "Opinion Letter"). If the Company
delivers an Opinion Letter, the Tax Advisor shall recompute, and the Company
shall make, the Tax Indemnity Payment in reliance on the information contained
in the Opinion Letter.
(c) In the event that the Executive's liability for the excise tax
under section 4999 of the Code for a taxable year is subsequently determined to
be different than the amount with respect to which the Tax Indemnity Payment is
made, the Executive or the Company, as the case may be, shall pay to the other
party at the time that the amount of such excise tax is finally determined, an
appropriate amount, plus interest, such that the payment made under section
17(b), when increased by the amount of the payment made to the Executive under
this section 17(c), or when reduced by the amount of the payment made to the
Company under this section 17(c), equals the amount that should have properly
been paid to the Executive under this section 17(c). The interest paid to the
Company under this section 17(c) shall be determined at the rate provided under
section 1274(b)(2)(B) of the Code. The payment made to the Executive shall
include such amount of interest as is necessary to satisfy any interest
assessment made by the Internal Revenue Service and an additional amount equal
to any monetary penalties assessed by the Internal Revenue Service on account of
an underpayment of the excise tax. To confirm that the proper amount, if any,
was paid to the Executive under this section 16, the Executive shall furnish to
the Company a copy of each tax return which reflects a liability for an excise
tax, at least 20 days before the date on which such return is required to be
filed with the Internal Revenue Service. Nothing in this Agreement shall give
the Company any right to control or otherwise participate in any action, suit or
proceeding to which the Executive is a party as a result of positions taken on
his federal income tax return with respect to her liability for excise taxes
under section 4999 of the Code.
-19-
<PAGE>
Section 18. Covenant Not To Compete.
-----------------------
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of her
termination of employment with the Company or the Bank, he shall not, without
the written consent of the Company, become an officer, employee, consultant,
director or trustee of any savings bank, savings and loan association, savings
and loan holding company, bank or bank holding company, any other entity engaged
in the business of accepting deposits or making loans, or any direct or indirect
subsidiary or affiliate of any such entity, that entails working within the
Commonwealth of Massachusetts or any other city or county in which the Company
or the Bank maintains an office; provided, however, that this section 18 shall
not apply if the Executive is entitled to the Additional Termination
Entitlements.
Section 19. Confidentiality.
---------------
Unless she obtains the prior written consent of the Company, the
Executive shall keep confidential and shall refrain from using for the benefit
of herself, or any person or entity other than the Company or any entity which
is a subsidiary of the Company or of which the Company is a subsidiary, any
material document or information obtained from the Company, or from its parent
or subsidiaries, in the course of her employment with any of them concerning
their properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of her own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 19 shall prevent the Executive,
with or without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
Section 20. Solicitation.
------------
The Executive hereby covenants and agrees that, for a period of one
year following his termination of employment with the Company or the Bank, she
shall not, without the written consent of the Company and the Bank, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any
officer or employee of the Company, the Bank or any of their
respective subsidiaries or affiliates to terminate his or her
employment and accept employment or become affiliated with, or
provide services for compensation in any capacity what soever to,
any savings bank, savings and loan association, bank, bank
holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making
loans or doing business within the counties specified in section
18;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank,
savings and loan association, bank,
-20-
<PAGE>
bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making
loans or doing business within the counties specified in section
18; that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any
officer or employee of the Company, the Bank, or any of their
respective subsidiaries or affiliates to terminate his employment
and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any
savings bank, savings and loan association, bank, bank holding
company, savings and loan holding company, or other institution
engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 18;
(c) solicit, provide any information, advice or
recommendation or take any other action intended, or that a
reasonable person acting in like circumstances would expect, to
have the effect of causing any customer of the Company to
terminate an existing business or commercial relationship with
the Company.
Section 21. No Effect on Employee Benefit Plans or Programs.
-----------------------------------------------
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Company, by the Bank or by the
Executive, shall have no effect on the rights and obligations of the parties
hereto under the Company's or the Bank's qualified or non-qualified retirement,
pension, savings, thrift, profit-sharing or stock bonus plans, group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans or such other employee benefit plans or
programs, or compensation plans or programs, as may be maintained by, or cover
employees of, the Company or the Bank from time to time; provided, however, that
nothing in this Agreement shall be deemed to duplicate any compensation or
benefits provided under any agreement, plan or program covering the Executive to
which the Company is a party and any duplicative amount payable under any such
agreement, plan or program shall be applied as an offset to reduce the amounts
otherwise payable hereunder.
Section 22. Successors and Assigns.
----------------------
This Agreement will inure to the benefit of and be binding upon the
Executive, her legal representatives and testate or intestate distributees, and
the Company and the Bank and their respective successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Company may be sold or otherwise transferred. Failure of
the Company to obtain from any successor its express written assumption of the
Company's obligations hereunder at least sixty (60) days in advance of the
scheduled effective date of any such succession shall be deemed a material
breach of this Agreement.
-21-
<PAGE>
Section 23. Notices.
-------
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Jane L. Lundquist
21 Appleton Lane
Boxford, Massachusetts 01921
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Thomas E. Shirley, Esq.
If to the Company or the Bank:
Port Financial Corp.
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Attention: Chairman, Compensation Committee
of the Board of Directors
with a copy to:
Section 24. Indemnification for Attorneys' Fees.
-----------------------------------
(a) The Company shall indemnify, hold harmless and defend the
Executive against reasonable costs, including legal fees and expenses, incurred
by her in connection with or arising out of any action, suit or proceeding
(including any tax controversy) in which she may be involved, as a result of her
efforts, in good faith, to defend or enforce the terms of this Agreement. For
purposes of this Agreement, any settlement agreement which provides for payment
of any amounts in
-22-
<PAGE>
settlement of the Company's or the Bank's obligations hereunder shall be
conclusive evidence of the Executive's entitlement to indemnification hereunder,
and any such indemnification payments shall be in addition to amounts payable
pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise.
(b) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that the Executive has acted frivolously or in bad faith, the Company shall pay
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of or in connection with
her consultation with legal counsel or arising out of any action, suit,
proceeding, tax controversy or contest (regardless of the outcome thereof) by
the Company, the Executive or others regarding the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive about
the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable federal rate provided for in
section 7872(f)(2)(A) of the Code. This section 24(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change of Control.
(c) The Company shall pay, or reimburse the Executive for, reasonable
attorneys' fees and the disbursements of such attorneys incurred by the
Executive in connection with the negotiation and execution of this Agreement.
Section 25. Severability.
------------
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 26. Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 27. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
-23-
<PAGE>
Section 28. Governing Law.
-------------
Except to the extent preempted by federal law, this Agreement shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts applicable to contracts entered into and to be
performed entirely within the Commonwealth of Massachusetts.
Section 29. Headings and Construction.
-------------------------
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
Section 30. Entire Agreement; Modifications.
-------------------------------
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
Section 31. Non-duplication.
---------------
In the event that the Executive shall perform services for the Bank or
any other direct or indirect subsidiary or affiliate of the Company or the Bank,
any compensation or benefits provided to the Executive by such other employer
shall be applied to offset the obligations of the Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to the Executive for all services to the Company, the Bank and all of
their respective direct or indirect subsidiaries and affiliates.
Section 32. Relative Obligations of the Bank and the Company.
------------------------------------------------
The Company shall, with respect to the Executive's services hereunder
and the compensation therefor and with respect to any termination of the
Executive's employment, have all of the obligations imposed on the Bank under
this Agreement to the same extent as though the name of the Company were
substituted for the name of the Bank herein and the Executive shall, with
respect to the services hereunder and the compensation therefor and with respect
to any termination of the Executive's employment, have all of the rights,
privileges and duties relative to the Company as though the name of the Company
were substituted for the name of the Bank herein. If the Executive performs
services for both the Bank and the Company, any entitlement of the Executive to
severance compensation and other termination benefits under this Agreement shall
be determined on the basis of the aggregate compensation payable to the
Executive by the Bank and the Company, and liability therefor shall be
apportioned between the Bank and the Company in the same manner as compensation
paid to the Executive for services to each of them; provided, however, that the
Company shall be jointly and severally liable with the Bank for all obligations
of the Bank under this Agreement; and provided, further, that in no event shall
the Bank bear any liability for actions of, or obligations undertaken by, the
Company under this Agreement. It is the intent and purpose of this
-24-
<PAGE>
section 32 that the Executive have the same legal and economic rights that she
would have if all of her services were rendered to and all of her compensation
were paid by the Company. This section 32 shall be construed and enforced to
give effect to such intent and purpose.
Section 33. Dispute Resolution.
------------------
[To be provided by Choate, Hall & Stewart]
Section 34. Survival.
--------
Any provision of this Agreement which, by its terms, contemplates
performance after the expiration of the Employment Period or other termination
of this Agreement shall be deemed to survive the expiration of this Agreement.
Section 35. Required Regulatory Provisions.
------------------------------
Notwithstanding anything herein contained to the contrary, any
payments to the Executive by the Company or the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their compliance
with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1828(k),
and any regulations promulgated thereunder.
-25-
<PAGE>
In Witness Whereof, the Bank and the Company have caused this
Agreement to be executed and the Executive has hereunto set her hand, all as of
the day and year first above written.
__________________________________________
Jane L. Lundquist
Cambridgeport Bank
Attest:
By:_____________________________ By:_______________________________________
Name: Name:
Title: Title:
[Seal]
Port Financial Corp.
Attest:
By:_____________________________ By:_______________________________________
Name: Name:
Title: Title:
[Seal]
-26-
<PAGE>
EXHIBIT 10.5
Trust Agreement Under the Cambridgeport Bank
Nonqualified Pension Plans and
Supplemental Executive Retirement Plan
This Agreement made by and between Cambridgeport Bank (the "Bank") and the
trustee named on the signature page hereof (the "Trustee"):
WHEREAS, Cambridgeport Savings Bank, the predecessor to the Bank,
established nonqualified supplemental retirement plans for senior officers and
for other officers, effective as of December 1, 1987 (the "Nonqualified Pension
Plans");
WHEREAS on January 17, 1995 the Bank adopted the Cambridgeport Bank
Supplemental Executive Retirement Plan (the "SERP") which provides both certain
additional benefits to participants of the Nonqualified Pension Plans and
retirement benefits to new participants (both the Nonqualified Pension Plans and
the SERP hereafter singly and collectively referred to as the "Plan");
WHEREAS, the Bank has incurred liability under the terms of the Plan with
respect to the individuals participating (the "Participant" or "Participants")
in such Plan;
WHEREAS, the Bank wishes to establish a trust (hereinafter called the
"Trust") and to contribute to the Trust certain assets, including its interest
in variable universal life insurance contracts (the "Insurance Contracts") on
the life of Participants in the Plan, that shall be held therein, subject to the
claims of the Bank's creditors in the event of the Bank's Insolvency, as herein
defined, until such, time as benefits have been paid to the Participants and
their beneficiaries as specified in the Plan,
WHEREAS, it is the intention of the parties that, this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended; arid
WHEREAS, it is the intention of the Bank to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
(a) The Bank shall, at least on an annual basis, make or cause to be
made contributions to the Trust of cash or property, including its interest in
certain Insurance Contracts and premiums with respect to said Insurance
Contracts, which are acceptable to the Trustee and which shall become the
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement. It is the intention of the Parties to the
Plan that the liabilities of the Bank pursuant to the Plan shall be funded in
such amounts and at such times as may be determined by the Bank
<PAGE>
actuary as necessary to fund the targeted benefits under the Plan. The Bank, in
its sole discretion, may at any time, or from time to time, make deposits of
cash or other property into the Trust in addition to those amounts required
hereunder. Neither the Trustee nor any Participant or beneficiary shall have any
right to compel such additional deposits.
(b) Upon a Change in Control, as defined in Section 13(d) herein, the Bank
shall, as soon as possible, but in no event later than 30 days following the
Change in Control, make an irrevocable contribution to the Trust in an amount
that is sufficient, as determined by an actuary appointed by the Trustee, to pay
each Participant or beneficiary the full vested benefits to which he or she
would be entitled pursuant to the terms of the Plan as of the date on which the
Change in Control occurred. To the extent that any individual Participant has a
change in control definition in any agreement between the Bank and said
Participant which differs from the definition in Section 13(d) herein, and any
event occurs which constitutes a change in control pursuant to said change in
control agreement, then the Bank shall be obligated to make an irrevocable
contribution to the Trust, determined in the same manner and in the same time
period as set forth above, in an amount sufficient to fund said individual
Participant's full vested benefits pursuant to the terms of the Plan. Within the
same time period following a Change in Control, the Bank shall make a further
irrevocable contribution to the Trust in an amount sufficient to pay for the
Trustee's fees and for actuarial, accounting, legal and other professional or
administrative services necessary to implement the terms of this Trust following
a Change in Control. Such amount shall be determined by the Trustee's estimate
of its fees (as provided in this Trust Agreement) and by estimates obtained by
the Trustee from the independent actuaries, accountants, lawyers and other
appropriate professional and administrative personnel who provided such services
to the Trust or the Bank immediately before the Change in Control.
(c) The Trust hereby established shall be irrevocable.
(d) The Trust is intended to be a grantor trust, of which the Bank is the
grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(e) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Bank and shall be used exclusively
for the uses and purposes of the Participants and general creditors as herein
set forth. The Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of the Participants and their beneficiaries against the Bank.
Any assets held by the Trust will, be subject to the claims of the Bank's
general creditors under Federal and state law in the event of Insolvency, as
defined in Section 3(a) herein.
Section 2. Payments to Plan Participants and Their Beneficiaries
(a) The Bank shall deliver to the Trustee a copy of the Plan
document, together with a schedule (the "Payment Schedule") that indicates (1)
the amounts payable in respect of each Participant (and his or her
beneficiaries), or a formula or other instructions acceptable to Trustee for
determining the amounts so payable, (ii) the form in which such amount is to be
paid (as provided for or available under the Plan), and (H) the time of
commencement for payment of such amounts.
2
<PAGE>
If the Bank has not done so previously, it shall deliver the Plan document and
the Payment Schedule to the Trustee before the occurrence of any Change in
Control, and, upon the occurrence of a Change in Control, shall deliver to the
Trustee a current census of Participants and a current Payment Schedule (to the
extent revisions to the most recent previous Payment Schedule are necessary or
appropriate). Following any Change in Control, the Payment Schedule may not be
modified or amend ed by the Bank. Except as otherwise provided herein, the
Trustee shall make payments to the Participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any Federal, state or local taxes that may be
required to be so withheld with respect to the payment of benefits pursuant to
the terms of the Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by the Bank.
(b) Subject to any determination made and set forth in the Payment Schedule
described in Section 2(a) following a Change in Control, the entitlement of a
Participant or his or her beneficiaries to benefits under the Plan shall be
determined by the Bank or such arbitrator as the Bank and the Participants shall
designate and any claim for such benefits shall be considered and reviewed under
the procedures set out in the Plan.
(c) The Bank may make payment of benefits directly to the Participants or
their beneficiaries as they become due under the terms of the Plan. The Bank
shall notify the Trustee of its decision to make payment of benefits directly
prior to the time amounts are payable to the Participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments on benefits in accordance with the
terms of the Plan, the Bank shall make the balance of each such payment as it
falls due. The Trustee shall notify the Bank where principal and earnings are
not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Bank is Insolvent
(a) Trustee shall cease payment of benefits to the Participants and their
beneficiaries if the Bank is Insolvent. The Bank shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Bank is unable to pay its debts
as they become due, or (ii) a receiver is appointed for the Bank by the
Commissioner of Banks of Massachusetts or the Federal Deposit Insurance
Corporation.
(b) At all times during the continuance of this Trust, as provided in
Section 1(e) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Bank under Federal and state law as set forth
below
(1) The Board of Directors and the Chief Executive Officer of the Bank
shall have the duty to inform the Trustee in writing of the Bank's
Insolvency. If a person claiming to be a creditor of the Bank alleges
in writing, to the Trustee that the Bank has become Insolvent, the
Trustee shall determine whether the Bank has become Insolvent and,
pending such determination, the Trustee shall discontinue payment of
benefits to the Participants or their beneficiaries.
3
<PAGE>
(2) Unless the Trustee has actual knowledge of the Bank's Insolvency, or
has received notice from the Bank or a person claiming to be a
creditor alleging that the Bank is Insolvent, the Trustee shall have
no duty to inquire whether the Bank is Insolvent. The Trustee may in C
events rely on such evidence concerning the Bank's solvency as may be
furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Bank's
solvency.
(3) If at any time the Trustee has determined that the Bank is Insolvent,
the Trustee shall discontinue payments cc the Participants or their
beneficiaries and shall hold the assets of the Trust for the benefit
of the Bank's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of the Participant or their
beneficiaries to pursue their rights as general creditors of the Bank
with respect to benefits due under the Plan or otherwise.
(4) The Trustee shall resume the payment of benefits to the Participants
or their beneficiaries in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the Bank is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to the
Participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to the
Participants or their beneficiaries by the Bank in lieu of the payments provided
for hereunder during any such period of discontinuance.
Section 4. Payment to Bank
Except as provided in Section 3 hereof, the Bank shall have no right or power to
direct the Trustee to return to the Bank or to divert to the Bank or to divert
to others any of the Trust assets before all payments of benefits have been made
to the Participants and their beneficiaries pursuant to the terms of the Plan.
Section 5. Investment Authority
(a) In no event may the Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by the Bank, other than a de
minimis amount held in common investment vehicles in which the Trustee invests.
All rights associated with assets of the Trust shall be exercised by the Trustee
or the, person designated by the Trustee, and shall in no event be exercisable
by or rest with the Participants.
(b) The Trustee shall have the additional power in its discretion:
To exercise all voting rights with respect to the shares of stock held in
the Trust and to grant proxies, discretionary or otherwise;
4
<PAGE>
To cause any shares of stock to be registered and held in the name of one
or more of its nominees, or one or more nominees of any system for the central
handling of securities, without increase or decrease of liability;
To collect and receive any and all money and other property due to the
Trust and to give full discharge therefor;
To settle, compromise or submit to arbitration any claims, debts or damages
due or owing to or from the Trustee; or commence or defend suits or legal
proceedings to protect any interest of the Trust; and to represent the Trust in
all suits or legal proceedings in any court or before any other body or
tribunal;
To organize under the laws of any state a corporation for the purpose of
acquiring and holding title to any property which it is authorized to acquire
under this Agreement and to exercise with respect hereto and, or all of the
powers set forth in this Agreement;
To determine how all receipts and disbursements shall be credited, charged
or apportioned as between income and principal, and
Generally to do all acts, whether or not expressly authorized, which the
Trustees may deem necessary or desirable for the protection of the Trust.
Section 6. Disposition of Income
During the term of this Trust, all income received by the Trust, net of
expenses, shall be accumulated and reinvested.
Section 7. Accounting by Trustee
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon In writing between the
Bank and the Trustee. Within 90 days following the close of each calendar year
and within 60 days after the removal or resignation of the Trustee, the Trustee
shall deliver to the Bank a written account of its administration of the Trust
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions affected by it, including a
description of all Securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use, in the conduct of an
enterprise of a like character and with like aims, provided,
5
<PAGE>
however, that the Trustee shall incur no. liability to any person for any action
taken pursuant to a direction, request or approval given by the Bank, which is
contemplated by, and in conformity with, the terms of the Plan or this Trust and
is given in writing by the Bank. In the event of a dispute between the Bank and
a party, the Trustee may apply to a court of competent jurisdiction to resolve
the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Bank agrees to indemnify the Trustee against the
Trustee's costs, expenses and liabilities (including, without limitation,
attorney's fees and expenses) relating thereto and to be primarily liable for
such payments. If the Bank does not pay such costs, expenses and liabilities in
a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for
the Bank generally) with respect to any of its duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy ocher than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee
The Bank shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee
(a) The Trustee may resign at any time by written notice to the Bank,
which shall be effective 60 days after receipt of such notice unless the Bank
and the Trustee agree otherwise.
(b) The Trustee may be removed by Bank on 30 days' notice or upon
shorter notice accepted by the Trustee, provided that the Trustee may not be
removed by the Bank for one year following a Change of Control.
6
<PAGE>
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 60 days after receipt of notice
of resignation or removal and the successor Trustee acceptance of appointment
unless Bank extends the time Limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraph (a) of (b) of this section. If no such appointment has
been made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. Appointment of Successor
(a) If the Trustee resigns or is removed in accordance with section
10(a) or (b) hereof, the Bank shall appoint any third party, such as a bank
trust department, or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal. The appointment shall be effective when accepted in writing by the new
trustee who shall have all the rights and powers of the former trustee,
including ownership rights in the Trust assets. The former trustee shall execute
any instrument necessary or reasonably requested by the Bank or the successor
trustee to evidence the transfer.
(b) If the Trustee resigns within one year of a Change of Control, the
Trustee shall appoint any third party such as a bank trust department or other
party that may be granted corporate trustee powers under sate law, as a
successor to replace, such resignee. The appointment of a successor trustee
shall be effective when accepted in writing by the new trustee, who shall have
all the rights and powers of the former trustee, including ownership rights in
Trust assets. The former trustee shall execute any instrument necessary or
reasonably requested by the successor trustee to evidence the transfer.
(c) The successor trustee need not examine the records and acts of any
prior trustee, and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor trustee shall not be responsible for and
Bank shall indemnify and defend the successor trustee from any claim or
liability resulting from any action or inaction of any prior trustee or from any
other past event, or any condition existing at the time it becomes successor
trustee.
Section 12. Amendment or Termination
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Bank. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or shall make the Trust
revocable after it has become irrevocable in accordance with section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which the
Participants and their beneficiaries axe no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination of the Trust any assets remaining in
the Trust shall be returned to the Bank.
7
<PAGE>
(c) Upon written approval of each of the Participants or their
beneficiaries entitled to payment of benefits pursuant to the terms of the
Plan, the Bank may terminate this Trust prior to the time all benefit payments
under the Plan have been made. All assets in the Trust after termination shall
be returned to the Bank.
(d) Notwithstanding any other provision of this Section 12, no
provisions of this Trust Agreement may be amended by the Bank for 3 years
following a Change in Control, as defined herein.
Section 13. Miscellaneous
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts, unless otherwise
preempted by any applicable federal law.
(d) For Purposes of this Trust, a Change of Control shall be deemed to
have been effected upon the occurrence of any of the following:
(i) Cambridgeport Mutual Holding Company (the "Holding Company") shall
cease to own 100% of the voting securities of the Bank;
(ii) the present procedure pursuant to which the Board of Trustees of
the Holding Company are elected by a self-perpetuating Board of Corporators
is revised by State or federal statute or regulation;
(iii) the present procedure pursuant to which new members are added to
the Board of Corporators (by election of the Board of Corporators) is
revised by state or federal statute or regulation;
(iv) the Holding Company effectuates a merger or consolidation with any
other corporation and within three years after the effective date of such
merger or consolidation, the individuals who were members of the Board of
Corporators or the Board of Trustees of the Holding Company immediately
prior to such merger or consolidation shall cease to constitute two thirds
of the Board of Corporators or the Board of Trustees, respectively;
(v) the Bank effectuates a merger or consolidation wit any other bank
or corporation and within three years after the effective date of such
merger or consolidation, the individuals who were members of the Board of
Directors of the Bank immediately prior to such merger or consolidation
shall cease to constitute two thirds of such Board;
8
<PAGE>
(vi) the Holding Company or the Bank agrees to do any of the foregoing;
(vii) the Holding Company or the Bank agrees to a plan of Liquidation of
the Holding Company or the Bank or an agreement for the sale or disposition
by the Holding Company or the Bank of all or substantially all of the
Holding Company's or the Bank's assets; or
(viii) any event takes place which constitutes a change in control
pursuant to a change in control agreement between the Bank and the
Participant.
Section 14. Notices
Any notice or communication which the Bank or Trustee may be required or
may desire to give to the other parry under any provision of this Trust
Agreement shall be given in writing and personally delivered to, or mailed,
faxed or delivered by overnight courier service to the address given below:
If to the Bank: Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Attention: Chief Executive Officer
If to the Trustee, at the address set forth on the signature page hereof.
Any notice which is personally delivered shall be deemed to have been given
on the date it is personally delivered, Any notice which is mailed shall be
deemed to have been given on the third business day after deposit in the mail,
registered or certified mail, postage prepaid and return receipt requested. Any
notice which is delivered by overnight courier service shall be deemed to have
been given on the business day after deposit with such courier service. Any
notice which is transmitted by facsimile shall be deemed to have been given an
the day that such notice is transmitted.
The Bank or Trustee may change the address to which notices, requests and
other communications axe to be sent to it by giving written notice of such
address change to the other party in conformity with this Section 14, but such
change shall not be effective until notice of such change has been received by
the other party.
Section 15. Effective Date
The effective date of this Trust Agreement shall be _____________, 1997.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized offices and their respective seals to be
hereunto affixed.
CAMBRIDGEPORT BANK
By:________________________________________
The undersigned hereby accepts its
appointment as trustee hereunder:
Trustee:
NORTHEAST RETIREMENT SERVICES, INC.
By:_________________________________________
Thomas Forese, Jr.
President
TRUSTEE'S ADDRESS:
One Linscott Road
Woburn, Massachusetts 01881
10
<PAGE>
AMENDMENT NUMBER ONE TO TRUST AGREEMENT
---------------------------------------
This is an agreement (the "Amendment") dated ____________, 1999
between Cambridgeport Bank (the "Bank") and Cambridge Financial Services, Inc.
(the "Trustee").
PRELIMINARY STATEMENT
The Bank and the Trustee are parties to the Trust Agreement Under the
Cambridgeport Bank Nonqualified Pension Plans and Supplemental Executive
Retirement Plan (the "Trust Agreement"). The Bank and the Trustee wish to amend
the Trust Agreement to change the definition of a "Change in Control" thereunder
and to remove the obligation of the Bank to contribute certain funds to the
Trust in the event of a "Change in Control." For this purpose, the Employer and
the Trustees have reached the following agreement.
AGREEMENT
1. The second sentence of Section 1(b) of the Trust Agreement shall be
deleted in its entirety.
2. Section 13(d) of the Trust Agreement shall be amended to read as follows:
(d) For purposes of this Trust, a Change of Control shall be deemed to have
been effected upon the occurrence of any of the following:
(1) Prior to a Conversion Transaction (as defined in paragraph 1(i) below),
a "Change of Control" will be deemed to have been effected upon the occurrence
of any of the following:
(a) Cambridgeport Mutual Holding Company (the "Holding Company") shall
cease to own 100% of the voting securities of the Bank;
(b) the present procedure pursuant to which the Board of Trustees of the
Holding Company are elected by a self-perpetuating Board of Corporators is
revised by state or federal statute or regulation;
(c) the present procedure pursuant to which new members are added to the
Board of Corporators (by election of the Board of Corporators) is revised
by state or federal statute or regulation;
(d) the Holding Company effectuates a merger or consolidation with any
other corporation and within three years after the effective date of such
merger or consolidation, the individuals who were members of the Board of
Corporators or the Board of Trustees of the Holding Company immediately
prior to such merger or consolidation shall cease to constitute two thirds
of the Board of Corporators or the Board of Trustees, respectively,
<PAGE>
(e) the Bank effectuates a merger or consolidation with any other bank or
corporation and within three years after the effective date of such merger
or consolidation, the individuals who were members of the Board of
Directors of the Bank immediately prior to such merger or consolidation
shall cease to constitute two thirds of such Board;
(f) the Holding Company or the Bank agrees to do any of the foregoing;
(g) the Holding Company or the Bank agrees to a plan of liquidation of the
Holding Company or the Bank or an agreement for the sale or disposition by
the Holding Company or the Bank of all or substantially all of the Holding
Company's or the Bank's assets; or
(h) any event takes place which constitutes a change in control pursuant to
a change in control agreement between the Bank and the Member.
(i) Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur in the event of any transaction or reorganization (a "Conversion
Transaction") that results in the public offering of the Bank's voting
securities or the public offering of the voting securities of a company
that owns 100% of the Bank's voting securities (a "Stock Holding Company").
2. Following a Conversion Transaction a "Change of Control" will be deemed
to have been effected upon the occurrence of any of the following:
(a) the consummation of a reorganization, merger or consolidation of the
Bank with one or more other persons, other than a transaction following
which:
(1) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended ("Exchange Act")) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the outstanding equity ownership
interests in the Bank; and
(2) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Bank;
(b) the acquisition of all or substantially all of the assets of the Bank
or beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 25% or more of the outstanding securities of the Bank
entitled to vote generally in the election of directors by any person or by
any persons acting in concert;
<PAGE>
(c) a complete liquidation or dissolution of the Bank;
(d) the occurrence of any event if, immediately following such event, at
least 50% of the members of the Board of Directors of the Bank do not
belong to any of the following groups:
(1) individuals who were members of the Board of Directors of the
Bank on the closing date of the Conversion Transaction; or
(2) individuals who first became members of the Board of
Directors of the Bank after the closing date of the Conversion
Transaction either:
(A) upon election to serve as a member of the Board of
Directors of the Bank by affirmative vote of three-quarters of
the members of such board, or of a nominating committee thereof,
in office at the time of such first election; or
(B) upon election by the shareholders of the Board of
Directors of the Bank to serve as a member of such board, but
only if nominated for election by affirmative vote of three-
quarters of the members of the Board of Directors of the Bank, or
of a nominating committee thereof, in office at the time of such
first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf of the
Board of Directors of the Bank; or
(e) any event which would be described in paragraph 2(a), (b), (c) or (d);
if the term "Stock Holding Company" (as defined in paragraph 1(i) above)
were substituted for the term "Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Bank, the Stock Holding
Company, or a subsidiary of either of them, by the Bank, the Stock Holding
Company, or any subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 15(a), the term
"person" shall have the meaning assigned to it under sections 13(d)(3) or
14(d)(2) of the Exchange Act.
3. The Trust Agreement, as amended hereby, shall continue in full force and
effect.
IN WITNESS WHEREOF, the Bank and the Trustee have caused this
Amendment to be executed by a duly authorized officer of each as of the date
first above written.
CAMBRIDGEPORT BANK
<PAGE>
By _______________________________________
Name:
Title:
PORT FINANCIAL CORP.
By _______________________________________
Name:
Title:
<PAGE>
Exhibit 10.6
CAMBRIDGEPORT BANK
1999 NONQUALIFIED PENSION PLAN
FOR
EXECUTIVE OFFICERS
W I T N E S S E T H
-------------------
Cambridgeport Bank (hereinafter referred to as the "Company") hereby adopts
this 1999 Nonqualified Pension Plan for Executive Officers (hereinafter referred
to as the "Plan") to provide the benefits described herein for its executive
officers, effective as of May 4, 1999.
DEFINITIONS
Actuarial Equivalent shall mean a benefit of equivalent current value to the
benefit which could otherwise have been provided to the Member, computed on the
basis of the discount rates, mortality tables and other assumptions then being
used by the Savings Banks Employees Retirement Association ("SBERA") in
deter-mining the actuarial equivalent of payments being made by SBERA to its
Retirement Plan beneficiaries. Notwithstanding the foregoing, whenever the
present value of a benefit 'Is to be determined, such value shall be computed
based on a discount rate of five percent.
1. The definition of "Change in Control" shall be amended to read in its
entirety as follows:
Change in Control.
1. Prior to a Conversion Transaction (as defined in paragraph 1(i) below), a
"Change in Control" will be deemed to have been effected upon the
occurrence of any of the following:
(a) Cambridgeport Mutual Holding Company (the "Holding Company") shall
cease to own 100% of the voting securities of the Company;
(b) the present procedure pursuant to which the Board of Trustees of the
Holding Company are elected by a self-perpetuating Board of Corporators is
revised by state or federal statute or regulation;
(c) the present procedure pursuant to which new members are added to the
Board of Corporators (by election of the Board of Corporators) is revised
by state or federal statute or regulation;
(d) the Holding Company effectuates a merger or consolidation with any
other corporation and within three years after the effective date of such
merger or consolidation, the individuals who were members of the Board of
Corporators or the Board of Trustees of the Holding Company immediately
prior to such merger or consolidation shall cease to constitute two thirds
of the Board of Corporators or the Board of Trustees, respectively,
<PAGE>
(e) the Company effectuates a merger or consolidation with any other bank
or corporation and within three years after the effective date of such
merger or consolidation, the individuals who were members of the Board of
Directors of the Company immediately prior to such merger or consolidation
shall cease to constitute two thirds of such Board;
(f) the Holding Company or the Company agrees to do any of the foregoing;
(g) the Holding Company or the Company agrees to a plan of liquidation of
the Holding Company or the Company or an agreement for the sale or
disposition by the Holding Company or the Company of all or substantially
all of the Holding Company's or the Company's assets; or
(h) any event takes place which constitutes a change in control pursuant to
a change in control agreement between the Company and the Member.
(i) Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur in the event of any transaction or reorganization (a "Conversion
Transaction") that results in the public offering of the Company's voting
securities or the public offering of the voting securities of a company
that owns 100% of the Company's voting securities (a "Stock Holding
Company").
2. Following a Conversion Transaction a "Change in Control" will be deemed to
have been effected upon the occurrence of any of the following:
(a) the consummation of a reorganization, merger or consolidation of the
Company with one or more other persons, other than a transaction following
which:
(1) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended ("Exchange
Act")) in substantially the same relative proportions by
persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Company; and
(2) at least 51% of the securities entitled to vote
generally in the election of directors of the entity
resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
securities entitled to vote generally in the election of
directors of the Company;
(b) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Company entitled
2
<PAGE>
to vote generally in the election of directors by any person or
by any persons acting in concert;
(c) a complete liquidation or dissolution of the Company;
(d) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of
the Company do not belong to any of the following groups:
(1) individuals who were members of the Board of
Directors of the Company on the closing date of Conversion
Transaction; or
(2) individuals who first became members of the Board
of Directors of the Company after the closing date of a
Conversion Transaction either:
(A) upon election to serve as a member of the
Board of Directors of the Company by affirmative vote
of three-quarters of the members of such board, or of a
nominating committee thereof, in office at the time of
such first election; or
(B) upon election by the shareholders of the Board
of Directors of the Company to serve as a member of
such board, but only if nominated for election by
affirmative vote of three-quarters of the members of
the Board of Directors of the Company, or of a
nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on
behalf of the Board of Directors of the Company; or
(e) any event which would be described in paragraph 2(a), (b), (c) or (d);
if the term "Stock Holding Company" (as defined in paragraph 1(i) above)
were substituted for the term "Company" therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Stock
Holding Company, or a subsidiary of either of them, by the Company, the Stock
Holding Company, or any subsidiary of either of them, or by any employee benefit
plan maintained by any of them. For purposes of this section 15(a), the term
"person" shall have the meaning assigned to it under sections 13(d)(3) or
14(d)(2) of the Exchange Act.
3
<PAGE>
Cost of Funds Expense. The Cost of Funds Expense for any Plan Year shall be
calculated by taking the sum of the amount of all premiums previously paid by
the Company for the Insurance Policy maintained on the life of the Member plus
the amount of all previous years' after-tax Cost of Funds Expenses, and
multiplying that sum by the Company's average cost of funds based on the
Company's third quarter Call Report for the Plan Year as filed with the FDIC,
computed on an after-tax basis,
Insurance Policy shall mean one or more life insurance policies on the life of
the Member purchased to maintain funding under the Plan, as more fully described
in Article 11 of the Plan,
Life Insurance Net Proceeds means the amount, if any, of any death benefit
actually received by the Company or the Trustee pursuant to the Insurance Policy
as a result of the death of the Member less the Company's cumulative out of
pocket costs in obtaining and maintaining such insurance, computed by adding
together (1) the premiums paid for such Insurance Policy (computed on after-tax
basis to the extent that such premiums were deductible for tax purposes) and
(ii) the aggregate Costs of Funds Expenses for the Plan Years such insurance
Policy was in effect.
Plan Year shall mean the calendar year, corresponding to the Company's fiscal
year.
Social Security Benefit shall mean the monthly old age insurance benefit the
Member is first entitled to receive at his Social Security Retirement Age.
Prior to his Social Security Retirement Age it will be assumed that the Member
will continue to cam the same annual Compensation which 'is in effect for him
and that the Social Security law will not chance thereafter, and by using his
actual, salary history, if, available, or by estimating, his prior Compensation
using a 5% salary scale projected backwards.
Terminating Event. A "Terminating Event" shall mean any of the following if
they occur within three years of a Change in Control:
(a) termination by the Company of the Member's employment with the Company
for any reason other than (i) the Member's death or (ii) for "Cause" (as
such term is defined in Article XIX), or
(b) the Member's resignation as an employee of the Company, other than for
reasons of disability, following (i) a significant reduction in the nature
or scope of the Member's duties, responsibilities, authority and powers
from the duties, responsibilities, authority and powers exercised by the
Member immediately prior to the Change in Control, (ii) a reduction in the
Member's annual base salary as in effect on the date of the Change in
Control, except for across-the-board salary reductions similarly affecting
all management personnel of the Company (or the surviving entity, in the
case of a merger or acquisition in which the Company is not the surviving
entity), or (ill) a transfer of the Member from the principal office of the
Company to an office of the Company more than twenty-five miles distant
from said principal office (other than in connection with the relocation of
the principal office of the Company to said new location), or
(c) Any event which constitutes a terminating event or a triggering event
pursuant to a change of control agreement between the Company and the
Member.
4
<PAGE>
Trustee shall mean Northeast Retirement Services, as Trustee under that certain
Indenture of Trust by and between the Company and the Trustee dated as of
_________, 1999.
ARTICLE I
Plan Membership
A. Only those employees of the Company who satisfy all of the following
requirements shall become Members of the Plan.
1. The employee must hold the title of Chairman, President or Executive
Vice President of the Company;
2. The employee's life must be insurable with an insurance company
designated by the Company; and
3. The employee must be selected by the Board of Directors to participate
in this Plan.
B. In addition, the Board of Directors may designate any other officer of
the Company who satisfies the requirements of paragraphs 2 and 3 of Section A to
become Members of the Plan.
C. The Board of Directors shall give written notice to the employee Of
his selection to membership by the Board. Notwithstanding, any other provision
relating to eligibility, no person shall become a Member of the Plan unless and
until such person is so selected and notified in writing by the Company.
ARTICLE II
Informal Funding
A. The benefits under this Plan will be paid by the Company from its
general assets. To cover part or all of its potential liabilities under the
Plan, the Company may, but need not, purchase life insurance policies on the
lives of any of the Plan Members, but no Member will have any preferred claim
against, or beneficial ownership in, such policies or the proceeds therefrom.
B. When and if the Company applies for life insurance on any Member it
will so notify the Member and request him to take whatever actions may be
necessary to enable the Company to fulfill the requirements of the life
insurance company for issuance of the insurance policy. A condition of a
Member's eligibility under this Plan is his cooperation in connection with the
securing of any insurance policies, including the completion and signing of such
forms as may be reasonably required, and to undergo any medical examinations or
tests which may be necessary.
C. No benefit shall be payable under this Plan to the beneficiaries or
estate of any Member who dies by suicide within two years after the date on
which he becomes a Member of the Plan. Nor shall any benefit be payable under
this Plan to any Member or to the beneficiaries or estate of any Member who
makes any untrue statements on insurance forms, which statements cause the
5
<PAGE>
Company to fall to receive proceeds under any policies upon the Member's death,
or which cause said proceeds to be reduced in any manner.
ARTICLE III
Death Benefit
Subject to the provisions of this Plan, the Member shall be entitled to
name the beneficiaries of the Member's benefits hereunder as follows:
A. If a Member's death occurs while he is still employed by the Company,
there shall be paid to the Company or, at the director of the Company, to such
beneficiaries as the Member shall have selected in accordance with Article VII,
a death benefit determined under Subparagraph 1, below (hereinafter referred to
as "Split Dollar") or Subparagraph 2. below (hereinafter referred to as
"Survivor Benefit"), whichever the Member has elected to receive in accordance
with Article VII. If any Member shall have failed to make ail election with
respect to the Split Dollar or Survivor Benefit options, such Member shall be
conclusively presumed to have made an election to receive the benefits described
in Subparagraph 2 (Survivor Benefit);
1. Split Dollar. an amount equal to two (2) times the then current base
salary of the Member, as said base Salary existed on the date of the
Member's death.
2. Survivor Benefit: monthly payments equal to forty percent (40%) of the
Member's monthly base salary as said base salary existed on the date of the
Member's death. Such payments shall be payable for one hundred eighty (180)
months (commencing on the first day of the month following the month in
which occurs the Member's death).
In addition to the death benefit set forth in the preceding paragraph, the
beneficiary of a Member upon whose life an Insurance Policy was being maintained
at the time of the Member's death shall be entitled to receive the amount, f
any, by which the Life Insurance Net Proceeds exceeds the Actuarial Equivalent
of the applicable death benefit (Split Dollar or Survivor Benefit) payable to
said Member's beneficiary.
B. If the Member has retired and the Member's death occurs while he is
receiving retirement benefits as hereinafter defined, the Company shall continue
to pay to such beneficiaries as the Member shall have selected in accordance
with Article VII, such balance of any minimum amount of retirement benefits as
the Member may be entitled to as hereinafter defined.
C. If (i) a Member dies after the termination of his service as an
employee with the Company in connection with a Terminating Event, and (ii) at
the time of the Member's death an Insurance Policy was being maintained on the
life of the Member and held by the Trustee, and (iii) at the time of his death
the Member had not yet commenced to receive a benefit under this Plan, then a
death benefit shall be payable to the Member's beneficiary not later than sixty
days following the death of the Member. Such death benefit shall be a single
lump sum distribution which is the greater of (i) the Actual Equivalent of the
benefit to which the Member was entitled to receive as of the date of his death,
or (ii) the Life Insurance Net Proceeds.
6
<PAGE>
ARTICLE IV
Normal Retirement Date
A Member's Normal Retirement Date shall mean the date on which the member
attains the age of sixty-Five (65).
ARTICLE V
Normal Retirement Benefit
A. Upon the later of his Normal Retirement Date or his termination of
service as an employee of the Company, the Member (and his beneficiaries if he
dies prior to receipt of all his benefits) shall be entitled to receive from the
Company monthly payments for his entire lifetime ending with the payment due
immediately before the Member's death, or for a period of one hundred eighty
(180) months if longer, in an amount determined pursuant to subparagraphs "1" or
"2" hereof whichever is applicable. Payments shall commence on the first day of
the month following the month in which occurs the later of us Normal Retirement
Date or his termination of service as an employee of the Company.
1. If a Member terminates service with the Company after having,
completed fifteen (15) years of service with the Company, the monthly
amount to which the Member shall be entitled pursuant to this Article shall
be an amount equal to the greater of either (a) Twenty-five percent (25%)
of the Member's Highest Monthly Salary as herein defined, or (b) Seventy-
five percent (75%) of the Member's Highest Monthly Salary offset by the
Member's monthly Accrued Benefit under the SBERA defined benefit pension
plan and further offset by one hundred percent (100%) of the Member's
Primary Social Security Benefit (said greater benefit hereinafter referred
to as the "Normal Retirement Benefit"). For purposes of this Plan, the
Highest Monthly Salary shall be an amount equal to the average annual base
salary of the Member from the Company for the three calendar years out of
the five calendar years immediately preceding the Member's termination of
service in which the base salary of the Member (exclusive of taxable fringe
benefits, bonuses, or other extraordinary compensation) was the highest,
divided by twelve (12). For purposes of the foregoing calculation, if any
Member shall terminate service prior to the end of any particular calendar
year, the annual base salary of the Member for said calendar year shall be
included within the foregoing definition for determining the Member's
Highest Monthly Salary.
2. If a Member terminates service with the Company prior to the
completion of fifteen years of service with the Company, the amount to
which a Member shall be entitled pursuant to this Article shall be an
amount equal to a percentage of his Normal Retirement Benefit, based upon
his number of years of service with the Company, in accordance with the
following table (a Member's "Vested Termination Benefit"):
Years of Service
Equal to or
More Than But Less Than Percentage of Benefit
- -------------------------------------------------------------------------
7
<PAGE>
0 years 6 years 0%
6 years 7 years 10%
7 years 8 years 20%
8 years 9 years 30%
9 years 10 years 40%
10 years 11 years 50%
11 years 12 years 60%
12 years 13 years 70%
13 years 14 years 80%
14 years 15 years 90%
15 years -- 100%
B. Notwithstanding any provision in Paragraph A of this Article V to the
contrary, the Board of Directors in its sole discretion has the authority to pay
to a Member who has terminated service with the Company an amount equal to the
Actuarial Equivalent of the Retirement Benefit to which the Member is entitled
under subparagraph I or 2 of Paragraph A, whichever is applicable, in full
satisfaction of the Company's obligation to the Member under the Plan.
ARTICLE VI
Change in Control
A Member shall be entitled to the following benefits upon a Change in
Control:
1. Upon a Change in Control, the Company shall, as soon as possible, but
in no event later than thirty days following the Change in Control, make an
irrevocable contribution to the Trust in an amount that is sufficient, as
determined by an actuary appointed by the Trustee, to pay each Member or
beneficiary the full Normal Retirement Benefit to which he would be
entitled pursuant to the terms of Paragraph A of Article V of the Plan as
of the date on which the Chance in Control occurred as if the Member had
attained at least age 65 and had completed at least fifteen years of
service with the Company. Within the same time period following, a Chance
in Control, the Company shall make a further irrevocable contribution to
the Trust in an amount sufficient to pay for the Trustee's fees and for
actuarial, accounting, legal and other professional or administrative
services necessary to implement the terms of this Plan following a Change
in Control. Such amount shall be determined by the Trustee's estimate of
its fees (as provided in the Trust Agreement) and by estimates obtained by
the Trustee from the independent actuaries, accountants, lawyers and other
appropriate professional and administrative personnel which provided such
services to the Trust or the Company immediately before the Change in
Control.
2. If within three years following a Chance in Control of the Company a
Terminating Event occurs with respect to the Member; the Member will be
entitled to receive his Normal Retirement Benefit, computed at the time of
the Terminating Event as though the Member
8
<PAGE>
had served the Company for at least 15 years. If the Member has attained at
least age 55, his benefit shall be payable, commencing within 70 days of
the Terminating Event, in an amount equal to the Actual Equivalent of his
full Normal Retirement Benefit. If the Member has not attained age 55 as of
the Terminating Event, the Member shall be entitled to a retirement benefit
commencing upon the attainment of age 55 in an amount equal to the
Actuarial Equivalent of his full Normal Retirement Benefit. With the
consent of the Board of Directors, the Actuarial Equivalent of the Normal
Retirement Benefit payable at age 55 may be payable to the Member at an
earlier date. In the event that the Member requests permission to commence
receiving his benefit before age 55 and the Board refuses to grant
permission for such early commencement of payments, the Member may request
the Board to reconsider its decision. If the Board has not agreed to permit
such early payment by a date which is thirty days after the request for
reconsideration was made, the Member shall have the right to receive upon
written application to the Company the Actuarial Equivalent of such
benefit, less a penalty of 5%.
ARTICLE VII
Beneficiaries
A. Any pre-retirement or post-retirement death benefit payable under the
Plan upon the death of a Member shall be paid to such beneficiary or
beneficiaries as the Member shall designate by filing with the Company a notice
in writing in a form acceptable to the Company.
B. In the event that the Member should die prior to receipt from the
Company of any amount to which the Member or his beneficiaries is entitled
hereunder, any amounts remaining unpaid shall be paid to such beneficiary as the
Member may designate by filing with the Company a notice in writing, but in the
absence of any such designation, such unpaid amounts shall be so paid to the
Member's estate.
C. Each Member shall be entitled to elect between the Survivor Benefit
and Split Dollar death benefits described above in Article III by filing, with
the Company a notice in writing in a form acceptable to the Company. Such
election may be changed by the Member at any time by filing notice of such
change in writing in a form acceptable to the Company.
ARTICLE VIII
Nature of Company's Obligation
The rights of any Member and his beneficiaries to benefits under this Plan
are solely those of an unsecured creditor of the Company. Any insurance policy
or any other asset acquired or held by the Company in connection with the
liabilities assumed by it hereunder will not be deemed to be held under any
trust for the benefit of the Member or his beneficiaries or to be security for
the performance of the obligations of the Company, but will be and will remain a
general, unpledged, unrestricted asset of the Company.
9
<PAGE>
ARTICLE IX
Administration of the Plan
The Company shall be the named fiduciary and Administrator of the Plan as
those terms are used in the Employee Retirement Income Security Act of 1974
("ERISA"), The Board of Directors or President of the Company may employ or use
the services of any employees of the Company or other persons in administering
the Plan.
ARTICLE X
Claims Procedure
In accordance with Section 503 of ERISA and the regulations of the
Secretary of Labor prescribed thereunder:
A. All claims for benefits under this Plan shall be filed in writing with
the Company in accordance with such procedures as the Company shall reasonably
establish.
B. The Company shall, within ninety (90) days of submission of a claim,
provide adequate notice in writing to any claimant whose claim for benefits
under the Plan has been denied. Such notice shall contain the specific reason or
reasons for the denial and references to specific Plan provisions on which the
denial is based. It will also provide the claimant with a description of any
material or information which is necessary in order for the claimant to perfect
his claim and an explanation of why such information is necessary. If special
circumstances require an extension of time for processing the claim, the Company
shall furnish the claimant a written notice of such extension prior to the
expiration of the ninety (90) day period described above. The extension notice
shall indicate the reasons for the extension and the expected date for a final
decision, which date shall not be more than one hundred eighty (180) days from
the initial claim.
C. The Company shall, upon written request by a claimant within sixty
(60) days of the notice that his claim has been denied, afford a reasonable
opportunity to such claimant for a full and fair review by the Company of the
decision denying the claim. The Company will afford the claimant an opportunity
to review pertinent documents and submit issues and comments in writing. The
claimant shall have the night to be represented by counsel.
D. The Company shall, within sixty (60) days of a request for a review,
render a written decision on its review. If special circumstances require extra
time for the Company to review its decision, the Company will attempt to make
its decision as soon as practicable, and in no event will the Company take more
than one hundred twenty (120) days to send a claimant a written notice of its
decision.
10
<PAGE>
ARTICLE XI
Assignment
Except for the designation of beneficiaries as set forth above, no Member
or beneficiary any Member shall have any right to commute, sell, assign,
transfer or otherwise convey the right: to receive any payments hereunder, which
payments and the nights thereto are expressly declared to be non-assignable and
non-transferable.
ARTICLE XII
Independence of Plan
The benefits payable under this Plan from the Company shall be independent
of, and in addition to, any other benefits that may exist from time to time
under any other plan of or agreement with the Company. Nothing contained in this
Plan gives, or is intended to give, any Member the night to be retained in the
service of the Company or to interfere with the night of the Company to
discharge or retire the Member at any time.
ARTICLE XIII
Amendment or Termination of Plan
The Company reserves the right at any time or time, by action of its Board
of Directors, to amend the Plan in whole or in part, or to terminate the Plan,
but no such amendment or termination shall deprive the beneficiary or estate of
a deceased Member of any benefit to which such beneficiary or estate is then
entitled. Nor shall any such amendment or termination deprive any Member or his
beneficiaries of any Vested Termination Benefits to which such Member or his
beneficiaries may be then entitled.
ARTICLE XIV
Successor Company
Unless this Plan is sooner terminated, if the Company is merged or
consolidated with any other corporation or organization, or its business
activities are taken over by any other organization, the succeeding or
continuing corporation or other organization shall expressly assume the rights
and obligations of the Company herein set forth.
ARTICLE XV
Applicable Law
The provisions of this Plan shall be construed, administered and enforced
according to the laws of the United States, and to the extent permitted by such
laws, in accordance with the law of the Commonwealth of Massachusetts.
11
<PAGE>
ARTICLE XVI
Miscellaneous Matters
Throughout this Plan where a appropriate, every reference in any of the
masculine, feminine, or neuter shall be deemed to include all of the masculine,
feminine and neuter, and every reference in either the singular or plural shall
be deemed to include both the singular and plural, unless the context clearly
requires otherwise.
ARTICLE XVII
Disability
If any Member shall become totally disabled within the meaning of the long
term disability plan of the Company and prior to his retirement, the Member
shall be considered to be continuing in employment for as long as such total
disability exists, but not after age sixty-five (65), for purposes of
determining such Member's eligibility for benefits hereunder.
ARTICLE XVIII
Severability
If in any respect any provision of this Plan, in whole or in part, shall
prove to be invalid for any reason, each invalidity shall only affect the part
of such provision which shall be invalid, and in all other respects shall stand
as if such invalid provision had not been made, and it shall fall to the extent
and only to the extent of such invalid provision and no other portion or
provision of this Plan shall be invalidated, impaired or affected thereby.
ARTICLE XIX
Termination for Cause
If the Company terminates the Member's employment for "Cause" prior to the
Member attaining age 65, the Member shall not be entitled to receive any
benefits pursuant to this Plan. For purposes of this Plan, "Cause" shall mean:
(a) deliberate dishonesty with respect to the Company or any
subsidiary or affiliate thereof;
(b) conviction of a crime involving moral turpitude, or
(c) gross and willful failure to perform a substantial portion of the
Member's duties and responsibilities as an officer of the Company,
which failure continues
12
<PAGE>
for more than thirty days after written notice given to the Member pursuant to a
two-thirds vote of all of the members of the Board of Directors then in off-ice,
such vote to set forth in reasonable detail the nature of such failure.
IN WITNESS WHEREOF, the said CAMBRIDGEPORT BANK has caused this Plan to be
signed in its name by its duly authorized officer, and impressed with its seal,
and properly attested to, on this ____ day of ____________, 1999.
ATTEST: CAMBRIDGEPORT BANK
________________________________ by____________________________
13
<PAGE>
CAMBRIDGEPORT BANK
1999 NONQUALIFIED PENSION PLAN
FOR
EXECUTIVE OFFICERS
ELECTION OF BENEFITS AND DESIGNATION OF BENEFICIARY
I hereby elect to receive the type of benefits described in said plan as
checked below:
1. _____ Split Dollar
2. _____ Survivor Benefit
I hereby designate the following as beneficiary of any amounts due under
the above agreement at my death:
1. ____________, if surviving at my death, otherwise
2. ____________, if surviving at my death.
___________________ ___________________________
Date Member
14
<PAGE>
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
VOTED: That the Cambridgeport Savings Bank 1999 Nonqualified Pension Plan for
Executive Officers, a copy of which is attached hereto and made a paid
hereof, be, and the same hereby is, approved and adopted, effective
May 4, 1999; and that the officers of this Bank be, and they hereby
are, and each hereby is, authorized for and behalf of this Bank to
sign and execute any and all other documents which they deem, or any
of them deems necessary or advisable in connection with said 1999
Nonqualified Pension Plan.
VOTED: That Northeast Retirement Services be, and it hereby is, appointed as
Trustee of the Cambridgeport Savings Bank 1999 Nonqualified Pension
Plan for Executive Officers.
VOTED: That the President and Executive Vice President of this Bank, be, and
they hereby are, and each hereby -is, designated by the Board of
Trustees as Members of said 1999 Nonqualified Pension Plan in
accordance with Article I of the Plan;
VOTED: That the Accrued Benefits of James B. Keegan as President of the Bank,
and Jane L. Lundquist as Executive Vice President of the Bank,
pursuant to the Cambridgeport Bank Supplemental Executive Retirement
Plan, originally adopted effective December 1, 1987, and revised and
restated effective November 1, 1993 be, and said accrued benefits
hereby are, transferred to, and credited to the Accrued Benefits of
said President and Executive Vice President pursuant to, the
Cambridgeport Savings Bank 1999 Nonqualified Pension Plan for
Executive Officers.
VOTED: That subsequent to the transfer of said Accrued Benefits, the
Cambridgeport Bank Supplemental Executive Retirement Plan be, and the
same hereby is, terminated, so that no new benefits shall accrue
hereafter; and the Accrued Benefit of each remaining Member of said
Supplemental Executive Retirement Plan be determined and distributed
as soon as practicable thereafter.
__________________________________________
Clerk -- Cambridgeport Bank
<PAGE>
Cambridge, Mass. May 4, 1999
A Meeting of the Board of Directors of Cambridgeport Bank was held this morning
in its banking rooms. Present: Messrs. Corcoran, Crane, Fleming, Goldberg, Happ,
Keegan and Russo. Also in attendance were Executive Vice President lane
Lundquist, CFO Charles Jeffrey, Senior Vice President Lynne Charron, Attorney
Peter Coogan of Foley, Hoag & Eliot, George Massaro and Debbie Selwood of Arthur
Andersen and consultant Fred Schluter.
Lynne Charron gave an update on progress at 1380 Soldiers Field Road. All
necessary requests for approvals for construction have been made and are now in
the appeal period. No problems are anticipated. A management team is in place
and is studying space allocation in the building. A number of tenants have
expressed interest in leasing that space not required by the Bank. The
architects are preparing schematics which should be ready shortly. The problem
of parking is being addressed. The future parking needs of employees, tenants,
customers and handicapped persons will need to be determined. The project is on
schedule and initial construction is schedules to start in June.
There followed a lengthy discussion on long range strategic planning for
the Bank. A number of options are available and they will continue to be
analyzed at future meetings. It was
VOTED: to authorize the CFO to engage the services of consultants to assist
in determining a future course of action.
Jane Lundquist presented a suggested revision to the Supplemental Executive
Retirement Plan (SERP). She noted that the current plan was quite expensive
with little benefit for most participants. She recommended the termination of
the existing SERP and installing a new one with 100% vesting after 15 years of
service. She recommended a revamping of the existing SBERA and 40lK plans to
better reflect the needs of today's employee pool and to allow for funding of
future long term incentive programs for retention of key people. Mrs. Lundquist
presented figures summarizing the current SERP obligations. A five-part
resolution was submitted for approval by the Board. After discussion to was
VOTED: That the Cambridgeport Savings Bank 1999 Nonqualified Pension Plan for
Executive Officers, a copy of which is attached and made apart hereof,
be, and the same hereby is, approved and adopted, effective May 4,
1999; and that the officers of this Bank be, and they hereby are, and
each hereby is, authorized for and behalf of this Bank to sign and
execute any and all other documents which they deem, or any of them
deems necessary or advisable in connection with said 1999 Nonqualified
Pension Plan.
VOTED: That Northeast Retirement Services be, and it hereby is, appointed as
Trustee of the Cambridgeport Savings Bank 1999 Nonqualified Pension
Plan for Executive Officers.
VOTED: That the President and Executive Vice President of this Bank, be and
they hereby are, and each hereby is, designated by the Board of
Trustees as Members of said 1999 Nonqualified Pension Plan in
accordance with Article I of the Plan;
2
<PAGE>
Cambridge, Mass. May 4, 1999
VOTED: That the Accrued Benefits of James B. Keegan as President of the Bank,
and Jane L, Lundquist as Executive Vice President of the Bank,
pursuant to the Cambridgeport Bank Supplemental Executive Retirement
Plan, originally adopted effective December 1, 1987, and revised and
restated effective November 1, 1993 be, and said accrued benefits
hereby are, transferred to, and credited to the Accrued Benefits of
said President and Executive Vice President pursuant to, the
Cambridgeport Savings Bank 1999 Nonqualified Pension Plan for
Executive Officers.
VOTED: That subsequent to the transfer of said Accrued Benefits, the
Cambridgeport Bank Supplemental Executive Retirement Plan be, and the
same hereby is, terminated, so that no new benefits shall accrue
hereafter; and the Accrued Benefit of each remaining Member of said
Supplemental Executive Retirement Plan be determined and distributed
as soon as practicable thereafter.
It was then
VOTED: to adjourn at 10:30 a.m.
___________________________________________
Clerk -- Cambridgeport Bank
3
<PAGE>
EXHIBIT 10.7
Port Financial Corp.
Director Emeritus consultation Plan
Effective on [the Date of Conversion]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I
Purpose
Section 1.1 Purpose...................................................... 1
Article II
Definitions
Section 2.1 Bank ......................................................... 1
Section 2.2 Board ........................................................ 1
Section 2.3 Board Member ................................................. 1
Section 2.4 Change of Control ............................................ 1
Section 2.5 Code ......................................................... 3
Section 2.6 Committee .................................................... 3
Section 2.7 Company ...................................................... 3
Section 2.8 Consulting Services .......................................... 3
Section 2.9 Director Emeritus ............................................ 3
Section 2.10 Disability ................................................... 3
Section 2.11 Effective Date ............................................... 3
Section 2.12 Monthly Benefit .............................................. 3
Section 2.13 Period of Engagement ......................................... 3
Section 2.14 Plan ......................................................... 3
Section 2.15 Retirement Age ............................................... 4
Article III
Participation
Section 3.1 Eligibility .................................................. 4
Section 3.2 Participation ................................................ 4
Article IV
Consulting Services
Section 4.1 Appointment as Director Emeritus ............................. 4
Section 4.2 Attendance at Board Meetings ................................. 5
Section 4.3 Other Advisory Services ...................................... 5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Article V
Benefits
Section 5.1 Monthly Benefit .............................................. 5
Section 5.2 Disability Benefit ........................................... 5
Section 5.3 Death Benefit ................................................ 5
Article VI
Change of Control
Section 6.1 Change of Control ............................................ 6
Article VII
Administration
Section 7.1 Duties of the Committee ...................................... 6
Section 7.2 Expenses ..................................................... 6
Section 7.3 Liabilities of the Committee ................................. 6
Article VIII
Amendment and Termination
Section 8.1 Amendment and Termination .................................... 7
Article IX
Miscellaneous Provisions
Section 9.1 Construction of Language ..................................... 7
Section 9.2 Governing Law ................................................ 7
Section 9.3 Indemnification .............................................. 7
Section 9.4 Non-Alienation of Benefits ................................... 7
Section 9.5 Notices ...................................................... 8
Section 9.6 Operation as an Unfunded Plan ................................ 8
Section 9.7 Plan Documents ............................................... 8
Section 9.8 Required Regulatory Provisions ............................... 8
Section 9.9 Severability ................................................. 9
Section 9.10 Waiver ....................................................... 9
</TABLE>
ii
<PAGE>
Article I
---------
Purpose
-------
Section 1.1 Purpose.
-------
The purpose of the Plan is to promote the growth and profitability of
the Company by ensuring that Port Financial Corp. will be able to have as a
resource, the advice and expertise of certain individuals who have served as a
members of its Board of Directors upon such individuals' retirement from the
Board.
Article II
----------
Definitions
-----------
The following definitions shall apply for the purposes of this Plan
unless a different meaning is plainly indicated by the context:
Section 2.1 Bank means Cambridgeport Bank.
----
Section 2.2 Board means the Board of Directors of the Company.
-----
Section 2.3 Board Member means any individual who is a voting
------------
member of the Board.
Section 2.4 Change of Control means the happening of any of the
-----------------
following events:
(i) the consummation of a reorganization, merger or consolidation of
the Company with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended ("Exchange Act")) in substantially the same relative
proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) at least 51% of the outstanding equity ownership
interests in the Company; and
(B) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule 13d-3
promulgated under the
<PAGE>
2
Exchange Act) in substantially the same relative proportions by
persons who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
at least 51% of the securities entitled to vote generally in the
election of directors of the Company;
(ii) the acquisition of all or substantially all of the assets of
the Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Company entitled to vote generally in the election of
directors by any person or by any persons acting in concert;
(iii) a complete liquidation or dissolution of the Company;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board of Directors of the Company
do not belong to any of the following groups:
(A) individuals who were members of the Board of Directors of
the Company on the Effective Date; or
(B) individuals who first became members of the Board of
Directors of the Company after the Effective Date either:
(1) upon election to serve as a member of the Board of
Directors of the Company by affirmative vote of three-quarters
of the members of such board, or of a nominating committee
thereof, in office at the time of such first election; or
(2) upon election by the shareholders of the Board of
Directors of the Company to serve as a member of such board,
but only if nominated for election by affirmative vote of
three-quarters of the members of the Board of Directors of the
Company, or of a nominating committee thereof, in office at the
time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents (within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf of the
Board of Directors of the Company; or
<PAGE>
3
(v) any event which would be described in section 2.4(i), (ii),
(iii) or (iv) if the term "Bank" were substituted for the term "Company"
therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 2.4, the term "person" shall have the meaning assigned
to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
Section 2.5 Code means the Internal Revenue Code of 1986
----
(including the corresponding provisions of any succeeding law).
Section 2.6 Committee means the Compensation Committee of the
---------
Board and any successor thereto.
Section 2.7 Company means Port Financial Corp. and any successor
-------
thereto.
Section 2.8 Consulting Services means advice and consultation
-------------------
provided to the Company as requested from time to time by the Board or any
officer of the Company designated by the Board, not to exceed two (2) days a
month.
Section 2.9 Director Emeritus means a former Board Member who
-----------------
satisfies the eligibility requirements set forth in section 2.1 and agrees to
provide Consulting Services to the Company.
Section 2.10 Disability means the inability of a Director Emeritus
----------
to perform any consulting Services because of a physical or mental impairment as
determined in the discretion of the Board.
Section 2.11 Effective Date means [the date of Conversion].
--------------
Section 2.12 Monthly Benefit means a monthly benefit equal to
---------------
$1,000.
Section 2.13 Period of Engagement means the period for which a
--------------------
Director Emeritus agrees to provide Consulting Services to the Company under
section 2.1, which period shall be at least 12 months but not more than 36
months.
Section 2.14 Plan means the Port Financial Corp. Director Emeritus
----
Consultation Plan, as amended from time to time.
Section 2.15 Retirement Age means the age at which an individual is
--------------
no longer eligible to be elected to membership of the Board as provided under
the by-laws of the Company.
<PAGE>
4
Article III
-----------
Participation
-------------
Section 3.1 Eligibility.
-----------
Any person who attains his or her Retirement Age within four years
after the Effective Date shall be eligible to participate in this Plan upon his
or her termination of service as a Board Member; provided, however, that any
person who has been removed from service as a Board Member for cause or is
required to resign from service as a Board Member under any applicable banking
law or regulation shall not be eligible to serve as a Director Emeritus. For the
purpose of this Plan, the termination of service as a Board Member following a
failure to be elected to the Board by stockholders shall not be deemed to be a
removal for cause or a required resignation under any applicable banking law or
regulation
Section 3.2 Participation.
-------------
A Board Member who is eligible for participation in this Plan may
elect to participate by offering to provide Consulting Service for a Period of
Engagement selected by him or her. Such election shall be made by written notice
to the Company given no later than then end of the first calendar month to begin
after the Board Member's termination of service as a Board Member. Such notice
shall specify the Period of Engagement. Following receipt of such notice , the
Company and the former Board Member shall enter into a form of Consulting
Agreement prescribed by the Company that is consistent with the terms and
conditions of this Plan and the Period of Engagement specified by the former
Board. If the Company does not receive from a former Board Member eligible to
participate in the Plan a written notice in the form and within the time
prescribed in this section 3.2, he or she shall be deemed to have permanently
declined to participate.
Article IV
----------
Consulting Services
-------------------
Section 4.1 Appointment as Director Emeritus.
--------------------------------
During his or her Period of Engagement, a former Board Member who
elects to participate in the Plan shall be designated a Director Emeritus and
shall agree to use of his name together with such designation in any
communication with shareholders of the Company, depositors or other customers of
the Bank or any other constituency to which the Bank or the Company elects or is
required to provide a list of Directors Emeritus.
Section 4.2 Attendance at Board Meetings.
----------------------------
<PAGE>
5
During his or her Period of Engagement, a Director Emeritus shall have
the right and responsibility to attend monthly meetings of the Board and any
other special meetings of the Board or any committee thereof to which an
invitation for attendance is extended to the Director Emeritus by the Board or a
committee thereof. However, in no event will a Director Emeritus have any right
or power to vote on any action considered by the Board or any committee thereof.
Section 4.3 Other Advisory Services.
------------------------
During his or her Period of Engagement, a Director Emeritus shall
perform other advisory services, if any, in the manner provided in his or her
Consulting Agreement.
Article V
---------
Benefits
--------
Section 5.1 Monthly Benefit.
---------------
A Director Emeritus shall be entitled to the payment of an amount
equal to the Monthly Benefit for each month during the Period of Engagement,
commencing with the month next following the month in which the Director
Emeritus ceases to provide services as a Board Member and continuing until the
earlier of (a) the last month in the Period of Engagement and (b) first month in
which the Director Emeritus fails or refuses to provide the services
contemplated by the Plan and the Consulting Agreement.
Section 5.2 Disability Benefit.
------------------
In the event a Director Emeritus ceases during his or her Period of
Engagement to perform to provide the services contemplated by the Plan and the
Consulting Agreement because of Disability, monthly payments shall continue
until the last month in the Period of Engagement. Emeritus.
Section 5.3 Death Benefit.
-------------
In the event a Director Emeritus dies during his or her Period of
Engagement, any unpaid payments remaining for such Period of Engagement shall be
paid in a lump sum (without discount for early payment) to the Director
Emeritus' spouse, or if none exists, to the Director Emeritus' estate.
<PAGE>
6
Article VI
----------
Change of Control
-----------------
Section 6.1 Change of Control.
-----------------
Notwithstanding anything in the Plan to the contrary, the Plan shall
terminate on the effective date of any Change of Control. In such event, no
Director Emeritus shall have any further obligation to provide Consulting
Services and each Director Emeritus shall receive a lump sum payment equal to
the unpaid payments remaining for his or her Period of Engagement. Each Board
Member who is in service as of the effective date of a Change of Control shall
receive a lump sum payment equal to the Monthly Benefits the Board Member would
have received had he or she been a Director Emeritus as of such date and had
unpaid payments remaining for a Period of Engagement of 36 months.
Article VII
-----------
Administration
--------------
Section 7.1 Duties of the Committee.
-----------------------
The Committee shall have full responsibility for the management,
operation, interpretation and administration of the Plan in accordance with its
terms, and shall have such authority as is necessary or appropriate in carrying
out its responsibilities. Actions taken by the Committee pursuant to this
section 6.1 shall be conclusive and binding upon the Company, the Board Members,
any Director Emeritus and other interested parties.
Section 7.2 Expenses.
--------
Any expenses incurred in the management, operation, interpretation or
administration of the Plan shall be paid by the Company. In no event shall the
benefits otherwise payable under this Plan be reduced to offset the expenses
incurred in managing, operating, interpreting or administering the Plan.
Section 7.3 Liabilities of the Committee.
----------------------------
Neither the Committee nor its individual members shall be deemed to be
a fiduciary with respect to this Plan; nor shall any of the foregoing
individuals or entities be liable to any person in connection with the
management, operation, interpretation or administration of the Plan, any such
liability being solely that of the Company.
<PAGE>
7
Article VIII
------------
Amendment and Termination
-------------------------
Section 8.1 Amendment and Termination.
-------------------------
The Board shall have the right to amend the Plan, from time to time
and at any time, in whole or in part, and to terminate the Plan; provided,
however, that no such amendment or termination shall reduce benefits accrued as
of the date of such amendment or termination.
Article IX
----------
Miscellaneous Provisions
------------------------
Section 9.1 Construction of Language.
------------------------
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words in the plural may be read in the singular, and words
importing the masculine gender shall be deemed equally to refer to the feminine
or the neuter. Any reference to an article or section shall be to an article or
section of the Plan, unless otherwise indicated.
Section 9.2 Governing Law.
-------------
The Plan shall be construed, administered and enforced according to
the laws of the Commonwealth of Massachusetts applicable to contracts between
citizens and residents of the Commonwealth of Massachusetts entered into and to
be performed entirely within such jurisdiction, except to the extent that such
laws are preempted by federal law.
Section 9.3 Indemnification.
---------------
The Company shall indemnify, hold harmless and defend each Board
Member or former Board Member, against their reasonable costs, including legal
fees, incurred by them, or arising out of any action, suit or proceeding in
which they may be involved, as a result of their efforts, in good faith, to
defend or enforce the terms of the Plan.
Section 9.4 Non-Alienation of Benefits.
--------------------------
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such rights be
liable for or subject to debts, contracts, liabilities or torts.
<PAGE>
8
Section 9.5 Notices.
-------
Any communication required or permitted to be given under the Plan,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or 5 days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Company:
Port Financial Corp.
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Attention: Chairman, Compensation Committee
of the Board of Directors
(b) if to any party other than the Company, to such party at the
address last furnished by such party by written notice to the
Company.
Section 9.6 Operation as an Unfunded Plan.
-----------------------------
The Plan is intended to be (a) a contractual obligation of the Company
to pay the benefits as and when due in accordance with its terms, (b) an
unfunded and non-qualified plan such that the benefits payable shall not be
taxable to the recipients until such benefits are paid and (c) a plan covering
persons who are independent contractors of the Company. The Plan is not intended
to be subject to or comply with the requirements of the Employee Retirement
Income Security Act of 1974, as amended, or of section 401(a) of the Code. The
Company may establish a trust to which assets may be transferred by the Company
in order to provide a portion or all of the benefits otherwise payable by the
Company under the Plan; provided, however, that the assets of such trust shall
be subject to the claims of the creditors of the Company in the event that it is
determined that the Company is insolvent or that grounds exist for the
appointment of a conservator or receiver. The Plan shall be administered and
construed so as to effectuate these intentions.
Section 9.7 Plan Documents.
--------------
The Secretary of the Board shall provide a copy of this Plan to each
Board Member who becomes eligible to serve as a Director Emeritus.
Section 9.8 Required Regulatory Provisions.
------------------------------
Notwithstanding anything herein contained to the contrary, any
benefits paid by the Company, whether pursuant to this Plan or otherwise, are
subject to and conditioned upon their
<PAGE>
9
compliance with section 18(k) of the Federal Deposit Insurance Act ("FDI Act"),
12 U.S.C. (S)1828(k), and any regulations promulgated thereunder.
Section 9.9 Severability.
------------
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 9.10 Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of the Plan shall not be deemed a waiver of such term,
covenant or condition. A waiver of any provision of the Plan must be made in
writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
<PAGE>
EXHIBIT 10.8
Officers' Deferred Compensation Plan
of
Cambridgeport Bank
______________________________
Effective as of [_______________]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article I
---------
Definitions
-----------
Section 1.1 401(k) Plan ................................................. 1
-----------
Section 1.2 Administrator ............................................... 1
------------
Section 1.3 Bank ........................................................ 1
----
Section 1.4 Beneficiary ................................................. 1
-----------
Section 1.5 Board ....................................................... 1
-----
Section 1.6 Code ........................................................ 1
----
Section 1.7 Compensation ................................................ 1
------------
Section 1.8 Committee ................................................... 1
---------
Section 1.9 Effective Date .............................................. 1
--------------
Section 1.10 Elective Deferred Compensation .............................. 1
------------------------------
Section 1.11 Hardship .................................................... 1
--------
Section 1.12 Investment Classification ................................... 2
-------------------------
Section 1.13 Investment Funds ............................................ 2
----------------
Section 1.14 Memorandum Account .......................................... 2
------------------
Section 1.16 Nonelective Deferred Compensation ........................... 2
---------------------------------
Section 1.17 Officer ..................................................... 2
-------
Section 1.18 Participant ................................................. 2
-----------
Section 1.19 Participating Company ....................................... 2
---------------------
Section 1.20 Plan ........................................................ 2
----
Article II
----------
Participation
-------------
Section 2.1 Election to Participate ..................................... 3
-----------------------
Section 2.2 Changes in Participation .................................... 3
------------------------
Section 2.3 Nonelective Deferred Compensation ........................... 3
---------------------------------
Article III
-----------
Deferred Amounts
----------------
Section 2.3 In General .................................................. 4
----------
Section 2.4 Adjustments to Memorandum Accounts .......................... 4
----------------------------------
Section 2.5 Vesting ..................................................... 5
-------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article IV
----------
Trust
-----
Section 4.1 Establishment of Trust ...................................... 5
----------------------
Section 4.2 Contributions to Trust ...................................... 6
----------------------
Section 4.3 Unfunded Character of Plan .................................. 6
--------------------------
Article V
---------
Distributions
-------------
Section 5.1 Hardship Distributions ...................................... 6
----------------------
Section 5.2 Distributions to Participants ............................... 6
-----------------------------
Section 5.3 Distributions to Beneficiaries .............................. 7
------------------------------
Article VI
----------
Amendment and Termination
-------------------------
Section 6.1 Amendment by the Bank ....................................... 7
---------------------
Section 6.2 Termination ................................................. 8
-----------
Section 6.3 Amendment or Termination by Other Employers ................. 8
-------------------------------------------
Article VII
-----------
Miscellaneous Provisions
------------------------
Section 7.1 Notice and Election ......................................... 8
-------------------
Section 7.2 Construction and Language ................................... 8
-------------------------
Section 7.3 Headings .................................................... 9
--------
Section 7.4 NonAlienation of Benefits ................................... 9
-------------------------
Section 7.5 Indemnification ............................................. 9
---------------
Section 7.6 Severability ................................................ 9
------------
Section 7.7 Waiver ...................................................... 10
------
Section 7.8 Governing Law ............................................... 10
-------------
Section 7.9 Withholding ................................................. 10
-----------
Section 7.10 No Deposit Account .......................................... 10
------------------
Section 7.11 Rights of Employees ......................................... 10
-------------------
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.12 Status of Plan Under ERISA .................................. 10
--------------------------
Section 7.13 Successors and Assigns....................................... 11
----------------------
</TABLE>
(iv)
<PAGE>
Officers' Deferred Compensation Plan
------------------------------------
of
Cambridgeport Bank
------------------
Article I
---------
Definitions
-----------
The following definitions shall apply for the purposes of this Plan
unless a different meaning is clearly indicated by the context:
Section 1.1 401(k) Plan means the SBERA 401(k) Plan as adopted by
-----------
Cambridgeport Bank.
Section 1.2 Administrator means any person, committee, corporation
-------------
or organization appointed by the Committee to perform the responsibilities
assigned to the Administrator hereunder.
Section 1.3 Bank means Cambridgeport Bank or any successor thereto.
----
Section 1.4 Beneficiary means the person or persons designated by
-----------
the Participant under section 5.2(b) of the Plan.
Section 1.5 Board means the Board of Directors of the Bank.
-----
Section 1.6 Code means the Internal Revenue Code of 1986 (including
----
the corresponding provisions of any succeeding law).
Section 1.7 Compensation means, during any period, the
------------
compensation paid to an Officer by any Participating Company that reportable to
the Internal Revenue Service as wages for such period on Form W-2 in the absence
of an election to defer receipt of such under the terms of this Plan.
Section 1.8 Committee means the Compensation Committee of the
---------
Board.
Section 1.9 Effective Date means ___________________.
--------------
Section 1.10 Elective Deferred Compensation means, for any
------------------------------
Participant for any period, such portion of the Compensation payable to the
Participant the receipt of which is deferred pursuant to an election made under
this Plan.
Section 1.11 Hardship means, with respect to any Participant, an
--------
unanticipated emergency caused by an event beyond the control of the Officer
which results in an immediate and
-1-
<PAGE>
heavy financial need of the Officer. The existence of a Hardship shall be
determined by the Committee in its sole and absolute discretion.
Section 1.12 Investment Classification means a hypothetical
-------------------------
investment classification in which a Participant's Memorandum Account shall be
deemed to be invested for purposes of crediting or charging earnings, losses,
appreciation or depreciation with respect to the Participant's Memorandum
Account, in accordance with section 3.3(c). For purposes of the Plan, the
Investment Funds shall be used as the models for the Investment Classifications.
Section 1.13 Investment Funds means the investment funds established
---------------
from time to time by for the investment of participant accounts maintained under
the 401(k) Plan.
Section 1.14 Memorandum Account means, with respect to a
------------------
Participant, an account maintained by the Bank to which is credited the amount
of the Participant's Elective Deferred Compensation and Nonelective Deferred
Compensation, together with any earnings and appreciation thereon, and against
which are charged any losses, depreciation or distributions thereof, pursuant to
Section 3.3 and Articles V.
Section 1.16 Nonelective Deferred Compensation means the amount of
---------------------------------
deferred compensation credited to a Participant's Memorandum Account pursuant to
section 2.3.
Section 1.17 Officer means the Chairman, Chief Executive Officer,
-------
President, or Executive Vice President of the Bank and such other officers the
Bank or any Participating Company that is selected for participation hereunder
by the Committee; provided, however, that no person shall be named an Officer,
nor shall any person who has been an Officer continue as an Officer for purposes
of the Plan, to the extent that such person's participation, or continued
participation, in the Plan would cause the Plan to fail to be considered
maintained for the primary purpose of providing deferred compensation for a
select group of management or highly compensated employees for purposes of
ERISA.
Section 1.18 Participant means an Officer or former Officer who has
-----------
a Memorandum Account under the Plan.
Section 1.19 Participating Company means the Bank, and any other
---------------------
company which, with the prior approval of the Bank, may adopt this Plan.
Section 1.20 Plan means the Officers' Deferred Compensation Plan of
----
Cambridgeport Bank.
-2-
<PAGE>
Article II
----------
Participation
-------------
Section 2.1 Election to Participate.
-----------------------
(a) Any Officer may elect to become a Participant in the Plan by
submitting to the Administrator a written election, on a form prescribed by the
Administrator, to defer the receipt of all or any portion of his Compensation;
provided, however, that no Officer shall be permitted to defer receipt of
Compensation that is required to be withheld and remitted to any federal, state
or local taxing authority pursuant to any requirement for the collection of tax
at the source and that is required to fund any contribution required of the
Officer as a condition of participation in any employee benefit plan maintained
by the Bank or any other Participating Company.
(b) An election made pursuant to this section 2.1 shall be made on or
before the last day of any calendar year and shall be effective for the calendar
year following the calendar year in which such election is made and all
subsequent calendar years unless status as an Officer ceases or a change in the
rate of deferral is elected pursuant to section 2.2, provided however, that an
initial election made by an Officer and filed with the Administrator during the
thirty (30) day period immediately following the later of the Effective Date of
the Plan or the date the Officer first becomes an Officer shall take effect with
the first payment of Compensation to be made after the later of the date such
election is filed with the Administrator or such later date as the Officer shall
specify in his election.
Section 2.2 Changes in Participation.
------------------------
(a) An election by an Officer pursuant to section 2.1 shall continue
in effect until such termination of status as an Officer; provided, however,
that the Officer may, by written election filed with the Administrator, increase
or decrease the portion of his Compensation to be deferred, or discontinue such
deferral altogether. Such election shall be effective with respect to
Compensation payable after the calendar year in which such election is filed
with the Administrator; provided, however, that if an election provides for the
decrease or discontinuance of the Officer's deferral of Compensation and is made
on account of a Hardship, such election shall be effective with respect to
Compensation earned and payable after the filing of such election. In the event
that a Participant ceases to be an Officer or in the event that an Officer
ceases to defer receipt of his Compensation, the balance in his Memorandum
Account shall continue to be adjusted in accordance with Article III. An Officer
who has filed a written election to cease deferring receipt of his Deferrable
Compensation may thereafter again file an election to defer receipt of his
Deferrable Compensation in the same manner described in section 2.1, effective
for the calendar year subsequent to the calendar year in which he files the new
election.
Section 2.3 Nonelective Deferred Compensation.
---------------------------------
Each Officer who is eligible to participate in the 401(k) Plan and will be
credited with Nonelective Deferred Compensation in accordance with Article III
in an amount equal to:
-3-
<PAGE>
(a) the aggregate amount of employer matching contributions
(including any reallocation of amounts forfeited upon the termination of
employment of others participating in the 401(k) Plan) that would have been
credited to the Officer's account under the 401(k) Plan if for all relevant
periods he had made the maximum amount of pre-tax elective deferrals or
voluntary employee contributions required to qualify for the maximum
possible allocation of employer matching contributions (without regard to
any limitations applicable to tax-qualified plans that have the effect of
limiting the amount of employer matching contributions or pre-tax elective
deferrals, or voluntary employee contributions that may be made and without
regard to the amount of elective deferrals or voluntary employee
contributions actually made); over
(b) the aggregate amount of employer matching contributions
(including any reallocation of amounts forfeited upon the termination of
employment of others participating in the 401(k) Plan) that would have been
credited to the Officer's account under the 401(k) Plan (after giving
effect to any limitations applicable to tax-qualified plans that have the
effect of limiting the amount of employer matching contributions or pre-tax
elective deferrals, or voluntary employee contributions that may be made)
if for all relevant periods he had made the maximum amount of pre-tax
elective deferrals or voluntary employee contributions required to qualify
for the maximum possible allocation of employer matching contributions (and
without regard to the amount of elective deferrals or voluntary employee
contributions actually made).
Article III
-----------
Deferred Amounts
----------------
Section 2.3 In General.
----------
The Administrator shall maintain a separate Memorandum Account for
each Participant. Credits, charges, and other adjustments to each Participant's
Memorandum Account shall be made in accordance with this Article III. Neither
the Bank nor any Participating Company shall fund its liability for the balances
credited to a Memorandum Account, but each shall reflect its liability for such
balances on its books.
Section 2.4 Adjustments to Memorandum Accounts.
----------------------------------
(a) Each Participant's Memorandum Account shall be deemed to be
invested in the Investment Classification or Investment Classifications in the
same manner as his account under the 401(k) Plan.
-4-
<PAGE>
(b) Each Participant's Memorandum Account shall be adjusted to
reflect an amount of earnings, losses, appreciation or depreciation, as
appropriate with respect to the Investment Classification or Investment
Classifications in which the Participant's Memorandum Account is deemed to be
invested.
(c) The Memorandum Account established for each Participant shall be
adjusted from time to time, but in no event less frequently than monthly to
reflect:
(i) credits of Elective Deferred Compensation;
(ii) credits reflecting income, dividends and appreciation
attributable to the applicable Investment Classifications;
(iii) credits of Nonelective Deferred Compensation;
(iv) charges for losses or depreciation attributable to the
applicable Investment Classifications; and
(v) charges for payments to the Participant or his Beneficiary.
Section 2.5 Vesting.
-------
All amounts credited to a Participant's Memorandum Account shall be
100% vested at all times.
Article IV
----------
Trust
-----
Section 4.1 Establishment of Trust.
----------------------
The Bank may establish a trust fund which may be used to accumulate
funds to satisfy benefit liabilities to Participants, Former Participants and
their Beneficiaries under the Plan; provided, however, that the assets of such
trust shall be subject to the claims of the creditors of the Bank in the event
that it is determined that the Bank is insolvent; and provided, further, that
the trust agreement shall contain such terms, conditions and provisions as shall
be necessary to cause the Bank to be considered the owner of the trust fund for
federal, state or local income tax purposes with respect to all amounts
contributed to the trust fund or any income attributable to the investments of
the trust fund. The Bank shall pay all costs and expenses incurred in
establishing and maintaining such trust. Any payments made to a Participant,
Former Participant or Beneficiary from a trust established under this
section 4.1 shall offset payments which would otherwise be payable by the Bank
in the absence of the establishment of such trust. Any such trust will conform
to the terms of
-5-
<PAGE>
the model trust prescribed by Revenue Procedure 92-64, as the same may be
modified from time to time.
Section 4.2 Contributions to Trust.
----------------------
If a trust is established in accordance with section 4.1, the Bank
shall make contributions to such trust in such amounts and at such times as may
be specified by the Committee.
Section 4.3 Unfunded Character of Plan.
--------------------------
Notwithstanding the establishment of a trust pursuant to section 4.1,
the Plan shall be unfunded. Any liability of the Bank or another Participating
Company to any person with respect to benefits payable under the Plan shall be
based solely upon such contractual obligations, if any, as shall be created by
the Plan, and shall give rise only to a claim against the general assets of the
Bank or such Participating Company. No such liability shall be deemed to be
secured by any pledge or any other encumbrance on any specific property of the
Bank or a Participating Company.
Article V
---------
Distributions
-------------
Section 5.1 Hardship Distributions.
----------------------
In the event that a Participant has incurred a Hardship, as defined in
Section 2.2(b), the Committee may, in its sole discretion, allow such
Participant to obtain a lump sum withdrawal of an amount credited to his
Memorandum Account that does not exceed the amount necessary to alleviate the
Hardship.
Section 5.2 Distributions to Participants.
-----------------------------
(a) Upon a Participant's termination of service with the Bank and all
Participating Companies, an amount equal to the balance credited to such
Participant's Memorandum Account shall be paid in cash to the Participant in a
lump sum payment within thirty (30) days after the end of calendar year in which
such termination of service occurs, provided, however. that if a Participant so
elects within thirty (30) days after first becoming a Participant, payment may
be made in a lump sum as of some other date (not later than the last day of the
calendar year in which the Participant attains age 70 or terminates or
terminates service with all Participating Employers, whichever is later)
specified by the Participant in his election or in annual installments over such
number of years (not to exceed five (5)) and payable beginning on such date (not
later than the last day of the calendar year in which the Participant attains
age 70 or terminates or terminates service with all Participating Employers,
whichever is later) specified by the Participant in his election. In the event
payment is to be made in installments, each installment shall be equal to the
balance credited to the Participant's Memorandum Account as of the last day of
the month ending immediately prior to the date on which
-6-
<PAGE>
payment is to be made, divided by the number of installment payments remaining
to be paid (including the payment then being computed). Any portion of the
balance credited to the Participant's Memorandum Account with respect to which a
payment has not been made shall continue to be adjusted pursuant to section 3.3,
in accordance with the Investment Classifications in which the Participant's
Memorandum Account is deemed to be invested, until a distribution with respect
to such amount has been made.
(b) Distributions shall be made, or commence, within 30 days of the
date the Participant becomes entitled to payment pursuant to this Section 5.2.
Section 5.3 Distributions to Beneficiaries.
------------------------------
(a) A Participant may designate a Beneficiary or Beneficiaries by
filing a written notice with the Administrator prior to the Participant's death,
in such form and manner as the Administrator may prescribe. A Participant who
has designated a Beneficiary or Beneficiaries may change or revoke such
designation prior to the Participant's death by means of a similar written
instrument.
(b) In the event that a Participant dies before receiving payment of
his entire Memorandum Account, payment of the value of the deceased
Participant's Memorandum Account shall be made in a lump sum to his Beneficiary
or Beneficiaries. If no Beneficiary shall have been designated or if any such
designation shall be ineffective, or in the event that no designated Beneficiary
survives the Participant, payment of the value of the Participant's Memorandum
Account shall be made to the Participant's personal representative, or if no
personal representative is appointed within 6 months of the Participant's death,
to his surviving spouse, or if he has no surviving spouse, to his then living
descendants, per stirpes, in the same manner and at the same time as the
Participant's Memorandum Account would have been paid to the Participant had he
lived. If any Participant and any one or more of his designated Beneficiary
shall die in circumstances that leave substantial doubt as to who shall have
been the first to die, the Participant shall be deemed to have survived the
deceased Beneficiary(ies). The presence of substantial doubt for such purposes
shall be determined by the Committee in its sole and absolute discretion.
Article VI
----------
Amendment and Termination
-------------------------
Section 6.1 Amendment by the Bank.
---------------------
The Bank reserves the right, in its sole and absolute discretion, at
any time and from to time, by action of the Board, to amend the Plan in whole or
in part. In no event, however, shall any such amendment adversely affect the
right of any Participant, Former Participant or Beneficiary to receive any
benefits under the Plan in respect of participation for any period ending on or
before
-7-
<PAGE>
the later of the date on which such amendment is adopted or the date on which it
is made effective.
Section 6.2 Termination.
-----------
The Bank also reserves the right, in its sole and absolute discretion,
by action of the Board, to terminate the Plan. In such event, undistributed
benefits attributable to participation prior to the date of termination shall be
distributed as though each Participant terminated employment with the Bank, the
Company and all other Participating Employers as of the effective date of
termination of the Plan.
Section 6.3 Amendment or Termination by Other Employers.
-------------------------------------------
In the event that a corporation or trade or business other than the
Bank shall adopt this Plan, such corporation or trade or business shall, by
adopting the Plan, empower the Bank to amend or terminate the Plan, insofar as
it shall cover employees of such corporation or trade or business, upon the
terms and conditions set forth in sections 61 and 62; provided, however, that
any such corporation or trade or business may, by action of its board of
directors or other governing body, amend or terminate the Plan, insofar as it
shall cover employees of such corporation or trade or business, at different
times and in a different manner. In the event of any such amendment or
termination by action of the board of directors or other governing body of such
a corporation or trade or business, a separate plan shall be deemed to have been
established for the employees of such corporation or trade or business, and any
amounts set aside to provide for the satisfaction of benefit liabilities with
respect to employees of such corporation or trade or business shall be
segregated from the assets set aside for the purposes of this Plan at the
earliest practicable date and shall be dealt with in accordance with the
documents governing such separate plan.
Article VII
-----------
Miscellaneous Provisions
------------------------
Section 7.1 Notice and Election.
-------------------
The Committee shall provide a copy of this Plan and the resolutions of
adoption to each Officer who becomes eligible to participate, together with a
form on which the Officer may notify the Committee of his election whether to
become a Participant, which form, if he so elects, he may complete, sign and
return to the Committee.
Section 7.2 Construction and Language.
-------------------------
Wherever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
the masculine gender may be read as referring equally to the feminine gender or
the neuter. Any reference to an Article or section shall
-8-
<PAGE>
be to an Article or section of the Plan, unless otherwise indicated. If there is
any conflict between such headings and the text of the Plan, the text shall
control.
Section 7.3 Headings.
--------
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Agreement, the text shall control.
Section 7.4 Non-Alienation of Benefits.
--------------------------
Except as may otherwise be required by law, no distribution or payment
under the Plan to any Participant, Former Participant or Beneficiary shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, whether voluntary or involuntary, and any attempt
to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge
the same shall be void; nor shall any such distribution or payment be in any way
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person entitled to such distribution or payment. If any Participant,
Former Participant or Beneficiary is adjudicated bankrupt or purports to
anticipate, alienate, sell, transfer, assign, pledge encumber or charge any such
distribution or payment, voluntarily or involuntarily, the Committee, in its
sole discretion, may cancel such distribution or payment or may hold or cause to
be held or applied such distribution or payment, or any part thereof, to or for
the benefit of such Participant, Former Participant or Beneficiary, in such
manner as the Committee shall direct; provided, however, that no such action by
the Committee shall cause the acceleration or deferral of any benefit payments
from the date on which such payments are scheduled to be made.
Section 7.5 Indemnification.
---------------
The Bank shall indemnify, hold harmless and defend each Participant,
Former Participant and Beneficiary, against their reasonable costs, including
legal fees, incurred by them or arising out of any action, suit or proceeding in
which they may be involved, as a result of their efforts, in good faith, to
defend or enforce the obligations of the Bank, the Company and any other
Participating Employer under the terms of the Plan.
Section 7.6 Severability.
------------
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
-9-
<PAGE>
Section 7.7 Waiver.
------
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of the Plan shall not be deemed a waiver of such term,
covenant or condition. A waiver of any provision of the Plan must be made in
writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 7.8 Governing Law.
-------------
The Plan shall be construed, administered and enforced according to
the laws of the Commonwealth of Massachusetts without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by federal law. Any payments made pursuant to this Plan are subject to
and conditioned upon their compliance with 12 U.S.C. (S) 1828(k) and any
regulations promulgated thereunder.
Section 7.9 Withholding.
-----------
Payments from this Plan shall be subject to all applicable federal,
state and local income withholding taxes.
Section 7.10 No Deposit Account.
------------------
Nothing in this Plan shall be held or construed to establish any
deposit account for any Participant or any deposit liability on the part of the
Bank. Participants' rights hereunder shall be equivalent to those of a general
unsecured creditor of each Employer.
Section 7.11 Rights of Employees.
-------------------
No Employee shall have any right or claim to any benefit under the
Plan except in accordance with the provisions of the Plan. The establishment of
the Plan shall not be construed as conferring upon any Employee or other person
any legal right to a continuation of employment or to any terms or conditions of
employment, nor as limiting or qualifying the right of a Participating Employer
to discharge any Employee.
Section 7.12 Status of Plan Under ERISA.
--------------------------
The Plan is intended to be (a) to the maximum extent permitted under
applicable laws, an unfunded, non-qualified excess benefit plan as contemplated
by section 3(36) of ERISA for the purpose of providing benefits in excess of the
limitations imposed under section 415 of the Code, and (b) to the extent not so
permitted, an unfunded, non-qualified plan maintained primarily for the purpose
of providing deferred compensation for highly compensated employees, as
contemplated by sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan is
not intended to comply with the requirements of section 401(a) of the Code or to
be subject to Parts 2, 3 and 4 of Title I of ERISA. The Plan shall be
administered and construed so as to effectuate this intent.
-10-
<PAGE>
Section 7.13 Successors and Assigns
----------------------
The provisions of the Plan will inure to the benefit of and be binding
upon the Participants and their respective legal representatives and testate or
intestate distributes, and each Participating Company and their respective
successors and assigns, including any successor by merger or consolidation or a
statutory receiver or any other person or firm or corporation to which all or
substantially all of the assets and business of any Participating Company may be
sold or otherwise transferred.
-11-
<PAGE>
EXHIBIT 10.9
[Cambridgeport Bank Letterhead]
September 7, 1999
Ms. Sandra M. Uhlig
203 Willowbrook Drive
Wayland, MA 01778
Dear Sandy:
I am very pleased to inform you that our Executive Committee has approved
the following terms for your employment at Cambridgeport Bank.
Your position title is Senior Vice President/Business Banking, reporting
directly to me. Your salary will be $140,000 annually, payable on the tenth of
each month.
I am further confirming that if the bank elects to discontinue your
employment at any time from your date of hire to a date three years from your
date of hire, you will be entitled to a severance benefit of the greater of
$140,000 or your base salary at the time of termination. If you should
terminate on your own or be terminated for cause, your salary will be
discontinued on the date of termination without any severance benefit. In
addition, you will receive compensation of $20,000 minus applicable taxes, to be
paid on your date of hire.
Anne Marie Dyckman of our Human Resources department will contact you very
shortly to introduce herself and set up a time to get together and answer any
questions you may have.
Sandy, I am delighted that we will have the opportunity to work together.
The professionalism and skill set that you bring is a perfect fit with our plans
and I know you will have a rewarding and exciting career at Cambridgeport Bank.
As for me, I can't wait to get started!
Sincerely,
James B. Keegan
President & CEO
JBK/nac
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
There are currently no subsidiaries of Port Financial Corp. (the
"Registrant"). Following the conversion of Cambridgeport Mutual Holding Company
(the "MHC") from a Massachusetts mutual holding company into a Massachusetts
stock holding company, the Registrant will have two wholly-owned subsidiaries:
Cambridgeport Bank, a Massachusetts-chartered stock savings bank; and Brighton
Investments Corp., a Massachusetts securities corporation.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use our reports (and
to all references to our Firm) included in or made a part of this registration
statement.
ARTHUR ANDERSEN
Independent Public Accountant
Boston, Massachusetts
November 19, 1999
<PAGE>
EXHIBIT 23.3
November 19, 1999
Board of Trustees
Cambridgeport Mutual Holding Company
Board of Directors
Cambridgeport Bank
689 Massachusetts Avenue
Cambridge, Massachusetts 02139
Members of the Board of Trustees and Board of Directors:
We hereby consent to the use of our firm's name in the Form S-1
Registration Statement for Port Financial Corp. We also hereby consent to the
inclusion of, summary of and references to our Appraisal and our statement
concerning subscription rights in such filings including the prospectus of Port
Financial Corp.
Sincerely,
RP FINANCIAL, LC.
/s/ Gregory E. Dunn
-----------------------
Gregory E. Dunn
Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from consolidated
balance sheet and statement of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,731
<INT-BEARING-DEPOSITS> 5,062
<FED-FUNDS-SOLD> 6,542
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 133,900
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 544,812
<ALLOWANCE> 7,297
<TOTAL-ASSETS> 721,813
<DEPOSITS> 592,864
<SHORT-TERM> 41,431
<LIABILITIES-OTHER> 8,940
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 78,578
<TOTAL-LIABILITIES-AND-EQUITY> 721,813
<INTEREST-LOAN> 29,886
<INTEREST-INVEST> 6,323
<INTEREST-OTHER> 8,888
<INTEREST-TOTAL> 37,097
<INTEREST-DEPOSIT> 17,361
<INTEREST-EXPENSE> 1,583
<INTEREST-INCOME-NET> 18,153
<LOAN-LOSSES> 17,591
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,289
<INCOME-PRETAX> 5,433
<INCOME-PRE-EXTRAORDINARY> 3,607
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,607
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.63
<LOANS-NON> 32
<LOANS-PAST> 475
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,633
<CHARGE-OFFS> 11
<RECOVERIES> 113
<ALLOWANCE-CLOSE> 7,297
<ALLOWANCE-DOMESTIC> 7,297
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,201
</TABLE>
