<PAGE>
As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BERKSHIRE HILLS BANCORP, INC.
BERKSHIRE BANK
401(k) Plan
(Exact name of registrant as specified in its charter)
DELAWARE 6036 Being applied for
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code Number)
Organization)
24 North Street
Pittsfield, Massachusetts 01201
(413) 443-5601
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
James A. Cunningham, Jr.
President and Chief Executive Officer
Berkshire Bank
24 North Street
Pittsfield, Massachusetts 01201
(413) 443-5601
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Douglas P. Faucette, Esquire
Lawrence M. F. Spaccasi, Esquire
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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Calculation of Registration Fee
- ---------------------------------------------------------------------------------------------------------------
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price Aggregate Offering Registration
Per Unit Price (2) Fee
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<S> <C> <C> <C> <C>
Common Stock 10,326,609
$.01 par value Shares(1) $10.00 $103,266,090 $27,263
- ---------------------------------------------------------------------------------------------------------------
Participation (3) _______ $ 5,929,249 (4)
Interests
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</TABLE>
(1) Includes shares of Common Stock to be issued to Berkshire Hills Foundation,
Inc., a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) In addition, pursuant to Rule 416(c) under the Securities Act, this
registration statement also covers an indeterminate amount of interests to
be offered or sold pursuant to the employee benefit plan described herein.
(4) The securities of Berkshire Hills Bancorp, Inc. to be purchased by Berkshire
Bank 401(k) Plan are included in the amount shown for Common Stock.
Accordingly, no separate fee is required for the participation interests. In
accordance with Rule 457(h) of the Securities Act, as amended, the
registration fee has been calculated on the basis of the number of shares of
Common Stock that may be purchased with the current assets of such Plan.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
INTERESTS IN
BERKSHIRE BANK
401(k) Plan
and
Offering of 592,924 Shares of
Berkshire Hills Bancorp, Inc.
Common Stock ($.01 Par Value)
________________________
This prospectus supplement relates to the offer and sale to participants in
the Berkshire Bank 401(k) Plan of participation interests and shares of common
stock of Berkshire Hills.
The Board of Directors of Berkshire Bank has adopted a plan to convert
Berkshire Bancorp, the mutual holding company for Berkshire Bank, to a stock
holding company. As part of the conversion, Berkshire Hills has been
established to acquire all of the stock of Berkshire Bank and simultaneously
offer Berkshire Hills common stock to the public under certain purchase
priorities in the plan of conversion. After the conversion, Berkshire Bancorp
will cease to exist.
In connection with the offering of Berkshire Hills common stock, 401(k)
Plan participants are now permitted to direct the trustee of the 401(k) Plan to
use their current account balances to subscribe for and purchase shares of
Berkshire Hills common stock through the Berkshire Hills Stock Fund. Based
upon the value of the 401(k) Plan assets at December 31, 1999, the trustee of
the 401(k) Plan could purchase up to 592,924 shares of Berkshire Hills common
stock assuming a purchase price of $10.00 per share. This prospectus supplement
relates to the election of 401(k) Plan participants to direct the trustee of the
401(k) Plan to invest all or a portion of their 401(k) Plan accounts in
Berkshire Hills common stock.
The prospectus dated _______________________________, 2000, of Berkshire
Hills, which we have attached to this prospectus supplement, includes detailed
information regarding the conversion, the common stock and the financial
condition, results of operations and business of Berkshire Bank. This
prospectus supplement provides information regarding the 401(k) Plan. You
should read this prospectus supplement together with the prospectus and keep
both for future reference.
Please refer to "Risk Factors" beginning on page __ of the prospectus.
The date of this Prospectus Supplement is ____________________, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE MASSACHUSETTS DIVISION
OF BANKS, THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR ANY OTHER STATE OR
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED
THESE SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This prospectus supplement may be used only in connection with offers and
sales by Berkshire Hills of interests or shares of common stock pursuant to the
401(k) Plan. No one may use this prospectus supplement to reoffer or resell
interests or shares of common stock acquired through the 401(k) Plan.
Berkshire Bank has not authorized any person to give any information or to
make any representations other than those contained in the prospectus or this
prospectus supplement, and, if given or made, no one may rely on such
information or representations as having been authorized by Berkshire Bank or
the 401(k) Plan. This prospectus supplement does not constitute an offer to
sell or solicitation of an offer to buy any securities in any jurisdiction to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus supplement and the
prospectus nor any sale of common stock shall under any circumstances create any
implication that there has been no change in the affairs of Berkshire Bank or
the 401(k) Plan since the date of this prospectus supplement, or that the
information contained in this prospectus supplement or incorporated by reference
is correct as of any time subsequent to the date hereof.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE OFFERING.................................................... 1
Securities Offered............................................ 1
Election to Purchase the Common Stock in the Conversion....... 1
Value of Participation Interests.............................. 1
Method of Directing Transfer.................................. 1
Time for Directing Transfer................................... 2
Irrevocability of Transfer Direction.......................... 2
Direction to Purchase the Common Stock After the Conversion... 2
Purchase Price of the Common Stock............................ 2
Nature of a Participant's Interest in the Common Stock........ 2
Voting and Tender Rights of the Common Stock.................. 3
DESCRIPTION OF THE PLAN......................................... 3
Introduction.................................................. 3
Eligibility and Participation................................. 4
Contributions Under the Plan.................................. 4
Limitations on Contributions.................................. 4
Investment of Contributions................................... 5
Benefits Under the Plan....................................... 7
Withdrawals and Distributions from the Plan................... 7
Administration of the Plan.................................... 8
Reports to Plan Participants.................................. 8
Plan Administrator............................................ 8
Amendment and Termination..................................... 8
Merger, Consolidation or Transfer............................. 9
Federal Income Tax Consequences............................... 9
ERISA and Other Qualification................................. 10
Restrictions on Resale........................................ 10
SEC Reporting and Short-Swing Profit Liability................ 10
LEGAL OPINION................................................... 11
</TABLE>
<PAGE>
THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement are
participation interests in the 401(k) Plan. Assuming a purchase price of $10.00
per share, the trustee may acquire up to 592,924 shares of common stock for the
Berkshire Hills Stock Fund. Berkshire Hills, the proposed holding company for
Berkshire Bank, is the issuer of the common stock. Only employees of Berkshire
Bank may participate in the 401(k) Plan. The interests offered under this
prospectus supplement are conditioned on the consummation of the conversion.
Your investment in the Berkshire Hills Stock Fund in connection with the
conversion is subject to priorities set forth in the plan of conversion of
Berkshire Bank.
This prospectus supplement contains information regarding the 401(k) Plan.
The attached prospectus contains information regarding the conversion and the
financial condition, results of operations and business of Berkshire Bank. The
address of the principal executive office of Berkshire Bank is 24 North Street,
Pittsfield, MA 01201. The telephone number of Berkshire Bank is (413) 443-5601.
Election to Purchase the Common Stock in the Conversion
In connection with the conversion, Berkshire Bank has amended the 401(k)
Plan to permit you to direct the trustee to transfer all or part of the funds
which represent your beneficial interest in the assets of the 401(k) Plan to the
Berkshire Hills Stock Fund. The trustee of the 401(k) Plan will subscribe for
common stock offered for sale in connection with the conversion in accordance
with each participant's direction. In the event the conversion offering is
oversubscribed and some or all of your funds cannot be used to purchase common
stock in the conversion offering, the trustee will reallocate the amount not
invested in common stock on a proportionate basis to the other investment
options you have selected.
All plan participants are eligible to direct a transfer of funds to the
Berkshire Hills Stock Fund. However, such directions are subject to the
purchase priorities in the plan of conversion of Berkshire Bancorp.
Participants who had a savings account of $50.00 or more on September 30, 1998,
at Berkshire Bank have first priority. No 401(k) Plan participants may purchase
in the subscription offering more than $250,000 of the common stock.
Value of Participation Interests
As of December 31, 1999, the market value of the assets of the 401(k) Plan
totaled $5,929,249. The plan administrator informed each participant of the
value of his or her beneficial interest in the 401(k) Plan as of December 31,
1999. The value of plan assets represents the past contributions to the 401(k)
Plan by or on behalf of the participants of the 401(k) Plan, plus or minus
earnings or losses on the contributions, less previous withdrawals.
Method of Directing Transfer
If you want to use your 401(k) Plan funds to purchase common stock in the
Berkshire Hills initial public offering, you must make a transfer of funds into
the Berkshire Hills Stock Fund from the other investment funds in which your
funds are invested. You must do this by completing the attached form and
submitting it to Human Resources. The trustee will submit an order form on your
behalf to purchase the maximum number of shares in the initial public offering
that can be purchased with the funds you transferred to the Berkshire Hills
Stock Fund. If you do not wish to make such an election at this time, you do
not need to take any action.
1
<PAGE>
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Berkshire Hills Stock Fund in connection with the conversion is ten (10) days
prior to ____________________, the Expiration Date of the offering. You should
return the Contribution and Investment Form attached to this prospectus
supplement to the Human Resources Department of Berkshire Bank by __:__ p.m. on
__________.
Irrevocability of Transfer Direction
Your direction to transfer amounts credited to your account in the 401(k)
Plan to the Berkshire Hills Stock Fund in connection with the conversion cannot
be changed. Pending completion of the initial public offering, the funds you
transfer to the Berkshire Hills Stock Fund will be held in an interest-bearing
account at Berkshire Bank on the same terms as other subscribers in the initial
public offering, as described in the attached prospectus.
Direction to Purchase the Common Stock After the Conversion
After the conversion, you may direct the trustee of the 401(k) Plan to
transfer a certain percentage (in multiples of not less than 1%) of the net
value of your interests in the trust fund to the Berkshire Hills Stock Fund or
to the other investment funds available under the 401(k) Plan. Alternatively,
you may direct the trustee of the 401(k) Plan to transfer a certain percentage
of your interest in the Berkshire Hills Stock Fund to the trust fund and
invested in accordance with the terms of the 401(k) Plan. You may direct the
trustee to invest future contributions made to the 401(k) Plan on your behalf in
the Berkshire Hills Stock Fund or any of the other funds available under the
401(k) Plan. Following your initial election, you may change the allocation of
your interest in the Berkshire Hills Stock Fund on the first day of any calendar
quarter by submitting an appropriate form to the plan administrator. You may
obtain a form from the Human Resources Department of Berkshire Bank. Special
restrictions may apply to transfers directed by those participants who are
officers, directors and principal shareholders of Berkshire Bank who are subject
to the provisions of Section 16(b) of the Securities Exchange Act of 1934.
Purchase Price of the Common Stock
The trustee will use the funds transferred to the Berkshire Hills Stock
Fund to purchase shares of common stock in the conversion. The trustee will pay
the same price for shares of common stock as all other persons who purchase
shares of the common stock in the conversion.
Nature of a Participant's Interest in the Berkshire Hills Stock Fund
With the other investment funds in the 401(k) Plan, the funds purchase
their underlying investment every pay period. Each investment fund's unit value
is updated every day based on the total value of its underlying investments and
the number of units held in the fund. Distributions, withdrawals, loans and
investment transfers occur without having to wait until the end of the calendar
quarter. Loan and transfer requests are made through the Voice Response System
("VRS"). However, the Berkshire Hills Stock Fund differs from the other
investment options in the 401(k) Plan in the following ways:
. Any of your elective deferrals that you direct into the Berkshire Hills
Stock Fund are invested in the fund every pay period (as your deferrals are
withheld from each paycheck). However, your money is invested in a money
market fund and earns interest until the end of the calendar quarter, at
which time the cash is used to buy Berkshire Hills common stock.
. The Berkshire Hills Stock Fund's unit values are determined only at the
end of a calendar quarter, based on the market value of all Berkshire Hills
common stock the fund holds. The units you hold do not represent an
equivalent number of Berkshire Hills common stock, but instead reflect your
portion of the fund's holdings.
2
<PAGE>
. The value of your investment in the Berkshire Hills Stock Fund that you
can obtain from the VRS will be its value based on the Berkshire Hills
Stock Fund unit value at the close of the prior calendar quarter plus your
deferrals, which are being held in money market fund until the end of the
calendar quarter.
. If you invest in the Berkshire Hills Stock Fund, all distributions and
investment transfers you make involving that fund are done only at the end
of the applicable calendar quarter using the appropriate administrative
form, which must reach Human Resources at least two weeks before the end of
the calendar quarter. Transfers into or out of the Berkshire Hills Stock
Fund cannot be initiated in the VRS.
. Withdrawals can only be drawn from your Berkshire Hills Stock Fund at the
end of a calendar quarter, unlike the other funds, which can be drawn
against on any day. Therefore, withdrawals will be drawn first from the
other funds, not your interest in the Berkshire Hills Stock Fund. Only if
there is not enough money in your other funds to meet your withdrawal
amount will the remainder be drawn from your interest in the Berkshire
Hills Stock Fund at the end of the calendar quarter. In that event, the
entire amount of your withdrawal will not be made until after the end of
the calendar quarter.
. When you request from the VRS the amount available for loan, the amount
will not include your interest in the Berkshire Hills Stock Fund. If you
wish to borrow from your interest in the Berkshire Hills Stock Fund, you
must first transfer an amount out of the Berkshire Hills Stock Fund, equal
to twice the amount you wish to borrow, into one of the other investment
funds. Then you can follow the usual procedures to request a loan from
that investment fund.
Voting and Tender Rights of the Common Stock
The plan administrator generally will exercise voting rights attributable
to all of the common stock held by the Berkshire Hills Stock Fund. However, in
the event that a significant corporate transaction is proposed to the
shareholders of Berkshire Hills, such as a tender offer, the trustees of the
401(k) Plan may pass-through to you the voting or tender rights of shares in the
Berkshire Hills Stock Fund that represent your interest in the fund. The number
of shares of the common stock held in the Berkshire Hills Stock Fund that the
trustee votes in the affirmative and negative on each matter shall be
proportionate to the number of voting instruction rights exercised by
participants in the affirmative and negative, respectively. For matters not
involving a tender offer, the plan administrator will direct the vote of
allocated shares and participants will not have an opportunity to direct the
voting of shares.
DESCRIPTION OF THE PLAN
Introduction
Effective February 1, 2000, Berkshire Bank adopted the Berkshire Bank
401(k) Plan in the SBERA Common and Collective Trust. Berkshire Bank intends
for the 401(k) Plan to comply, in form and in operation, with all applicable
provisions of the Internal Revenue Code and the Employee Retirement Income
Security Act, most commonly referred to as "ERISA." Berkshire Bank may amend
the 401(k) Plan from time to time in the future to ensure continued compliance
with these laws. Berkshire Bank may also amend the 401(k) Plan from time to
time in the future to add, modify, or eliminate certain features of the plan, as
it sees fit. As a plan subject to ERISA, federal law provides you with various
rights and protections as a plan participant. Although the 401(k) Plan is
subject to many of the provisions of ERISA, your benefits under the plan are not
guaranteed by the Pension Benefit Guaranty Corporation.
APPLICABLE FEDERAL TAX LAW REQUIRES THE 401(K) PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON YOUR RIGHT TO WITHDRAW AMOUNTS HELD UNDER THE PLAN PRIOR TO YOUR
TERMINATION OF EMPLOYMENT WITH BERKSHIRE BANK. FEDERAL LAW MAY ALSO IMPOSE AN
EXCISE TAX ON WITHDRAWALS MADE FROM THE 401(k) PLAN PRIOR TO YOUR ATTAINMENT OF
AGE 59-1/2, REGARDLESS OF WHETHER THE WITHDRAWAL OCCURS DURING YOUR EMPLOYMENT
WITH BERKSHIRE BANK OR AFTER TERMINATION OF EMPLOYMENT.
3
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Reference to Full Text of Plan. The following portions of this prospectus
------------------------------
supplement summarize certain provisions of the 401(k) Plan. Berkshire Bank
qualifies these summaries in their entirety by the full text of the 401(k) Plan.
You may obtain copies of the 401(k) Plan document by sending a request to: Plan
Administrator, Thomas Forese, Jr., Savings Banks Employees Retirement
Association, 69 Cummings Park, Woburn, Massachusetts 01801. You should
carefully read the full text of the 401(k) Plan document to understand your
rights and obligations under the plan.
Eligibility and Participation
Any employee of Berkshire Bank may participate in the 401(k) Plan as of the
first day of the month following completion of a "year of service" and
attainment of age twenty-one. For purposes of the 401(k) Plan, you generally
complete a "year of service" when you complete 1,000 hours of service with
Berkshire Bank within a twelve-consecutive-month period measured from your date
of hire.
As of October 31, 1999, approximately 239 out of 254 then eligible
employees had elected to participate in the 401(k) Plan.
Contributions Under the Plan
401(k) Plan Participant Contributions. The 401(k) Plan permits each
-------------------------------------
participant to make pre-tax salary deferrals to the 401(k) Plan in amounts
ranging from 1% to 15% of compensation. Participants in the 401(k) Plan may
modify the amount contributed to the 401(k) Plan, effective on the first day of
the month, by filing a new deferral agreement with the plan administrator at
least 15 days prior to the effective date of the modification.
Berkshire Bank Contributions. Berkshire Bank has discretion under the
----------------------------
401(k) Plan to make matching contributions. Berkshire Bank currently makes
matching contributions to the 401(k) Plan equal to 100% of the first 3% of each
participant's deferred compensation for the plan year. Amounts deferred in
excess of 3% of a participant's compensation are not subject to matching
contributions.
Limitations on Contributions
Limitation on Employee Salary Deferral. Although the 401(k) Plan permits
--------------------------------------
you to defer up to 15% of your compensation, by law, your total pre-tax
deferrals under the 401(k) Plan, together with similar plans, may not exceed
$10,500 for 2000. The IRS will periodically increase this annual limitation.
Contributions in excess of this limitation ("excess deferrals") will be included
in an affected participant's gross income for federal income tax purposes in the
year they are made. In addition, any such excess deferral will again be subject
to federal income tax when distributed by the 401(k) Plan to the participant,
unless the excess deferral (together with any income allocable thereto) is
distributed to the participant not later than the first April 15th following the
close of the taxable year in which the excess deferral is made. Any income on
the excess deferral that is distributed not later than such date shall be
treated, for federal income tax purposes, as earned and received by the
participant in the taxable year in which the distribution is made.
Limitations on Annual Additions and Benefits. Under the requirements of
--------------------------------------------
the Internal Revenue Code, the 401(k) Plan provides that the total amount of
contributions and forfeitures (annual additions) allocated to participants under
the 401(k) Plan and other defined contribution plans during any plan year may
not exceed the lesser of 25% of the participant's compensation for the plan
year, or $30,000, for 2000. The 401(k) Plan will also limit annual additions to
the extent necessary to prevent the limitations set forth in the Internal
Revenue Code for all of the qualified defined benefit plans and defined
contribution plans maintained by Berkshire Bank from being exceeded.
4
<PAGE>
Limitation on Plan Contributions for Highly Compensated Employees. Special
-----------------------------------------------------------------
provisions of the Code limit the amount of salary deferrals and matching
contributions that may be made to the 401(k) Plan in any year on behalf of
highly compensated employees in relation to the amount of deferrals and matching
contributions made by or on behalf of all other employees eligible to
participate in the 401(k) Plan. If these limitations are exceeded, the level of
deferrals by highly compensated employees must be adjusted.
In general, a Highly Compensated Employee includes any employee who (1) was
a five percent owner of the employer at any time during the year or preceding
year; or (2) had compensation for the preceding year in excess of $85,000 and,
if the employer so elects, was in the top 20% of employees by compensation for
the year. The dollar amounts in the foregoing sentence are for 2000. Such
amounts are adjusted annually to reflect increases in the cost of living.
In order to prevent the disqualification of the 401(k) Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any plan year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following plan year. Berkshire Bank will be subject to
a 10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the plan year
to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any plan year the 401(k) Plan is a
---------------------------
Top-Heavy Plan (as defined below), then (i) Berkshire Bank may be required to
make certain minimum contributions to the 401(k) Plan on behalf of non-key
employees (as defined below), and (ii) certain additional restrictions would
apply with respect to the combination of annual additions to the 401(k) Plan and
projected annual benefits under any defined benefit plan maintained by Berkshire
Bank.
In general, the 401(k) Plan will be regarded as a "Top-Heavy Plan" for any
plan year if, as of the last day of the preceding plan year, the aggregate
balance of the accounts of participants who are Key Employees (as defined below)
exceeds 60% of the aggregate balance of the accounts of all participants. Key
Employees generally include any employee who, at any time during the plan year
or any of the four preceding plan years, is (1) an officer of the Bank having
annual compensation in excess of $60,000 who is in an administrative or policy-
making capacity, (2) one of the ten employees having annual compensation in
excess of $30,000 and owning, directly or indirectly, the largest interests in
Berkshire Bank, (3) a 5% owner of Berkshire Bank, (i.e., owns directly or
indirectly more than 5% of the stock of Berkshire Bank, or stock possessing more
than 5% of the total combined voting power of all stock of Berkshire Bank) or
(4) a 1% owner of Berkshire Bank having annual compensation in excess of
$150,000. The dollar amounts in the foregoing sentence are for 2000.
Investment of Contributions
All amounts credited to participants' accounts under the 401(k) Plan are
held in trust. A trustee appointed by the Board of Directors of Berkshire Bank
administers the trust.
Immediately prior to [insert date of Prospectus here], the 401(k) Plan
offered the following investment choices:
Money Market Account: The money market account seeks to maximize current
income while preserving capital and liquidity. The money market account intends
to maintain a consistent net cash value of $1.00 per share. The objective of
the money market account is to consistently out-perform the Donoghue Money Fund
Average. The Savings Bank Employees Retirement Association manages the money
market account.
Asset Allocation Account: The asset allocation account seeks to offer a
competitive long-term total return and below-average volatility through a
balanced and diversified investment approach. The asset allocation account
invests in a carefully selected portfolio of mutual funds that emphasize either
equity, fixed income, or money market securities, both foreign and domestic.
Putnam Investments manages the asset allocation account.
5
<PAGE>
Equity Account: The equity account seeks long-term growth of capital and
income by investing in common stocks of domestic and foreign companies. Five
investment advisors selected by the Board of Trustees of the Savings Bank
Employees Retirement Association manage the equity account.
Bond Account: The bond account seeks to produce a positive real rate of
return after inflation with a high degree of stability and limited volatility.
The entire portfolio of the bond account consists of United States Treasury
obligations, Government National Mortgage Association mortgage-backed
certificates, other United States Agency obligations and cash equivalents. The
bond account seeks to exceed the returns of the Lehman Brothers Mortgage Backed
securities Index. Putnam Investment Management manages the bond account.
Enhanced Index Account: The enhanced index account is a domestic common
stock portfolio. The enhanced index account seeks to consistently provide
excess returns over the Standard & Poor's 500 Index. The enhanced index account
controls risk by maintaining portfolio characteristics and industry weights
similar to those of the S&P 500 Index. Fidelity Management Trust Company
manages the enhanced index account.
Index 500 Account: The Index 500 account attempts to provide investment
results that parallel the performance of the Standard & Poor's 500 Composite
Stock Price Index. The portfolio holds all of the 500 underlying securities in
proportion to their weighting in the index. The Index 500 account expects to
provide investors with long-term growth of capital and income. The Vanguard
Group manages the Index 500 account.
International Equity Account: The international equity account seeks to
obtain long-term growth through a diversified portfolio of marketable equity
securities of foreign companies. The international equity account looks to
outperform the Morgan Stanley Capital International EAFE (Europe, Australia, Far
East) Index in U.S. dollars over a market cycle. Putnam International Equity
Management manages the international equity account.
Small Cap Equity Account: The small cap equity account seeks capital
appreciation. The small cap equity account is designed for investors willing to
assume above-average risk in exchange for above-average capital potential. The
account invests primarily in common stocks of small to medium-sized companies
that the account's investment advisor believes have potential for capital
appreciation significantly greater than the market average. Putnam Investment
Management manages the small cap equity account.
In connection with the Conversion, the 401(k) Plan now provides the
Berkshire Hills Stock Fund as an additional choice to these investment
alternatives. The Berkshire Hills Stock Fund will invest primarily in the
common stock of Berkshire Hills. Participants in the 401(k) Plan may direct the
trustee to invest all or a portion of their 401(k) Plan account balance in the
Berkshire Hills Stock Fund.
On the first day of any calendar quarter you may elect (in increments of
1%), to have both past and future contributions and additions to your accounts
invested in the Berkshire Hills Stock Fund. Your election becomes effective as
of the last day of the calendar quarter for which you make the election,
provided you file written notice with the plan administrator at least 15 days
before it is to become effective.
6
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A. Previous Funds.
--------------
Prior to the Conversion and implementation of the Berkshire Hills Stock
Fund, contributions under the 401(k) Plan were invested in the funds specified
below. The annual percentage return on these funds for the prior three years
was:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------
<S> <C> <C> <C>
a. Money Market Account 5.05% 5.40% 5.45%
b. Asset Allocation Account 31.73 13.68 14.57
c. Equity Account 37.16 13.98 21.99
d. Bond Account 1.19 7.41 8.79
e. Enhanced Index Account 19.47 28.87 29.03
f. Index 500 Account 21.28 28.79 33.28
g. International Equity Account 59.79 12.91 12.61
h.Small Cap Equity Account 85.11 7.11 17.20
</TABLE>
B. Berkshire Hills Stock Fund.
--------------------------
The Berkshire Hills Stock Fund will consist of investments primarily in the
common stock of Berkshire Hills made on and after the effective date of the
Conversion. After the conversion, the trustee of the 401(k) Plan will, to the
extent practicable, use all amounts held by it in the Berkshire Hills Stock
Fund, including cash dividends paid on the common stock held in the fund, to
purchase shares of common stock of Berkshire Hills. Berkshire Bank expects that
the trustee will make all purchases of common stock at prevailing market prices.
As of the date of this prospectus supplement, none of the shares of common
stock have been issued or are outstanding and there is no established market for
the common stock of Berkshire Bank. Accordingly, there is no record of the
historical performance of the Berkshire Hills Stock Fund. Performance of the
Berkshire Hills Stock Fund depends on a number of factors, including the
financial condition and profitability of Berkshire Hills and Berkshire Bank and
market conditions for the common stock generally.
Investments in the Berkshire Hills Stock Fund may involve certain special
risks in investments in the common stock of Berkshire Hills. For a discussion
of these risk factors, see "Risk Factors" in the prospectus.
Benefits Under the Plan
Vesting. At all times, you have a fully vested, nonforfeitable interest in
-------
your accounts under the 401(k) Plan.
Withdrawals and Distributions From the 401(k) Plan
Withdrawals Prior to Termination of Employment. You may receive in-service
----------------------------------------------
distributions from the 401(k) Plan under limited circumstances in the form of
hardship distributions and loans. You can apply for a loan from the 401(k) Plan
by contacting the Human Resources Department of Berkshire Bank. You cannot have
more than one loan outstanding at a time. You can apply for a minimum loan of
$1,000 (in multiples of $500) and a maximum loan of the lesser of $50,000 or 50%
of your total vested account balance. You may also be eligible for hardship
withdrawals. In order to qualify for a hardship withdrawal, you must have an
immediate and substantial need to meet certain expenses and have no other
reasonably available resources to meet the financial need. If you qualify for a
7
<PAGE>
hardship distribution, the trustee will make the distribution pro rata from the
investment funds in which you have invested your account balances. You may not
receive more than one hardship withdrawal in any calendar year. Hardship
withdrawals may not be paid back to the 401(k) Plan.
Distribution Upon Retirement or Disability. Participants shall receive
------------------------------------------
benefits as soon as administratively feasible following the close of a valuation
period during which the distribution is requested. Distributions are payable to
participants in installments.
Distribution Upon Death. If you die prior to your benefits being paid from
-----------------------
the 401(k) Plan, your benefits will be paid to your surviving spouse or
beneficiary under one or more of the forms available under the 401(k) Plan.
Distribution Upon Termination for Any Other Reason. If you terminate
--------------------------------------------------
employment for any reason other than retirement, disability or death and your
account balance exceeds $5,000, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
does not exceed $5,000, the trustee will generally distribute your benefits to
you as soon as administratively practicable following your termination of
employment.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the 401(k) Plan shall not be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, charge or otherwise dispose of any rights to benefits payable
under the Plan shall be void.
Administration of the Plan
Trustees. The board of directors of Berkshire Bank has appointed Savings
--------
Bank Employees Retirement Association as trustee of the Berkshire Hills Stock
Fund. The trustee with respect to the 401(k) Plan is the named fiduciary of the
401(k) Plan for purposes of ERISA.
The trustee receives, holds and invests the contributions to the 401(k)
Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust.
Reports to Plan Participants
The plan administrator will furnish you a statement at least quarterly
showing (i) the balance in your account as of the end of that period, (ii) the
amount of contributions allocated to your account for that period, and (iii) the
adjustments to your account to reflect earnings or losses (if any).
Plan Administrator
Currently, the plan administrator of the 401(k) Plan is Thomas Forese, Jr.,
SBERA, 69 Cummings Park, Woburn, Massachusetts 01801, (781) 938-3500. The plan
administrator is responsible for the administration of the 401(k) Plan,
interpretation of the provisions of the plan, prescribing procedures for filing
applications for benefits, preparation and distribution of information
explaining the plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the plan, and preparation and
filing of all returns and reports relating to the plan which are required to be
filed with the U.S. Department of Labor and the Internal Revenue Service, and
for all disclosures required to be made to participants, beneficiaries and
others under ERISA.
Amendment and Termination
Berkshire Bank intends to continue the 401(k) Plan indefinitely.
Nevertheless, Berkshire Bank may terminate the 401(k) Plan at any time. If
Berkshire Bank terminates the 401(k) Plan in whole or in part, then regardless
of other provisions in the plan, all participants affected by such termination
8
<PAGE>
shall become fully vested in their accounts. Berkshire Bank reserves the right
to make, from time to time, any amendment or amendments to the 401(k) Plan which
do not cause any part of the trust to be used for, or diverted to, any purpose
other than the exclusive benefit of participants or their beneficiaries;
provided, however, that Berkshire Bank may amend the plan as it determines
necessary or desirable, with or without retroactive effect, to comply with ERISA
or the Internal Revenue Code.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the 401(k) Plan with another
plan, or the transfer of the trust assets to another plan, the plan requires
that you would (if either the plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit you would have been entitled to receive
immediately before the merger, consolidation or transfer (if the plan had then
terminated).
Federal Income Tax Consequences
The following is only a brief summary of the material federal income tax
aspects of the 401(k) Plan. You should not rely on this summary as a complete
or definitive description of the material federal income tax consequences
relating to the 401(k) Plan. Statutory provisions change, as do their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. You are urged to consult
your tax advisor with respect to any distribution from the 401(k) Plan and
transactions involving the 401(k) Plan.
As a "qualified retirement plan," the Internal Revenue Code affords the
401(k) Plan special tax treatment, including:
(1) the sponsoring employer is allowed an immediate tax deduction for the
amount contributed to the plan each year;
(2) participants pay no current income tax on amounts contributed by the
employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the tax-
deferred accumulation of income and gains on investments.
Berkshire Bank will administer the 401(k) Plan to comply in operation with
the requirements of the Internal Revenue Code as of the applicable effective
date of any change in the law. If Berkshire Bank receives an adverse
determination letter regarding its tax-exempt status from the Internal Revenue
Service, all participants would generally recognize income equal to their vested
interest in the 401(k) Plan, the participants would not be permitted to transfer
amounts distributed from the 401(k) Plan to an Individual Retirement Account or
to another qualified retirement plan, and Berkshire Bank may be denied certain
deductions taken with respect to the 401(k) Plan.
Lump Sum Distribution. A distribution from the 401(k) Plan to a
participant or the beneficiary of a participant will qualify as a lump sum
distribution if it is made within one taxable year, on account of the
participant's death, disability or separation from service, or after the
participant attains age 59 1/2; and consists of the balance to the credit of the
participant under this plan and all other profit sharing plans, if any,
maintained by Berkshire Bank. The portion of any lump sum distribution required
to be included in your taxable income for federal income tax purposes consists
of the entire amount of the lump sum distribution less the amount of after-tax
contributions, if any, you have made to this plan and any other profit sharing
plans maintained by Berkshire Bank which is included in the distribution.
9
<PAGE>
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
to an IRA. You may roll over virtually all distributions from the 401(k) Plan
to another qualified plan or to an individual retirement account generally in
accordance with the terms of the other plan or account.
We have provided you with a brief description of the material federal
income tax aspects of the 401(k) Plan which are of general application under the
Code. It is not intended to be a complete or definitive description of the
federal income tax consequences of participating in or receiving distributions
from the 401(k) Plan. Accordingly, you are urged to consult a tax advisor
concerning the federal, state and local tax consequences of participating in and
receiving distributions from the 401(k) Plan.
ERISA and Other Qualification
As noted above, the 401(k) Plan is subject to certain provisions of ERISA
and is intended to be a qualified retirement plan under the Internal Revenue
Code.
Restrictions on Resale
Any person receiving a distribution of shares of common stock under the
401(k) Plan who is an "affiliate" of Berkshire Hills under Rules 144 and 405
under the Securities Act of 1933, as amended (the "Securities Act") (e.g.,
directors, officers and substantial shareholders of the Bank) may reoffer or
resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability of a registration statement, pursuant
to Rule 144 or some other exemption of the registration requirements of the
Securities Act. Any person who may be an "affiliate" of Berkshire Bank may wish
to consult with counsel before transferring any common stock they own. In
addition, participants are advised to consult with counsel as to the
applicability of Section 16 of the 1934 Act which may restrict the sale of
common stock acquired under the 401(k) Plan, or other sales of common stock.
Persons who are not deemed to be "affiliates" of Berkshire Bank at the time
---
of resale will be free to resell any shares of common stock distributed to them
under the 401(k) Plan, either publicly or privately, without regard to the
registration and prospectus delivery requirements of the Securities Act or
compliance with the restrictions and conditions contained in the exemptive rules
under federal law. An "affiliate" of Berkshire Bank is someone who directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control, with Berkshire Bank. Normally, a director, principal
officer or major shareholder of a corporation may be deemed to be an "affiliate"
of that corporation. A person who may be deemed an "affiliate" of Berkshire
Bank at the time of a proposed resale will be permitted to make public resales
of the common stock only pursuant to a "reoffer" prospectus or in accordance
with the restrictions and conditions contained in Rule 144 under the Securities
Act or some other exemption from registration, and will not be permitted to use
this prospectus in connection with any such resale. In general, the amount of
the common stock which any such affiliate may publicly resell pursuant to Rule
144 in any three-month period may not exceed the greater of one percent of the
common stock then outstanding or the average weekly trading volume reported on
the National Association of Securities Dealers Automated Quotation System during
the four calendar weeks prior to the sale. Such sales may be made only through
brokers without solicitation and only at a time when Berkshire Hills is current
in filing the reports required of it under the 1934 Act.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as Berkshire Hills. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of Berkshire Bank' fiscal year. Participation in the Berkshire Hills
Stock Fund of the 401(k) Plan by officers, directors and persons beneficially
10
<PAGE>
owning more than ten percent of common stock of Berkshire Hills must be reported
to the SEC annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by Berkshire Hills of profits realized by
any officer, director or any person beneficially owning more than ten percent of
the common stock ("Section 16(b) Persons") resulting from the purchase and sale
or sale and purchase of the common stock within any six-month period.
The SEC has adopted rules that exempt many transactions involving the
401(k) Plan from the "short-swing" profit recovery provisions of Section
16(b).The exemptions generally involve restrictions upon the timing of elections
to buy or sell employer securities for the accounts of Section 16(b) Persons.
Except for distributions of the common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons may, under limited circumstances involving the
purchase of common stock within six months of the distribution, be required to
hold shares of the common stock distributed from the 401(k) Plan for six months
following such distribution.
LEGAL OPINION
The validity of the issuance of the common stock will be passed upon by
Muldoon, Murphy & Faucette LLP, Washington, D.C. Muldoon, Murphy & Faucette
LLP, who acted as special counsel for Berkshire Bank in connection with the
conversion.
11
<PAGE>
Berkshire Bank
401(k) Plan
Contribution and Investment Form
--------------------------------
Name of Plan participant: ________________________________
Social Security Number: ________________________________
1. Instructions. In connection with the proposed Conversion,
------------
participants in the Berkshire Bank 401(k) Plan may direct their current account
balances into a new fund: the Employer Stock Fund. The percentage of a
Participant's account transferred at the direction of the Participant into the
Employer Stock Fund will be used to purchase shares of common stock of Berkshire
Hills Bancorp, Inc. (the "Common Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering. A representative for the Plan Administrator will retain a
copy of this form and return a copy to you. If you need any assistance in
completing this form, please contact the Human Resource Department. If you do
not complete and return this form to the Plan Administrator by ____________,
2000, the funds credited to your accounts under the 401(k) Plan will continue to
be invested in accordance with your prior investment direction, or in accordance
with the terms of the 401(k) Plan if no investment direction has been provided.
2. Investment Directions. I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
1%) of my accounts in the Employer Stock Fund:
<TABLE>
<CAPTION>
<S> <C> <C>
a. Money Market Account _______%
b. Equity Account _______%
c. Bond Account _______%
d. Asset Allocation Account _______%
e. Index 500 Account _______%
f. Enhanced Index Account _______%
g. Small Cap Equity Account _______%
h. International Equity Account _______%
</TABLE>
3. Purchaser Information. The ability of participants in the 401(k) Plan to
purchase common stock in the Conversion and to direct their current account
balances into the Employer Stock Fund is based upon the participant's status as
an Eligible Account Holder or Supplemental Eligible Account Holder. Please
indicate your status.
a. [ ] Eligible Account Holder - Check here if you were a depositor
with $50.00 or more on deposit with Berkshire Bank,
September 30, 1998.
b. [ ] Supplemental Eligible Account Holder - Check here if you
were a depositor with $50.00 or more on deposit with
Berkshire Bank as of September 30, 1999, but are not an
Eligible Account Holder.
c. [ ] Trustees, Corporators, directors, officers and employees of
Berkshire Bank and Berkshire Hills Bancorp, Inc. who do not
otherwise qualify as an Eligible Account Holder or
Supplemental Eligible Account Holder.
4. Acknowledgment of Participant. I understand that this Contribution and
Investment Form shall be subject to all of the terms and conditions of the Plan.
I acknowledge that I have received a copy of the Prospectus and the Prospectus
Supplement.
- ------------------------------------- -------------------------------------
Signature of Participant Date
- ------------------------------------------------------------------------------
Acknowledgment of Receipt by Administrator. This Contribution and Investment
Form was received by the Plan Administrator and will become effective on the
date noted below.
- ---------------------------- ----------------
By:______________ Date
12
<PAGE>
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE
NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
13
<PAGE>
[To be used in connection with Syndicated Community Offering only]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] BERKSHIRE HILLS BANCORP, INC.
(Proposed Holding Company for Berkshire Bank)
24 North Street
Pittsfield, Massachusetts 01201
(413) 443-5601
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Berkshire Bancorp, the mutual holding company for Berkshire Bank, is
converting to a stock holding company. After the conversion, Berkshire Hills
will own all of Berkshire Bank's stock. Berkshire Hills has already received
subscriptions for _________ shares. Up to ________ shares will be sold in the
conversion. The conversion will not be completed and no common stock will be
sold unless additional subscriptions are received for at least the minimum
number of shares in the offering. Berkshire Hills will hold all funds of
subscribers in an interest-bearing savings account at Berkshire Bank until the
conversion is completed or terminated. Funds will be returned promptly with
interest if the conversion is terminated.
Sandler O'Neill & Partners, L.P. will use its best efforts to assist
Berkshire Hills in selling at least the minimum number of shares but does not
guarantee that this number will be sold. Neither Sandler O'Neill nor any
selected broker-dealer is obligated to purchase any shares of common stock in
the syndicated community offering. Sandler O'Neill intends to make a market in
the common stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRICE PER SHARE: $10.00
MINIMUM SUBSCRIPTION REQUIREMENT: 25 shares or $250
EXPECTED TRADING MARKET AND SYMBOL: American Stock Exchange "___________"
This offering will expire no later than 12:00 noon, Eastern time, on
____________, 2000, unless extended.
. Number of Shares
Minimum/Maximum
. Estimated Underwriting Commissions and Other Expenses
Minimum/Maximum
. Estimated Net Offering Proceeds to Berkshire Hills
Minimum/Maximum
. Estimated Net Offering Proceeds per Share to Berkshire Hills
Minimum/Maximum
Please refer to "Risk Factors" beginning on page __ of the attached Prospectus
dated ________ __, 2000.
These securities are not deposits or accounts and are not insured or guaranteed
by Berkshire Hills, Berkshire Bank, the Federal Deposit Insurance Corporation,
the Mutual Savings Central Fund, Inc. or any other federal or state government
agency. The common stock is subject to investment risk, including the possible
loss of money invested.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Massachusetts Division of Banks, nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement is truthful or complete. Any representations to the
contrary is a criminal offense.
Sandler O'Neill & Partners, L.P.
The date of this Prospectus Supplement is _______________, 2000
1
<PAGE>
THE SYNDICATED COMMUNITY OFFERING
Berkshire Hills is offering for sale between ___________ and __________
shares of common stock at price of $10.00 per share in a syndicated community
offering. These shares are to be sold in connection with the conversion of
Berkshire Bancorp to a stock holding company and the issuance of Berkshire
Bank's outstanding capital stock to Berkshire Hills. The remaining __________
shares of common stock to be sold in connection with the conversion have been
subscribed for in subscription and direct community offerings. The prospectus in
the form used in the subscription and direct community offerings is attached to
this prospectus supplement. The purchase price for all shares sold in the
syndicated community offering will be the same as the price paid by subscribers
in the subscription and direct community offerings.
Funds sent with purchase orders will earn interest at the Berkshire Bank's
passbook rate from the date Berkshire Bank receives them until the completion or
termination of the conversion. If the syndicated community offering is not
completed by _________________, 2000, and the Massachusetts Banking Commissioner
allows more time to complete the conversion, Berkshire Bank will contact
everyone who subscribed for shares to see if they still want to purchase stock.
Subscribers will be able to confirm, modify or cancel their subscriptions. A
failure to respond will be treated as a cancellation of the purchase order. If
payment for the stock was made by check or money order, subscription funds will
be returned with accrued interest. If payment was authorized by withdrawal of
funds on deposit at Berkshire Bank, that authorization would terminate. The
conversion must be completed by October 22, 2001.
The minimum number of shares which may be purchased is 25 shares. Except
for the Berkshire Bank employee stock ownership plan, which intends to purchase
up to 8% of the total number of shares of common stock sold in the conversion,
no person, together with related persons and persons acting together, may
purchase more than $250,000 of common stock (25,000 shares) in the syndicated
community offering. However, the maximum amount of shares of common stock that
may be subscribed for or purchased in all categories of the conversion by any
person, related persons or persons acting together is 1.0% of the shares of
common stock sold in the conversion. Berkshire Hills reserves the right, in its
absolute discretion, to accept or reject, in whole or in part, any or all
subscriptions in the syndicated community offering. If a subscription is
rejected in part, you cannot cancel the remainder of your order.
Berkshire Hills, Berkshire Bancorp and Berkshire Bank have engaged Sandler
O'Neill & Partners, L.P. as their financial advisor to assist them in the sale
of the common stock in the syndicated community offering. Sandler O'Neill
expects to use the services of other registered broker-dealers and that fees to
Sandler O'Neill and other selected broker-dealers will not exceed 6% of the
aggregate purchase price of the shares sold in the syndicated community
offering.
Before this offering, there has not been a public market for the common
stock, and there can be no assurance that an active and liquid trading market
for the common stock will develop. The absence or discontinuance of an active
and liquid trading market may hurt the market price of the common stock. See
"Risk Factors--Berkshire Hills cannot assure or guarantee an active trading
market for the common stock." in the attached prospectus.
2
<PAGE>
PROSPECTUS
[LOGO]
BERKSHIRE HILLS BANCORP, INC.
(Proposed Holding Company for Berkshire Bank)
8,314,500 Shares of Common Stock
Berkshire Bancorp, the mutual holding company for Berkshire Bank, is converting
to a stock holding company. After the conversion, Berkshire Hills Bancorp, Inc.
will own all of Berkshire Bank's common stock.
Price Per Share: $10.00
Minimum Subscription Requirement: 25 shares or $250
Expected Trading Market and Symbol: American Stock Exchange "__________"
<TABLE>
<CAPTION>
Minimum Maximum
----------- -----------
<S> <C> <C>
Number of shares: 6,145,500 8,314,500
Gross offering proceeds: $61,455,000 $83,145,000
Estimated underwriting commissions
and other offering expenses: $ 2,361,000 $ 2,658,000
Estimated net proceeds: $59,094,000 $80,487,000
Estimated net proceeds per share: $ 9.62 $ 9.68
</TABLE>
If the appraiser increases the estimated value, Berkshire Hills may increase the
maximum number of shares by up to 15%, to 9,561,675 shares.
Sandler O'Neill & Partners, L.P. will use its best efforts to assist Berkshire
Hills in selling at least the minimum number of shares but does not guarantee
that this number will be sold. Sandler O'Neill is not obligated to purchase any
shares of common stock in the offering. Sandler O'Neill intends to make a
market in the common stock.
The offering to depositors, officers, directors, trustees and employees of
Berkshire Bank and Berkshire Bancorp will end at 12:00 Noon, Eastern Time, on
________, 2000, unless extended. An offering to the general public may also be
held and may end as early as 12:00 Noon, Eastern Time, on _________ __, 2000.
If the conversion is not completed by _________ __, 2000, and the Massachusetts
Banking Commissioner allows more time to complete the conversion, all
subscribers will be able to increase, decrease or cancel their orders. All
extensions may not go beyond October 22, 2001. Berkshire Hills will hold all
funds of subscribers in an interest-bearing savings account until the conversion
is completed or terminated. Funds will be returned promptly with interest if
the conversion is terminated.
- --------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by Berkshire Bank, Berkshire Hills, the Federal Deposit Insurance Corporation,
the Mutual Savings Central Fund, Inc. or any other federal or state government
agency. The common stock is subject to investment risk, including the possible
loss of money invested.
For a discussion of the material risks that you should consider, see "Risk
Factors" beginning on page __.
Neither the Securities and Exchange Commission, the Federal Deposit Insurance
Corporation, the Massachusetts Division of Banks, nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
For assistance, please contact the conversion center at (___) ___-____.
SANDLER O'NEILL & PARTNERS, L.P.
The date of this prospectus is ________, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.....................................................................................
Risk Factors................................................................................
Selected Consolidated Financial Information.................................................
Use of Proceeds.............................................................................
Dividend Policy.............................................................................
Market for Common Stock.....................................................................
Capitalization..............................................................................
Historical and Pro Forma Regulatory Capital Compliance......................................
Pro Forma Data..............................................................................
Comparison of Independent Valuation and Pro Forma Financial Information With and
Without the Foundation....................................................................
Berkshire Bancorp and Subsidiary Consolidated Statements of Income..........................
Management's Discussion and Analysis of Financial Condition.................................
and Results of Operations..................................................................
Business of Berkshire Bancorp...............................................................
Business of Berkshire Hills.................................................................
Business of Berkshire Bank..................................................................
Management of Berkshire Hills...............................................................
Management of Berkshire Bank................................................................
Regulation and Supervision..................................................................
Federal and State Taxation of Income........................................................
Shares to Be Purchased by Management with Subscription Rights...............................
The Conversion..............................................................................
Restrictions on Acquisition of Berkshire Hills and Berkshire Bank...........................
Description of Berkshire Hills Stock........................................................
Description of Berkshire Bank Stock.........................................................
Transfer Agent and Registrar................................................................
Registration Requirements...................................................................
Legal and Tax Opinions......................................................................
Experts.....................................................................................
Where You Can Find More Information.........................................................
Index to Consolidated Financial Statements--Berkshire Bancorp and Subsidiary................
</TABLE>
<PAGE>
SUMMARY
You should read the entire prospectus carefully before you decide to invest.
For assistance, please contact the conversion center at (___) ___-____.
THE COMPANIES
<TABLE>
<S> <C>
Berkshire Bancorp (page __) Berkshire Bancorp was formed in 1996 as the mutual
24 North Street holding company for Berkshire County Savings Bank.
Pittsfield, Massachusetts 01201 In the mutual holding company reorganization,
(413) 443-5601 Berkshire County Savings Bank converted from
mutual to stock form and issued all of its
outstanding stock to Berkshire Bancorp. Berkshire
Bancorp is governed by a Board of Trustees. All
voting control of Berkshire Bancorp lies in its
governing body of corporators. To date, Berkshire
Bancorp's business activities have been limited to
directing, planning and coordinating Berkshire
Bank's business activities. After the conversion,
Berkshire Bancorp will no longer exist.
Berkshire Hills Bancorp, Inc. (page __) Berkshire Bank recently formed Berkshire Hills to
24 North Street be its new stock holding company. To date,
Pittsfield, Massachusetts 01201 Berkshire Hills has only conducted organizational
(413) 443-5601 activities. After the conversion, it will own all
of Berkshire Bank's capital stock and will direct,
plan and coordinate Berkshire Bank's business
activities. After the conversion, Berkshire Hills
might become an operating company or acquire or
organize other operating subsidiaries, including
other financial institutions or financial services
companies. Berkshire Hills intends to retain 50%
of the net conversion proceeds.
Berkshire Bank (page __) Berkshire Bank is a Massachusetts-chartered stock
24 North Street savings bank that operates as a community bank
Pittsfield, Massachusetts 01201 dedicated to serving the financial service needs
(413) 443-5601 of consumers and small businesses within its
primary market area. Berkshire Bank is the
product of the 1997 merger of Berkshire County
Savings Bank and Great Barrington Savings Bank.
Currently, Berkshire Bank operates out of its main
office in Pittsfield, Massachusetts and its 12
full-service banking offices in Berkshire County,
Massachusetts, which Berkshire Bank considers its
primary market area for making loans and
attracting deposits. Berkshire Bank also makes
loans outside its primary market area, primarily
in eastern New York, northern Connecticut,
southern Vermont and western Massachusetts.
Historically, Berkshire Bank's principal business
has been attracting deposits from the general
public and using those funds to make one- to
four-family real estate, multi-family real estate,
commercial real estate, commercial and consumer
loans, which accounted for 36.4%, 2.2%, 6.9%,
21.7% and 31.0%, respectively, of Berkshire Bank's
total loan portfolio at December 31, 1999.
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Berkshire Bank also invests in U.S. government and agency securities, mortgage- and
asset-backed securities, including real estate mortgage investment conduits and
collateralized mortgage obligations, corporate bonds and marketable equity securities.
At December 31, 1999, Berkshire Bank had total assets of $841.7 million, deposits of
$680.8 million and total capital of $88.4 million.
Berkshire Bank also offers trust services and savings bank life insurance. See "Business
of Berkshire Bank--Trust Services." Going forward, Berkshire Bank intends to expand the
offering of insurance products to its customers through the establishment of an insurance
agency.
For a discussion of Berkshire Bank's business strategy and recent results of operations,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations." For a discussion of Berkshire Bank's business activities, see "Business of
Berkshire Bank."
THE CONVERSION
What is the Conversion (page __) The conversion is a change in Berkshire Bancorp's legal form of organization. Currently,
Berkshire Bancorp owns all of the outstanding capital stock of Berkshire Bank. Berkshire
Bancorp is a mutual holding company and has no stock or stockholders. Instead, Berkshire
Bancorp operates for the mutual benefit of Berkshire Bank's depositors. Berkshire
Bancorp's corporators elect directors and vote on other important matters. After the
conversion, Berkshire Bancorp and its governing body of corporators will cease to exist
and Berkshire Bank will continue as a stock savings bank but will be owned and controlled
by the new holder of all its stock, Berkshire Hills. Voting rights in Berkshire Bank will
belong to Berkshire Hills. Voting rights in Berkshire Hills will belong to its
stockholders.
Berkshire Bancorp is conducting the conversion under the terms of its plan of conversion.
The corporators of Berkshire Bancorp approved the plan of conversion at a special meeting
of corporators called for that purpose on _________, 2000. The Massachusetts Banking
Commissioner approved the plan of conversion on ____________, 2000. In addition, the
Federal Deposit Insurance Corporation and the Federal Reserve Board have reviewed the
application for conversion. Berkshire Hills expects to receive approval from the Office
of Thrift Supervision to acquire all of the stock of Berkshire Bank. Before the offering
can close and the conversion can be completed, Berkshire Bank and Berkshire Hills must
obtain all required regulatory approvals, including that of the Office of Thrift
Supervision, and satisfy all of the conditions of those approvals that must be completed
before the completion of the conversion. See "The Conversion--General."
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Reasons for the Conversion (page __) By converting Berkshire Bancorp to the stock form of organization, Berkshire Bank will be
structured in the form used by commercial banks, most business entities and a large
number of savings institutions. The conversion will be important to Berkshire Bank's
future growth and performance because it will:
. enhance its ability to diversify into other financial
services related activities;
. enhance its ability to expand through the acquisition of other
financial institutions or their assets;
. enhance its ability to attract and retain qualified management through stock-
based compensation plans;
. provide a larger capital base from which to operate and expand its
ability to serve the public; and
. enhance its ability to access the capital markets.
With the exception of the potential establishment of an insurance agency, currently
neither Berkshire Hills nor Berkshire Bank has any specific contracts, understandings, or
arrangements for the acquisition of other financial service companies or their assets.
Berkshire Hills Foundation (page _______) To continue its long-standing commitment to its local communities, Berkshire Bank intends
to establish a charitable foundation, Berkshire Hills Foundation, as part of the
conversion. The foundation will be funded with Berkshire Hills common stock equal to 8%
of the shares sold in the conversion. This would range from 491,640 shares, assuming
6,145,500 shares are sold in the conversion, to 578,400 shares, assuming 7,230,000 shares
are sold in the conversion, or 665,160 shares if the number of shares sold in the
conversion is increased to 8,314,500 shares. Based on the purchase price of $10.00 per
share, the foundation would be funded with between $4.9 million and $6.7 million of
common stock, or $7.6 million, if the number of shares sold in the conversion is
increased to 9,561,675 shares. Berkshire Hills Foundation will make grants and donations
to non-profit and community groups within the communities in which Berkshire Bank
maintains a banking office. If Berkshire Hills Foundation was not established as part of
the conversion, then the amount of common stock sold would be greater than if the
conversion was completed with the foundation. For a further discussion of the financial
impact of the foundation, including its dilutive effect on those who purchase shares in
the conversion, see "Risk Factors--The contribution to Berkshire Hills Foundation means
that a stockholder's total ownership interest will be 7.4% less after the contribution,"
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"Pro Forma Data" and "Comparison of Independent Valuation and Pro Forma Financial
Information With and Without the Foundation."
Berkshire Hills Foundation will complement the activities of Greater Berkshire
Foundation, Inc., a private foundation established by Berkshire Bank in 1997, which was
funded with marketable equity securities with a fair market value of $2.5 million.
Greater Berkshire Foundation, Inc., which had assets of $2.1 million at December 31,
1999, provides grants within the communities that Berkshire Bank serves, to public
charities that are operated for charitable, scientific, literary or educational purposes.
Berkshire Bank does not expect to make any further contributions to Greater Berkshire
Foundation, Inc. after the conversion.
Benefits of the Conversion to Management Berkshire Hills and Berkshire Bank intend to adopt certain benefit plans and employment
(page __) and change in control agreements.
The following table summarizes the total number and dollar value of the shares of common
stock which the employee stock ownership plan, to be formed by Berkshire Hills as part of
the Conversion, expects to acquire and the total value of all stock awards that are
expected to be available under the stock-based incentive plan, assuming 8,979,660 shares
are issued in the conversion. The table assumes the value of the shares is $10.00 per
share, the purchase price in the offering. The table does not include a value for stock
options because the price paid for the option shares would be equal to the fair market
value of the common stock on the day that the options are granted. As a result, financial
gains can be realized on an option only if the market price of common stock increases
above the price at which the options are granted.
<CAPTION>
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
----------- -------------- ------------
<S> <C> <C> <C>
Employee stock ownership plan..... 718,372 $ 7,183,720 8.0%
Stock awards...................... 359,186 3,591,860 4.0
Stock options..................... 897,966 -- 10.0
--------- ----------- ----
Total......................... 1,975,524 $10,775,580 22.0%
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The following table summarizes the estimated value of the benefits payable under the
employment agreements, change in control agreements, supplemental executive retirement
plan and the employee severance compensation plan assuming a change in control of
Berkshire Hills and Berkshire Bank had occurred as of December 31, 1999 based on 1999
compensation data. The estimated value of the benefit payable under the employee
severance compensation plan assumes that all employees are terminated.
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Estimated
Value
of Benefit
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<S> <C>
Employment agreements..................................... $ 3,000,000
Change in control agreements.............................. 2,100,000
Supplemental executive retirement plan.................... 450,000
Employee severance compensation plan...................... 12,000,000
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The following is a description of these benefit plans, employment agreements and change
in control agreements:
. Employee Stock Ownership Plan. This plan intends to acquire an amount of shares equal
to 8% of the shares issued in the conversion. This would range from 530,971 shares,
assuming 6,637,140 shares are issued in the conversion, to 718,372 shares, assuming
8,979,660 shares are issued in the conversion, or 826,128 shares if the number of
shares issued in the conversion is increased to 10,326,609 shares. Berkshire Bank will
allocate these shares to employees over a period of years in proportion to their
compensation.
. Stock-Based Incentive Plan. Under this plan, which will be adopted after the conversion
and will be submitted to stockholders for their approval, Berkshire Hills may award
stock options to key employees and directors of Berkshire Hills and its affiliates. No
decisions have been made as to who will be awarded options or the amounts that will be
awarded. The number of options available under this plan will equal 10% of the number
of shares issued in the conversion. This would range from 663,714 shares, assuming
6,637,140 shares are issued in the conversion, to 897,966 shares, assuming 8,979,660
shares are issued in the conversion, or 1,032,660 shares if the number of shares issued
in the conversion is increased to 10,326,609 shares.
In addition to awarding options, this plan may also award shares of stock to key
employees and directors at no cost to the recipient. No decisions have been made as to
who will be awarded shares of stock or the amounts that will be awarded. The number of
shares available for stock awards will equal an additional 4% of the number of shares
issued in the conversion. This would range from 265,485 shares, assuming 6,637,140
shares are issued in the conversion, to 359,186 shares, assuming 8,979,660 shares are
issued in the conversion, or 413,064 shares if the number of shares issued in the
conversion is increased to 10,326,609 shares.
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. Employment Agreements. Berkshire Hills and Berkshire Bank intend to enter into
employment agreements with five officers of Berkshire Bank. These agreements will
provide for severance benefits if the executive is terminated following a change in
control of Berkshire Hills or Berkshire Bank.
. Change in Control Agreements. Berkshire Bank intends to enter into change in control
agreements with six officers of Berkshire Bank who will not be covered by an employment
agreement. These agreements will provide for the payment of severance compensation in
the event of a change in control of Berkshire Bank or Berkshire Hills.
. Supplemental Executive Retirement Plan. This plan will provide benefits to eligible
employees if their retirement benefits under the employee stock ownership plan, pension
plan or 401(k) plan are reduced because of federal tax law limitations. The plan will
also provide benefits to eligible employees at the time of a change in control of
Berkshire Hills or Berkshire Bank but before the complete allocation of shares under
the employee stock ownership plan.
. Employee Severance Compensation Plan. This plan will provide severance benefits to
eligible employees if there is a change in control of Berkshire Hills or Berkshire
Bank.
For a discussion of risks associated with these plans and agreements, see "Risk Factors--
Implementation of additional benefit plans will increase future compensation expense and
lower Berkshire Bank's profits," "Risk Factors--Issuance of shares for benefit program
may lower your ownership interest" and "Risk Factors--Employment and change in control
agreements, the employee stock ownership plan, supplemental executive retirement plan and
the severance plan could make takeover attempts more difficult to achieve." For a further
discussion of these plans and agreements, see "Management of Berkshire Bank--Executive
Compensation."
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THE OFFERING
Subscription Offering (page __) Berkshire Bancorp has granted subscription rights in the following order of priority to:
Note: Subscription rights are not 1. Persons with $50 or more on deposit at Berkshire Bank as of September 30, 1998.
transferable, and persons with
subscription rights may not subscribe 2. Persons with $50 or more on deposit at Berkshire Bank as of September 30, 1999,
for shares for the benefit of any other other than the officers, directors, trustees or corporators of Berkshire Bank or
person. If you violate this prohibition, Berkshire Bancorp and their associates.
you may lose your rights to purchase
shares and may face criminal prosecution 3. Berkshire Bank employee stock ownership plan.
and/or other sanctions.
4. Directors, trustees, officers and employees of Berkshire Bank and Berkshire
Bancorp who do not have a higher priority right.
To ensure that Berkshire Hills properly identifies your subscription rights, you must
list all of your deposit accounts as of the eligibility dates on the stock order form.
Failure to do so may result in reduction or rejection of your order.
The subscription offering will end at 12:00 Noon, Eastern time, on _________ __, 2000,
unless extended. If the offering is oversubscribed, shares will be allocated in order of
the priorities described above under a formula outlined in the plan of conversion.
Direct Community Offering (page __) Berkshire Hills may offer shares not sold in the subscription offering to the general
public in a direct community offering. Residents of Berkshire County, Massachusetts, will
have first preference to purchase shares in a direct community offering. If shares are
available, Berkshire Hills expects to offer them to the general public immediately after
the end of the subscription offering, but may begin a direct community offering at any
time during the subscription offering.
Berkshire Hills and Berkshire Bank may reject orders received in the direct community
offering either in whole or in part. If your order is rejected in part, you cannot
cancel the remainder of your order.
Syndicated Community Offering (page __) Berkshire Hills may also offer shares not sold in the subscription offering in a
syndicated community offering through a syndicate of registered broker-dealers to be
formed and managed by Sandler O'Neill. Berkshire Hills will have the right to reject
orders, in whole or in part, at their sole discretion in the syndicated community
offering. The syndicated community offering may begin at any time during or after the
subscription offering.
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Time Period for Completing the Conversion If the conversion is not completed by _________ __, 2000, and the Massachusetts Banking
Commissioner allows more time to complete the conversion, everyone who subscribed for
shares will be contacted to see if they still want to purchase stock. This is known as a
"resolicitation offering." A material change in the independent appraisal of Berkshire
Hills and Berkshire Bank would be the most likely, but not necessarily the only, reason
for a delay in completing the conversion. The conversion must be completed by
October 22, 2001.
In the resolicitation offering, if you previously subscribed for stock, you will receive
a supplement to this prospectus which will instruct you how to confirm, modify or cancel
your subscription. If you fail to respond to the resolicitation offering, it would be as
if you had canceled your order. If you paid for stock by check or money order, your
subscription funds would be returned to you, together with accrued interest. If you
authorized payment by withdrawal of funds on deposit at Berkshire Bank, that
authorization would terminate.
If you affirmatively confirm your subscription order during the resolicitation offering,
your subscription funds will be held until the end of the resolicitation offering. You
would be unable to cancel your resolicitation order without the approval of Berkshire
Hills and Berkshire Bank until the conversion is completed or terminated.
Purchase Price The purchase price is $10.00 per share. The Boards of Directors of Berkshire Hills and
Berkshire Bank consulted with Sandler O'Neill in determining it. You will not pay a
commission to buy any shares in the conversion.
Number of Shares to be Sold (page __) Berkshire Hills will sell between 6,145,500 and 8,314,500 shares of its common stock in
this offering. With regulatory approval, Berkshire Hills may increase the number of
shares to be sold to 9,561,675 shares without giving you further notice.
Estimated Market Value of The amount of common stock that Berkshire Hills will offer in the conversion is based on
Berkshire Hills Common Stock an independent appraisal of the estimated market value of the common stock of Berkshire
Hills to be sold in the conversion as if the conversion had occurred as of the date of
the appraisal. FinPro, Inc., an independent appraiser, has estimated that, in its
opinion, as of March 8, 2000, the estimated market value ranged between $61.5 million and
$83.1 million, with a midpoint of $72.3 million. The appraisal was based in part on
Berkshire Bank's financial condition and results of operations and the effect on
Berkshire Bank of the additional capital raised by the sale of common stock in this
offering. The independent appraisal will be updated before the conversion is completed.
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Comparable Thrift Stock Pricing Ratios In preparing its independent appraisal, FinPro focused primarily on the price/core
earnings for the past 12 months and price/book valuation methodologies, both of which are
discussed in the appraisal report. See "Where You Can Find More Information" for how you
may obtain a copy of the appraisal report. The following table, which is derived from
data contained in the independent appraisal report, compares Berkshire Bank's pro forma
core price/core earnings for the past 12 months and price/book ratios at the minimum and
maximum of the offering range to the medians for all publicly traded thrift institutions,
all publicly traded Massachusetts thrift institutions and a comparable group of 12
publicly traded thrift institutions identified in the appraisal report, based on the
closing prices as of March 2, 2000. Thrift institutions in the mutual holding company
structure that have publicly issued stock are excluded from each comparison group.
<CAPTION>
Price/Core Price/
Earnings Book
Ratio Ratio
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<S> <C> <C>
Berkshire Bank:
Minimum.................................. 8.77x 46.99%
Maximum.................................. 11.11 55.96
Median for all publicly traded thrifts...... 11.15 87.84
Median for all publicly traded
Massachusetts thrifts.................... 9.48 99.38
Median for the comparable group............. 9.70 122.34
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The independent appraisal does not necessarily indicate market value. Do not assume or
expect that the valuation as shown in the above table means that the common stock will
trade above the $10.00 purchase price after the conversion. Berkshire Hills cannot
guarantee that anyone who purchases shares in the conversion will be able to sell their
shares at or above the $10.00 purchase price.
Purchase Limitations (page __) The minimum purchase is 25 shares.
The maximum purchase in the subscription offering by any person or group of persons
through a single deposit account or similarly titled deposit accounts is $250,000 of
common stock, which equals 25,000 shares.
The maximum purchase by any person, related persons or persons acting together in the
direct community offering is $250,000 of common stock, which equals 25,000 shares.
The maximum purchase in the subscription offering, direct community offering and
syndicated community offering combined by any person, related persons or persons acting
together is 1% of the common stock offered for sale in the offering. This maximum
purchase limit ranges from $614,550, if 6,145,500 shares are offered for sale in the
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offering, to $831,450, if 8,314,500 shares are offered for sale in the offering or
$956,168 if the number of shares offered for sale in the offering is increased to
9,561,675 shares.
How to Purchase Common Stock (page __) If you want to subscribe for shares in the direct subscription offering or place a
purchase order for shares in the community offering, you must complete an original stock
Note: Once Berkshire Hills receives your order form and send it together with full payment to Berkshire Hills in the postage-paid
order, you cannot cancel or change it envelope provided. You must sign the certification that is part of the stock order form.
without Berkshire Hills' consent. If Berkshire Hills must receive your stock order form before the end of the subscription
Berkshire Hills sells fewer than offering or the end of the direct community offering, as appropriate.
6,145,500 shares or more than 9,561,675
shares, all subscribers will be notified You may pay for shares in the subscription offering or the direct community offering in
and given the opportunity to change or any of the following ways:
cancel their orders. If you do not
respond to such notice, Berkshire . By cash, if delivered in person to a full-service banking office of Berkshire Bank.
Hills will return your funds promptly
with interest. . By check or money order made payable to Berkshire Hills Bancorp, Inc.
. By withdrawal from an account at Berkshire Bank. To use funds in an Individual
Retirement Account at Berkshire Bank, you must transfer your account to an unaffiliated
institution or broker-dealer. Please contact the conversion center as soon as possible
for assistance.
You will be paid interest on your subscription funds at the rate Berkshire Bank pays on
passbook accounts from the date it receives your funds until the conversion is completed
or terminated. All funds authorized for withdrawal from deposit accounts with Berkshire
Bank will earn interest at the applicable account rate until the conversion is completed.
There will be no early withdrawal penalty for withdrawals from certificates of deposit
used to pay for stock.
No prospectus will be mailed later than five days before the end of the offering or hand-
delivered less than 48 hours before the end of the offering.
Use of Proceeds (page __) Berkshire Hills will use 50% of the net offering proceeds to buy all of the common stock
of Berkshire Bank and will retain the remaining net proceeds for general business
purposes. These purposes may include investment in securities, paying cash dividends or
repurchasing shares of its common stock, although Berkshire Hills has no specific plans
to pay dividends or repurchase its common stock at this time. Berkshire Bank will use the
funds it receives for general business purposes, including originating loans and
purchasing securities.
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Berkshire Hills will also capitalize a subsidiary it intends to establish with an amount
equal to 8% of the total dollar value of the stock to be issued in the conversion. That
subsidiary will then lend those funds to the employee stock ownership plan to fund its
purchase of common stock in the conversion. Berkshire Hills and Berkshire Bank may also
use the proceeds of the offering to expand and diversify their businesses although, with
the exception of the potential establishment of an insurance agency, they do not have any
specific contracts, understandings or arrangements to acquire other financial service
companies or their assets.
Purchases by Directors and Berkshire Bank's and Berkshire Bancorp's directors, trustees and executive officers
Executive Officers (page __) intend to subscribe for 208,500 shares, which equals 2.51% of the 8,314,500 shares that
would be sold at the maximum of the offering range. If fewer shares are sold in the
conversion, then directors and executive officers will own a greater percentage of
Berkshire Hills. Directors and executive officers will pay the $10.00 per share price as
will everyone else who purchases shares in the conversion. For a further discussion of
the impact of management's ownership interests in Berkshire Hills, see "Risk Factors--
Expected voting control by management and employees may make takeover attempts more
difficult to achieve" and "Restrictions on Acquisition of Berkshire Hills and Berkshire
Bank. "
Market for Common Stock (page __) Berkshire Hills intends to have its common stock listed on the American Stock Exchange
under the trading symbol "________." After shares of the common stock begin trading, you
may contact a stock broker to buy or sell shares. Berkshire Hills cannot assure you that
there will be an active trading market for the common stock.
Dividend Policy (page __) Berkshire Hills intends to adopt a policy of paying regular cash dividends, but has not
yet decided on the exact amount or range of amounts, or the frequency of payments. For a
further discussion of Berkshire Bank's and Berkshire Hills' dividend policies, see
"Dividend Policy."
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RISK FACTORS
Before investing in Berkshire Hills common stock please carefully consider the
matters discussed below.
Berkshire Bank's lower than average return on equity may decrease the market
price of the common stock
Return on equity, which equals net income divided by average equity, is a
ratio used by many investors to compare the performance of a particular company
with other companies. For the year ended December 31, 1999, Berkshire Bank's
return on equity was 6.51%. As a result of the additional capital that will be
raised in this offering, Berkshire Bank's return on equity will decrease
substantially. Assuming the conversion was completed as of December 31, 1999,
Berkshire Bank's return on equity would have been 4.97% if 6,145,500 shares had
been sold in the conversion, 4.69% if 8,314,500 shares had been in the
conversion, and 4.56% if 9,561,675 shares had been sold in the conversion.
Berkshire Bank and Berkshire Hills will not be able to immediately deploy the
increased capital from the offering into higher-yielding loans. Berkshire
Bank's and Berkshire Hills' ability to invest in loans will depend on market
interest rates, demand in their market area and their ability to compete
successfully for loans. Unless and until the capital can be deployed in higher-
yielding assets, Berkshire Bank and Berkshire Hills expect that their return on
equity will continue to be below average. In addition, compensation expense
will increase as a result of the new benefit plans. Over time, Berkshire Hills
and Berkshire Bank intend to use the net proceeds from this offering to increase
earnings per share and book value per share, without assuming undue risk, with
the goal of achieving a return on equity competitive with other publicly traded
financial institutions. This goal could take a number of years to achieve, and
Berkshire Hills and Berkshire Bank cannot assure you that they can reach this
goal. Consequently, you should not expect a return on equity that is average or
better than average in the near future. See "Pro Forma Data" for an
illustration of the financial effects of this stock offering.
Berkshire Bank's increased emphasis on commercial and consumer lending may hurt
both asset quality and profits
At December 31, 1999, commercial business, commercial real estate and consumer
loans aggregated 59.6% of Berkshire Bank's total loan portfolio. Berkshire
Bank's portfolio will continue to emphasize these types of lending. Berkshire
Bank's commercial loans are generally secured by business assets other than real
estate, such as equipment, inventory and accounts receivable. Consumer loans
are secured by rapidly depreciating assets such as automobiles, or to a lesser
extent, are unsecured. The substantial majority of Berkshire Bank's commercial
business, commercial real estate and consumer loans generally offer higher rates
of return but also possess a greater risk of loss than loans secured by
residential real estate. For 1999, 1998 and 1997, charge-offs for commercial
business, commercial real estate and consumer loans totalled $2.2 million (or
95.0% of total charge-offs), $798,000 (or 98.3% of total charge-offs) and $2.1
million (or 93.6% of total charge-offs), respectively. Berkshire Bank cannot
assure that its level of charge-offs of commercial business loans, commercial
real estate and consumer loans, as well as other types of loans, will not be
higher in future periods which would reduce net interest income, or that it will
not have to charge-off material amounts of commercial business, commercial real
estate or consumer loans or other types of loans in future periods, which could
lead to a material increase in the provision for loan losses in future periods
which would also reduce net income. See "Business of Berkshire Bank--Lending
Activities--Nonperforming Assets, Delinquencies and Impaired Loans," "Business
of Berkshire Bank--Lending Activities--Real Estate Lending--Commercial and
Multi-Family Real Estate Loans," "Business of Berkshire Bank--Lending
Activities--Commercial Lending" and "Business of Berkshire Bank--Lending
Activities--Consumer Lending" for additional information.
A decline in the stock market may hurt Berkshire Bank's profits and negatively
impact its net worth
The profitability of Berkshire Hills and Berkshire Bank and their net worth is
tied, in part, to the market value of the securities it holds. All of Berkshire
Bank's debt and mortgage-backed securities carry market risk insofar as
increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called or repaid
before maturity in times of low market interest rates, so that
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Berkshire Bank may have to invest the funds at a lower rate. The marketable
equity securities portfolio also carries market risk as such investments are not
insured or guaranteed and are subject to market fluctuations. As marketable
equity securities are carried at their fair value, any decline in their value
due to unfavorable market conditions or other factors will negatively impact
Berkshire Bank's equity. Additionally, sales of securities at prices below their
purchase price due to unfavorable market conditions may also negatively impact
Berkshire Bank's net income. At December 31, 1999, Berkshire Bank's net
unrealized gain on securities available for sale, net of income taxes, totaled
$17.7 million, or 20.0%, of total net worth.
Competition has hurt Berkshire Bank's net interest income
Berkshire Bank faces intense competition both in making high yield and quality
loans and in attracting deposits. This competition has forced Berkshire Bank to
offer higher deposit rates in its market area. This competition from other
providers of financial services for loans and deposits has contributed to a
recent narrowing of its average interest rate spread, from 3.65% for the year
ended December 31, 1997 to 3.50% for the year ended December 31, 1999, which has
hurt net interest income. Berkshire Bank expects that the competition for loans
and deposits will continue to be intense and is likely to increase in the
future. For more information about Berkshire Bank's market area and the
competition it faces, see "Business of Berkshire Bank--Market Area" and
"Business of Berkshire Bank--Competition."
Banking reform legislation restricts the activities in which Berkshire Hills may
engage compared to existing unitary holding companies
Legislation intended to modernize the financial services industry has been
enacted which provides for greater affiliations by commercial bank holding
companies with financial companies such as securities and insurance companies.
Under the legislation, newly formed savings and loan holding companies will not
have the broad powers formerly available to unitary savings and loan holding
companies. Berkshire Hills will be a savings and loan holding company after the
conversion. Certain unitary savings and loan holding companies would be
grandfathered under the proposed legislation; however, Berkshire Hills will not
qualify for the grandfathering. Consequently, Berkshire Hills will be
restricted in terms of activities in which it may engage to a greater extent
than previously existing unitary savings and loan holding companies.
Establishment of Berkshire Hills Foundation will hurt Berkshire Hills' profits
for the year 2000
Berkshire Hills intends to contribute to Berkshire Hills Foundation shares of
its common stock equal to 8% of the shares sold in the conversion. This
contribution will hurt net income during the fiscal year in which the foundation
is established, which is expected to be 2000, possibly resulting in an operating
loss for that year. For a further discussion regarding the effect of the
contribution to the foundation, see "The Conversion--Establishment of the
Charitable Foundation."
Management will have substantial discretion over investment of the offering
proceeds and may make investments with which you may disagree
The net offering proceeds to Berkshire Bank are estimated to range from $29.5
million to $40.2 million. The net offering proceeds to Berkshire Hills are
estimated to range from $24.2 million to $33.1 million after it uses a portion
of its proceeds to capitalize a subsidiary it intends to create which will lend
funds to Berkshire Bank's employee stock ownership plan to purchase shares of
common stock. Berkshire Hills and Berkshire Bank intend to use these funds for
general business purposes, giving management substantial discretion over their
investment. You may disagree with investments that management makes. See "Use
of Proceeds" for further discussion.
13
<PAGE>
Implementation of additional benefit plans will increase future compensation
expense and lower Berkshire Bank's profits
Berkshire Bank will recognize additional material employee compensation and
benefit expenses stemming from the shares purchased by or granted to employees
and executives under new benefit plans. Berkshire Bank cannot predict the
actual amount of these new expenses because applicable accounting practices
require that they be based on the fair market value of the shares of common
stock at specific points in the future. Berkshire Bank would recognize expenses
for its employee stock ownership plan when shares are committed to be released
to participants' accounts and would recognize expenses for the stock-based
incentive plan over the vesting period of awards made to recipients. These
expenses have been estimated in the pro forma financial information under "Pro
Forma Data" assuming the $10.00 per share purchase price as fair market value.
Actual expenses, however, may be higher or lower. For further discussion of
these plans, see "Management of Berkshire Bank--Benefits."
Declining interest rates could hurt Berkshire Bank's profits
Like most financial institutions, Berkshire Bank's ability to make a profit
depends largely on its net interest income, which is the difference between the
interest income it receives from its loans and securities and the interest it
pays on deposits and borrowings. A large percentage of Berkshire Bank's
interest-earning assets have shorter maturities. Therefore, if interest rates
decline, Berkshire Bank anticipates that its net interest income would decline
because interest earned on its assets would decrease more quickly than the
interest paid on deposits. For further discussion of how changes in interest
rates could impact Berkshire Bank, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Management of Interest Rate Risk
and Market Risk Analysis."
A downturn in the local economy or the economy in western Massachusetts in
general could hurt Berkshire Bank's profits
The vast majority of Berkshire Bank's loans are made to borrowers who live and
work in Berkshire County, Massachusetts. A prolonged economic recession in
Berkshire County or western Massachusetts in general would likely cause
significant increases in nonperforming loans and assets, which would create
operating losses for Berkshire Bank and would hurt its profits. For a further
discussion of Berkshire Bank's market area and competition, see "Business of
Berkshire Bank--Market Area" and "Business of Berkshire Bank--Competition."
Issuance of shares for benefit program may lower your ownership interest
If stockholders approve the new stock-based incentive plan, Berkshire Hills
intends to issue shares to its officers and directors through this plan. If the
restricted stock awards under the stock-based incentive plan are granted from
authorized but unissued stock, your ownership interest could be reduced by up to
approximately 3.85%. If the options under the stock-based incentive plan are
granted from authorized but unissued stock, your ownership interest could be
further reduced by up to approximately 9.09%. See "Pro Forma Data" and
"Management of Berkshire Bank--Benefits."
Expected voting control by management and employees may make takeover attempts
more difficult to achieve
The shares of common stock that Berkshire Bank's directors and executive
officers intend to purchase in the conversion, when combined with the shares
that may be awarded to participants under Berkshire Bank's employee stock
ownership plan and Berkshire Hills' stock-based incentive plan, could result in
management and employees controlling a significant percentage of Berkshire
Hills' common stock. If these individuals were to act together, they could have
significant influence over the outcome of any stockholder vote. This voting
power may discourage takeover attempts you might like to see happen. In
addition, the total voting power of management and employees could exceed 20% of
Berkshire Hills' outstanding stock, which would enable management and
14
<PAGE>
employees as a group to defeat any stockholder matter that requires an 80% vote.
For information about management's intended stock purchases and the number of
shares that may be awarded under new benefit plans, see "Management of Berkshire
Bank--Executive Compensation," "Shares to Be Purchased by Management with
Subscription Rights" and "Restrictions on Acquisition of Berkshire Hills and
Berkshire Bank."
The contribution to Berkshire Hills Foundation means that a stockholder's total
ownership interest will be 7.4% less after the contribution
Purchasers of shares will have their ownership and voting interests in
Berkshire Hills diluted by 7.4% at the close of the conversion when Berkshire
Hills issues an additional 8% of its shares and contributes those shares to the
foundation. For a further discussion regarding the effect of the contribution
to the foundation, see "Pro Forma Data" and "Comparison of Independent Valuation
and Pro Forma Financial Information With and Without the Foundation."
Contribution to Berkshire Hills Foundation may not be tax deductible which could
hurt Berkshire Hills' profits
Berkshire Hills believes that its contribution to the Berkshire Hills
Foundation should be deductible for federal income tax purposes. However,
Berkshire Hills does not have any assurance that the Internal Revenue Service
will grant tax-exempt status to the foundation. If the contribution is not
deductible, Berkshire Hills would not receive any tax benefit from the
contribution. In addition, even if the contribution is tax deductible,
Berkshire Hills may not have sufficient profits to be able to fully use the
deduction. For a further discussion of the contribution to the charitable
foundation, see "The Conversion--Establishment of the Charitable Foundation--Tax
Considerations."
Anti-takeover provisions and statutory provisions could make takeover attempts
more difficult to achieve and may decrease the market price of common stock
Provisions in Berkshire Hills' Certificate of Incorporation and Bylaws, the
corporate law of the State of Delaware, Massachusetts banking law, and federal
banking regulations may make it difficult and expensive to pursue a takeover
attempt that management opposes. These provisions may discourage or prevent
takeover attempts you might like to see happen and may decrease the market price
of the common stock. These provisions will also make the removal of the current
board of directors or management of Berkshire Hills, or the appointment of new
directors, more difficult. These provisions include: limitations on voting
rights of beneficial owners of more than 10% of Berkshire Hills' common stock;
supermajority voting requirements for certain business combinations; the
election of directors to staggered terms of three years; certain qualifications
to stand for election to and serve on the board of directors; and the
elimination of cumulative voting for directors. The Certificate of
Incorporation of Berkshire Hills also contains provisions regarding the timing
and content of stockholder proposals and nominations and limiting the calling of
special meetings. Similar provisions in the Amended and Restated Articles of
Organization and Bylaws of Berkshire Bank would also discourage takeover
attempts and make takeovers less likely to succeed without the support of
management. For further information about these provisions, see "Restrictions
on Acquisition of Berkshire Hills and Berkshire Bank."
Employment and change in control agreements, the employee stock ownership plan,
supplemental executive retirement plan and the severance plan could make
takeover attempts more difficult to achieve
The employment and change in control agreements to be entered into with
officers of Berkshire Hills and Berkshire Bank provide for cash severance
payments and/or the continuation of health, life and disability benefits if the
officers are terminated following a change in control of Berkshire Hills or
Berkshire Bank. If a change in control had occurred at December 31, 1999, the
aggregate value of the severance benefits available to these officers under the
agreements would, based on 1999 compensation data, have been approximately $5.1
million. In addition, if a change in control had occurred at December 31, 1999
and all eligible employees had been terminated, the
15
<PAGE>
aggregate payment due under the supplemental executive retirement plan would
have been approximately $450,000 and the aggregate payment due under the
severance plan would have been approximately $12.0 million. These estimates do
not take into account future salary adjustments or bonus payments or the value
of the continuation of other employee benefits. All of these arrangements may
have the effect of increasing the costs of acquiring Berkshire Hills, thereby
discouraging future attempts to take over Berkshire Hills or Berkshire Bank. For
information about the proposed employment, change in control and severance
agreements and the severance plan, see "Management of Berkshire Bank--Executive
Compensation."
Berkshire Hills cannot assure or guarantee an active trading market for the
common stock
Because Berkshire Hills has never issued stock, there is no current trading
market for the common stock. Consequently, Berkshire Hills cannot assure or
guarantee that an active trading market for the common stock will develop or
that an active trading market, if developed, will continue. An active and
orderly trading market will depend on the existence and individual decisions of
willing buyers and sellers at any given time over which neither Berkshire Hills
nor any market maker will have any control. If an active trading market does not
develop or is sporadic, this may hurt the market value of the common stock.
Furthermore, Berkshire Hills cannot assure or guarantee that purchasers of
common stock in the offering will be able to sell their shares after the
conversion at or above the $10.00 per share purchase price. For further
information, see "Market for Common Stock."
Sandler O'Neill has not given an opinion or recommendation that the common stock
is a good investment
Berkshire Hills and Berkshire Bank have engaged Sandler O'Neill to consult
with and to advise Berkshire Hills and Berkshire Bank with respect to the
conversion and to assist, on a best-efforts basis, with the solicitation of
subscriptions and purchase orders for shares of common stock. Sandler O'Neill
has not prepared or delivered any opinion or recommendation on the prices at
which the common stock may trade after the conversion or the appropriateness of
the amount of common stock to be issued in the conversion. Sandler O'Neill also
has neither verified the accuracy or completeness of the information contained
in this prospectus, nor prepared a report or opinion making recommendations to
Berkshire Bank or Berkshire Hills.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain certain information concerning the
consolidated financial position and results of operations of Berkshire Bancorp
and Berkshire Bank at and for the dates indicated. The data as of December 31,
1996 and 1995 and for the years then ended represents the combined financial
position and results of operations of Great Barrington Savings Bank and
Berkshire County Savings Bank and is derived from unaudited consolidated
financial statements. These two banks were merged to form Berkshire Bank on May
1, 1997. The data as of December 31, 1999, 1998 and 1997 and for the years then
ended are derived from the audited consolidated financial statements of
Berkshire Bancorp and Berkshire Bank. This information should be read in
conjunction with the Consolidated Financial Statements included in this
prospectus.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
(In thousands )
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets .......................................... $841,651 $780,289 $637,346 $627,453 $602,679
Loans, net ............................................ 665,554 599,171 491,743 459,059 440,761
Investment securities:
Available for sale .............................. 93,084 93,774 71,778 82,888 81,865
Held to maturity ................................ 17,014 23,780 34,675 33,243 17,456
Federal Home Loan Bank stock .................... 3,843 2,547 2,547 2,509 2,399
Savings Bank Life Insurance stock ............... 2,043 2,043 2,043 2,043 2,043
Deposits (1) .......................................... 680,767 647,122 539,061 535,505 524,327
Federal Home Loan Bank advances ....................... 58,928 29,590 6,880 7,732 6,357
Repurchase agreements ................................. 1,120 7,000 5,070 6,340 2,843
Total equity .................................... 88,352 84,201 75,317 68,713 61,458
Other real estate owned ............................... 220 398 364 2,888 219
Nonperforming loans ................................... 2,841 3,490 2,156 4,845 3,912
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest and dividend income .................... $58,468 $52,495 $48,423 $46,890 $44,761
Total interest expense ................................ 26,922 24,182 22,290 22,032 19,422
------ ------- ------- ------- -------
Net interest income ................................ 31,546 28,313 26,133 24,858 25,339
Provision for loan losses ............................. 3,030 2,055 1,477 1,980 2,509
------ ------- ------- ------- -------
Net interest income after provision
for loan losses ................................. 28,516 26,258 24,656 22,878 22,830
------ ------- ------- ------- -------
Noninterest income:
Service charges and fees ........................... 3,405 2,568 2,440 2,801 2,609
Gain on sales and dispositions, net................. 491 425 2,653 1,364 244
Other .............................................. 402 300 512 653 708
------ ------- ------- ------- -------
Total noninterest income ........................ 4,298 3,293 5,605 4,818 3,561
------ ------- ------- ------- -------
Total noninterest expense ....................... 25,196 22,359 26,066 19,257 17,805
------ ------- ------- ------- -------
Income before income taxes ......................... 7,618 7,192 4,195 8,439 8,586
Income taxes ....................................... 1,995 2,768 1,692 3,039 2,066
------ ------- ------- ------- -------
Net income ...................................... $ 5,623 $ 4,424 $ 2,503 $ 5,400 $ 6,520
======= ======= ======= ======= =======
</TABLE>
(footnotes on following page)
17
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Selected Other Data:
Number of:
Mortgage loans outstanding ..................................... 3,667 2,961 2,879 2,967 2,827
Deposit accounts ............................................... 76,493 75,648 65,012 65,142 64,760
Banking offices ................................................ 14 14 11 11 11
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Selected Operating Ratios and Other Data:
Performance Ratios (2):
Average yield on interest-earning assets ...................... 7.65% 7.83% 8.10% 8.07% 8.26%
Average rate paid on interest-bearing liabilities ............. 4.15 4.36 4.45 4.42 4.14
Interest rate spread (3) ...................................... 3.50 3.47 3.65 3.65 4.12
Net interest margin (4) ....................................... 4.13 4.22 4.37 4.28 4.67
Interest-bearing assets to interest-bearing liabilities ....... 117.75 120.94 119.44 116.46 115.55
Net interest income after provision for loan losses
to noninterest expense ..................................... 113.18 117.44 94.59 118.80 128.22
Non-interest expense as a percent of average assets ........... 3.09 3.19 4.16 3.13 3.11
Return on average assets (5) .................................. 0.69 0.63 0.40 0.88 1.14
Return on average equity (6) .................................. 6.51 5.56 3.54 8.55 11.95
Average equity to average assets .............................. 10.59 11.34 11.30 10.25 9.68
Regulatory Capital Ratios:
Tier 1 capital to average assets .............................. 7.91 7.79 9.80 9.46 9.18
Total capital to risk-weighted assets ......................... 12.90 13.04 13.46 14.52 13.73
Asset Quality Ratios:
Nonperforming loans as a percent of total loans (7) ............ 0.42 0.58 0.43 1.04 0.87
Nonperforming assets as a percent of total assets (8) .......... 0.36 0.50 0.40 1.23 0.69
Allowance for loan losses as a percent of total loans .......... 1.27 1.25 1.22 1.35 1.45
Allowance for loan losses as a percent of nonperforming loans .. 302.62 217.45 281.91 130.09 165.75
Net loans charged-off as a percent of interest-earning loans ... 0.31 0.09 0.34 0.47 0.25
</TABLE>
- ------------------------------
(1) Includes mortgagors' escrow accounts.
(2) Regulatory Capital and Asset Quality Ratios are end of period ratios.
Performance Ratios for 1999 and 1998 are based on daily averages.
Performance Ratios for 1997, 1996 and 1995 are based on monthly averages.
(3) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Net income divided by average total assets.
(6) Net income divided by average total equity.
(7) Nonperforming loans consist of nonaccrual loans. See "Business of Berkshire
Bank--Lending Activities--Nonperforming Assets and Delinquencies."
(8) Nonperforming assets consist of nonaccrual loans and real estate owned. See
"Business of Berkshire Bank--Lending Activities--Nonperforming Assets and
Delinquencies."
18
<PAGE>
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering,
the amount to be retained by Berkshire Hills, the amount to be contributed to
Berkshire Bank, and the amount of Berkshire Hills' capitalization of a
subsidiary to be created which will lend funds to the employee stock ownership
plan. See "Pro Forma Data" for the assumptions used to arrive at these amounts.
<TABLE>
<CAPTION>
6,145,500 8,314,500 9,561,675
Shares at Shares at Shares at
$10.00 $10.00 $10.00
Per Share Per Share Per Share
------------ -------------- --------------
(In thousands)
<S> <C> <C> <C>
Gross proceeds ....................................... $61,455 $83,145 $95,617
Less: estimated underwriting commissions and
other offering expenses ....................... 2,361 2,658 2,829
------- ------- -------
Net proceeds ......................................... $59,094 $80,487 $92,788
======= ======= =======
Net proceeds to be retained by Berkshire Hills ....... $29,547 $40,244 $46,394
Net proceeds to be contributed to Berkshire Bank ..... $29,547 $40,244 $46,394
Amount of loan by Berkshire Hills to employee
stock ownership plan .............................. $ 5,310 $ 7,184 $ 8,261
</TABLE>
Berkshire Hills will purchase all of the capital stock of Berkshire Bank to
be issued in the conversion in exchange for 50% of the net proceeds of the stock
offering. Receipt of the 50% of the net proceeds of the sale of the common
stock will increase Berkshire Bank's capital and will support the expansion of
Berkshire Bank's existing business activities. Berkshire Bank will use the
funds contributed to it for general business purposes, including, loan
originations and investment in short- to intermediate-term investment grade
securities.
Berkshire Hills intends to capitalize a subsidiary it intends to create
which will lend funds to the employee stock ownership plan in an amount
necessary for the plan to acquire an amount of shares equal to 8% of the shares
issued in the conversion, including shares issued to Berkshire Hills Foundation.
Accordingly, acquisitions by the employee stock ownership plan would range
between 530,971 shares, assuming 6,637,140 shares are issued in the conversion,
to 826,128 shares, if 10,326,609 shares are issued in the conversion. Berkshire
Hills and Berkshire Bank may alternatively choose to fund the employee stock
ownership plan's stock purchases through a loan by a third party financial
institution. For purposes of the above table, it is assumed that any shares of
common stock to be purchased by the employee stock ownership plan in the open
market will be purchased at $10.00 per share. If there are not enough shares to
satisfy the employee stock ownership plan's subscription for shares sold in the
conversion, the plan may purchase such shares in the open market after
conversion. It is anticipated that the employee stock ownership plan loan will
have a 15-year term with a fixed rate of interest equal to the prime rate
published in The Wall Street Journal on the closing date of the conversion. The
loan will be repaid primarily from Berkshire Bank's contributions to the
employee stock ownership plan and from any dividends paid on shares of common
stock held by the employee stock ownership plan.
The remaining net proceeds retained by Berkshire Hills will initially be
invested primarily in short- to intermediate-term investment grade securities.
Berkshire Hills may also use the funds it retains to support future expansion of
operations or diversification into other banking or financial services related
businesses and for other business or investment purposes. However, with the
exception of the potential establishment of an insurance agency, there are no
specific plans, arrangements, agreements or understandings, written or oral,
regarding any expansion activities.
19
<PAGE>
Berkshire Hills may also use available funds to repurchase shares of common
stock and for the payment of dividends, subject to any limitations set forth in
applicable laws and regulations. Following the conversion, the Board of
Directors will have the authority to adopt plans that meet statutory and
regulatory requirements for repurchases of common stock. Since Berkshire Hills
has not yet issued stock, there currently is insufficient information upon which
an intention to repurchase stock could be based and consequently, no such
intention currently exists. The Board of Directors will consider many facts and
circumstances in determining whether to repurchase stock in the future. These
factors include market and economic factors such as the price at which the stock
is trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and the ability to improve Berkshire Hills'
return on equity. The avoidance of dilution to stockholders by not having to
issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans is another factor that will be considered. The
Board of Directors will also consider any other circumstances in which
repurchases would be in the best interests of Berkshire Hills and its
stockholders.
Before undertaking any stock repurchases, the Board of Directors must
determine that both Berkshire Hills and Berkshire Bank will be capitalized in
excess of all applicable regulatory requirements after any repurchases and that
capital will be adequate, taking into account, among other things, Berkshire
Bank's level of nonperforming and classified assets, Berkshire Hills' and
Berkshire Bank's current and projected results of operations and asset/liability
structure, the economic environment and tax and other regulatory considerations.
For a discussion of the regulatory limitations applicable to stock repurchases,
see "The Conversion--Restrictions on Repurchase of Stock."
Except as described above, neither Berkshire Hills nor Berkshire Bank has
specific plans for the investment of the proceeds of this offering. For a
discussion of management's business reasons for undertaking the conversion, see
"The Conversion--Reasons for the Conversion."
DIVIDEND POLICY
General
Berkshire Hills' Board of Directors intends to adopt a policy of paying
regular cash dividends after the conversion, but has not decided the exact
amount or range of amounts that may be paid, when the payments may begin or the
frequency of any payments. In addition, the Board of Directors may declare and
pay periodic special cash dividends in addition to, or in lieu of, regular cash
dividends. When deciding whether to declare or pay any dividends, whether
regular or special, the Board of Directors will take into account the amount of
the net proceeds retained by Berkshire Hills, Berkshire Hills' financial
condition, results of operations, tax considerations, capital requirements,
industry standards, and economic conditions. The Board of Directors will also
consider the regulatory restrictions discussed below that affect the payment of
dividends by Berkshire Bank to Berkshire Hills. Berkshire Hills is also subject
to Delaware law, which generally limits dividends to an amount equal to an
excess of the net assets of a company (the amount by which total assets exceed
total liabilities) over statutory capital, or if there is no excess, to the
company's net profits for the current and/or immediately preceding fiscal year.
In order to pay cash dividends, however, Berkshire Hills must have available
cash either from the net proceeds raised in the conversion and retained by
Berkshire Hills, borrowings by Berkshire Hills, dividends received from
Berkshire Bank or earnings on Berkshire Hills' assets. No assurances can be
given that any dividends, either regular or special, will be declared or paid,
or if declared and paid, what the amount of dividends will be or whether they
will continue uninterrupted.
Regulatory Restrictions
Dividends from Berkshire Hills may depend, in part, upon receipt of
dividends from Berkshire Bank because Berkshire Hills will initially have no
source of income other than dividends from Berkshire Bank and earnings from the
investment of the net proceeds from the offering retained by Berkshire Hills.
Berkshire Bank, as a Massachusetts-chartered savings bank, must also comply with
Massachusetts law when considering paying a dividend. A Massachusetts savings
bank may only pay dividends on its stock if such payment would not impair the
20
<PAGE>
bank's stock and surplus account. In addition, Berkshire Bank may not declare
or pay a cash dividend on its stock if the effect would be to reduce its
regulatory capital below the amount required for the liquidation account to be
established under the plan of conversion and below amounts required to be
maintained by the Federal Deposit Insurance Corporation. See "The Conversion--
Effects of Conversion to Stock Form--Liquidation Account."
Tax Considerations
In addition to the foregoing, retained earnings of Berkshire Bank
appropriated to bad debt reserves and previously deducted for federal income tax
purposes cannot be used to pay cash dividends to Berkshire Hills without the
payment of federal income taxes by Berkshire Bank at the then current income tax
rate on the amount deemed distributed, which would include the amounts of any
federal income taxes relating to the distribution. See "Federal and State
Taxation of Income--Federal Income Taxation." Berkshire Hills does not
contemplate any distribution by Berkshire Bank that would result in a recapture
of its bad debt reserve or create the above-mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
Because Berkshire Hills and Berkshire Bank have not issued capital stock to
the public, no established market for the common stock exists. Berkshire Hills
expects to receive approval to have its common stock listed on the American
Stock Exchange under the symbol "_____" upon completion of the conversion. To
receive that approval, Berkshire Hills must satisfy various conditions,
including selling the stock and meeting certain listing criteria. There can be
no assurance that the common stock will be able to meet the applicable listing
criteria to maintain its quotation on the American Stock Exchange or that an
active and liquid trading market will develop or, if developed, will be
maintained. No assurance can be given that an investor will be able to resell
the common stock at or above the purchase price of the common stock after the
conversion.
21
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Berkshire
Bancorp at December 31, 1999, and the pro forma capitalization of Berkshire
Hills after giving effect to the assumptions listed under "Pro Forma Data,"
based on the sale of the number of shares of common stock indicated in the
table. Pro forma capitalization does not reflect the issuance of additional
shares under the proposed stock-based incentive plan. A change in the number of
shares to be issued in the conversion may materially affect pro forma
capitalization.
<TABLE>
<CAPTION>
Berkshire Hills Pro Forma
Capitalization Based Upon the Sale of $10.00 Per Share
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
-------------- -------------- --------------
6,145,500 8,314,500 9,561,675
Berkshire Bancorp Shares at Shares at Shares at
as of $10.00 $10.00 $10.00
December 31, 1999 Per Share Per Share Per Share
------------------ -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Deposits(1) .......................................... $680,767 $680,767 $680,767 $680,767
Short-term borrowed funds ............................ 1,120 1,120 1,120 1,120
Advances from Federal Home Loan Bank ................. 58,928 58,928 58,928 58,928
-------- -------- -------- --------
Total deposits and borrowed funds..................... $740,815 $740,815 $740,815 $740,815
======== ======== ======== ========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding ...... $ -- $ -- $ -- $ --
Common stock:
26,000,000 shares, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding(2) ..... -- 66 90 103
Additional paid-in capital ........................... -- 59,028 80,397 92,685
Undivided profits (3) ................................ 70,679 70,679 70,679 70,679
Accumulated other comprehensive income (4) ........... 17,673 17,673 17,673 17,673
Plus:
Contribution to foundation ........................ -- 4,916 6,652 7,649
Less:
Expense of contribution to foundation, net of
taxes (5)....................................... -- (3,146) (4,257) (4,896)
Less:
Common stock acquired by employee stock ownership
plan (6)........................................ -- (5,310) (7,184) (8,261)
Common stock to be acquired by stock-based
incentive plan (7) ............................. -- (2,655) (3,592) (4,131)
-------- -------- -------- --------
Total stockholders' equity ........................... $ 88,352 $141,250 $160,458 $171,501
======== ======== ======== ========
</TABLE>
____________________________________
(1) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals to purchase common stock will reduce pro forma
deposits by the amounts of the withdrawals.
(2) After conversion, Berkshire Bank's authorized capital will consist solely
of 10,000,000 shares of common stock, $1.00 par value, 1,000 shares of
which will be issued to Berkshire Hills, and 10,000,000 shares of preferred
stock, $1.00 par value, none of which will be issued in connection with the
conversion.
(3) Undivided profits are restricted by applicable regulatory capital
requirements. Additionally, Berkshire Bank will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of its
eligible depositors as of September 30, 1998 and September 30, 1999 at the
time of the conversion and decreased subsequently as these account holders
reduce their balances or cease to be depositors. See "The Conversion--
Effects of Conversion to Stock Form--Liquidation Account."
(4) Represents the net unrealized gain on securities classified as available
for sale, net of related taxes.
(5) Represents the expense, net of tax, of the contribution of common stock to
Berkshire Hills Foundation based on an estimated tax rate of 36%. The
realization of the tax benefit is limited annually to 10% of Berkshire
Hills' annual taxable income. However, for federal tax and state purposes,
Berkshire Hills can carry forward any unused portion of the deduction for
five years following the year in which the contribution is made.
(6) Assumes that 8% of the common stock issued in the conversion will be
acquired by the employee stock ownership plan in the conversion at $10.00
per share with funds borrowed from a subsidiary established and capitalized
by Berkshire Hills for that purpose. Under generally accepted accounting
principles, the amount of common stock to be purchased by the employee
stock ownership plan represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released to employee
stock ownership plan participants' accounts, a corresponding reduction in
the charge against capital will occur. See "Management of Berkshire Bank--
Benefits--Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock issued in the conversion. The shares are
reflected as a reduction of stockholders' equity. See "Risk Factors--
Issuance of shares for benefit program may lower your ownership interest,"
"Pro Forma Data" and "Management of Berkshire Bank--Benefits--Stock-Based
Incentive Plan." The stock-based incentive plan will be submitted to
stockholders for approval at a meeting following the conversion.
22
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents Berkshire Bank's historical and pro forma capital
position relative to its regulatory capital requirements at December 31, 1999.
The table amounts include $15,631 in cash held by Berkshire Bancorp that will be
added to Berkshire Bank's capital upon conversion. The amount of capital
infused into Berkshire Bank for purposes of the following table is 50% of the
net proceeds of the offering. For purposes of the table, the amount expected to
be borrowed by the employee stock ownership plan and the cost of the shares
expected to be awarded under the stock-based incentive plan as restricted stock
are deducted from pro forma regulatory capital. For a discussion of the
assumptions underlying the pro forma capital calculations presented below, see
"Use of Proceeds," "Capitalization" and "Pro Forma Data." The definitions of
the terms used in the table are those provided in the capital regulations issued
by the Federal Deposit Insurance Corporation. For a discussion of the capital
standards applicable to Berkshire Bank, see "Regulation and Supervision--Federal
Regulations--Capital Requirements."
<TABLE>
<CAPTION>
Berkshire Bank Pro Forma Regulatory Capital Compliance at
December 31, 1999, Based Upon the Sale of
---------------------------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range
Berkshire Bank -------------------- ---------------------- -----------------------
Historical at 6,145,500 Shares 8,314,500 Shares 9,561,675 Shares
December 31, 1999 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
--------------------- -------------------- ---------------------- -----------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets(1) Amount Assets Amount Assets Amount Assets
--------- --------- -------- ----------- --------- ---------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Generally accepted accounting
principles capital ............. $88,352 10.50% $109,934 12.74% $117,820 13.53% $122,354 13.98%
======= ===== ======== ===== ======== ===== ======== =====
Tier 1 capital to average
assets (2) ..................... $63,870 7.91% $ 85,452 10.31% $ 93,338 11.15% $ 97,872 11.63%
Requirement ....................... 32,305 4.00 33,168 4.00 33,484 4.00 33,665 4.00
------- ----- -------- ----- -------- ----- -------- -----
Excess ............................ $31,565 3.91% $ 52,284 6.31% $ 59,854 7.15% $ 64,207 7.63%
======= ===== ======== ===== ======== ===== ======== =====
Total capital to risk-weighted
assets (3) ..................... $84,652 12.90% $106,234 15.92% $114,120 17.00% $118,654 17.62%
Requirement ....................... 52,516 8.00 53,379 8.00 53,694 8.00 53,876 8.00
------- ----- -------- ----- -------- ----- -------- -----
Excess ............................ $32,136 4.90% $ 52,855 7.92% $ 60,426 9.00% $ 64,778 9.62%
======= ===== ======== ===== ======== ===== ======== =====
</TABLE>
- -------------------------
(1) Tier 1 capital levels are shown as a percentage of adjusted total assets of
$807.6 million. Total capital to risk-weighted assets are shown as a
percentage of risk-weighted assets of $656.4 million.
(2) A portion of the net unrealized gains on available-for-sale investment
securities and goodwill accounts for the difference between generally
accepted accounting principles capital and Tier 1 capital.
(3) Percentage represents total core and supplementary capital divided by total
capital to risk-weighted assets. Assumes net proceeds are invested in
assets that carry a 50% risk-weighting.
23
<PAGE>
PRO FORMA DATA
The plan of conversion requires that the common stock must be sold at a
price equal to the estimated market value of Berkshire Hills and Berkshire Bank,
as converted, based upon an independent appraisal by FinPro. The estimated
valuation range as of March 8, 2000 is from a minimum of $61.5 million to a
maximum of $83.1 million with a midpoint of $72.3 million. At a price per share
of $10.00, this results in a minimum number of shares of 6,145,500, a maximum
number of shares of 8,314,500 and a midpoint number of shares of 7,230,000.
The actual net proceeds from the sale of the common stock cannot be
determined until the conversion is completed. However, net proceeds indicated in
the following tables are based upon the following assumptions:
. All shares of common stock will be sold in the subscription and direct
community offerings;
. Sandler O'Neill will receive a fee equal to 1.50% of the aggregate
purchase price of the shares sold in the subscription and direct
community offerings, except that no fee will be paid with respect to
shares purchased by the employee benefit plans, shares purchased by
officers, employees or directors of Berkshire Bank or Berkshire Hills,
or their immediate families. See "The Conversion--Plan of
Distribution for the Subscription, Direct Community and Syndicated
Community Offerings"; and
. Conversion expenses, excluding the 1.50% fee paid to Sandler O'Neill,
will total approximately $1,550,000 regardless of the number of shares
sold in the conversion.
Actual expenses may vary from this estimate, and the fees paid will depend
upon whether a syndicate of broker-dealers or other means is necessary to sell
the shares, and other factors.
Berkshire Hills and Berkshire Bank prepared the following pro forma data
with the assistance of FinPro. The following tables summarize the historical
consolidated net income and capital of Berkshire Bancorp and Berkshire Bank and
the pro forma consolidated net income and stockholders' equity of Berkshire
Hills and Berkshire Bank at and for the year ended December 31, 1999. Pro forma
net income for the year ended December 31, 1999 has been calculated as if the
conversion was completed on January 1, 1999 and the estimated net proceeds had
been invested at 5.98% beginning on that date, which represents the one-year
U.S. Treasury Bill yield as of December 31, 1999.
A pro forma after-tax return of 3.83% is used for the year ended December
31, 1999, after giving effect to a combined federal and state income tax rate of
36%. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the number of shares of common
stock indicated in the table.
When reviewing the following tables you should consider the following:
. The final column gives effect to the sale of an additional 1,247,175
shares in the conversion, which may be issued without any further
notice if FinPro increases its appraisal to reflect the results of
this offering or changes in the financial condition or results of
operations of Berkshire Bank or changes in market conditions after the
date of the appraisal. See "The Conversion--Stock Pricing and Number
of Shares to be Issued."
. Since funds on deposit at Berkshire Bank may be withdrawn to purchase
shares of common stock, the amount of funds available for investment
will be reduced by the amount of withdrawals for stock purchases. The
pro forma tables do not reflect withdrawals from deposit accounts.
24
<PAGE>
. Historical per share amounts have been computed as if the shares of
common stock expected to be issued in the conversion had been
outstanding at January 1, 1999. However, neither historical nor pro
forma stockholders' equity has been adjusted to reflect the investment
of the estimated net proceeds from the sale of the shares in the
conversion, the additional employee stock ownership plan expense or
the proposed stock-based incentive plan.
. Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of Berkshire Bank's assets and
liabilities. The amounts shown do not reflect the liquidation
account, which will be established for the benefit of eligible
depositors as of September 30, 1999 and September 30, 1998, or the
federal income tax consequences of the restoration to income of
Berkshire Bank's special bad debt reserves for income tax purposes,
which would be required in the unlikely event of liquidation. See
"Federal and State Taxation of Income" and "The Conversion--Effects of
Conversion to Stock Form." The amounts shown for book value do not
represent fair market values or amounts available for distribution to
stockholders in the unlikely event of liquidation.
. The amounts shown as pro forma stockholders' equity per share do not
represent possible future price appreciation or depreciation of
Berkshire Hills' common stock.
. The amounts shown do not account for the shares to be reserved for
issuance upon the exercise of stock options that may be granted under
the proposed stock-based incentive plan, which requires stockholder
approval at a meeting following the conversion.
The following pro forma data, which are based on Berkshire Bancorp's and
Berkshire Bank's capital at December 31, 1999 and net income for the year ended
December 31, 1999 on a consolidated basis, may not represent the actual
financial effects of the conversion or the operating results of Berkshire Hills
after the conversion. The pro forma data rely exclusively on the assumptions
outlined above. The pro forma data does not represent the fair market value of
Berkshire Hills' common stock, the current fair market value of Berkshire Bank's
or Berkshire Bancorp's assets or liabilities, or the amount of money that would
be available for distribution to stockholders if Berkshire Hills is liquidated
after the conversion.
The following tables assume that Berkshire Hills Foundation is funded as
part of the conversion and therefore gives effect to the issuance of authorized
but unissued shares of Berkshire Hills common stock to Berkshire Hills
Foundation. The valuation range accounts for the dilutive impact of the
issuance of shares to Berkshire Hills Foundation.
25
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1999
-----------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Estimated Estimated Estimated
Valuation Valuation Valuation
Range Range Range
------------- --------------- --------------
6,145,500 8,314,500 9,561,675
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
------------- --------------- --------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Gross proceeds ................................................................ $ 61,455 $ 83,145 $ 95,617
Plus: shares issued to the foundation (equal to 8% of the shares
sold in the conversion) .................................................... 4,916 6,652 7,649
-------- -------- --------
Pro forma market capitalization ............................................... $ 66,371 $ 89,797 $103,266
======== ======== ========
Gross proceeds ................................................................ $ 61,455 $ 83,145 $ 95,617
Less: estimated expenses ..................................................... (2,361) (2,658) (2,829)
-------- -------- --------
Estimated net proceeds ........................................................ 59,094 80,487 92,788
Less: common stock acquired by employee stock ownership plan ................. (5,310) (7,184) (8,261)
Less: common stock to be acquired by stock-based incentive plan .............. (2,655) (3,592) (4,131)
-------- -------- --------
Net investable proceeds .................................................... $ 51,129 $ 69,711 $ 80,396
======== ======== ========
Pro Forma Net Income:
Number of shares used to calculate pro forma net income per share ............. 6,141,567 8,309,179 9,555,557
========= ========= =========
Pro forma net income (1):
Historical ................................................................. $ 5,623 $ 5,623 $ 5,623
Pro forma income on net investable proceeds ................................ 1,958 2,670 3,079
Less: pro forma employee stock ownership plan adjustments (2) ............. (227) (307) (352)
Less: pro forma stock-based incentive plan adjustments (3) ................ (340) (460) (529)
-------- -------- --------
Pro forma net income .................................................... $ 7,014 $ 7,526 $ 7,821
======== ======== ========
Pro forma net income per share (1):
Historical ................................................................. $ 0.92 $ 0.68 $ 0.59
Pro forma income on net investable proceeds ................................ 0.32 0.32 0.32
Less: pro forma employee stock ownership plan adjustments (2) ............. (0.04) (0.04) (0.04)
Less: pro forma stock-based incentive plan adjustments (3) ................ (0.06) (0.06) (0.06)
-------- -------- --------
Pro forma net income per share (4) ...................................... $ 1.14 $ 0.90 $ 0.81
======== ======== ========
Pro Forma Stockholders' Equity:
Number of shares used to calculate pro forma stockholders' equity
per share .................................................................. 6,637,140 8,979,660 10,326,611
========= ========= ==========
Pro forma stockholders' equity (book value) (1):
Historical ................................................................. $ 88,352 $ 88,352 $ 88,352
Estimated net proceeds ..................................................... 59,094 80,487 92,788
Plus: tax benefit of the contribution to the foundation .................... 1,770 2,395 2,753
Less: common stock acquired by the employee stock ownership plan ........... (5,310) (7,184) (8,261)
Less: common stock acquired by stock-based incentive plan (3) .............. (2,655) (3,592) (4,131)
-------- -------- --------
Pro forma stockholders' equity (4) ...................................... $141,251 $160,458 $171,501
======== ======== ========
Pro forma stockholders' equity per share (1):
Historical ................................................................. $13.31 $9.84 $ 8.56
Estimated net proceeds ..................................................... 8.90 8.96 8.99
Plus: tax benefit of the contribution to the foundation .................... 0.27 0.27 0.27
Less: common stock acquired by the employee stock ownership plan ........... (0.80) (0.80) (0.80)
Less: common stock acquired by stock-based incentive plan (3) .............. (0.40) (0.40) (0.40)
-------- -------- --------
Pro forma stockholders' equity per share ................................ $21.28 $17.87 $16.62
======== ======== ========
Offering price as a percentage of pro forma stockholders' equity
per share .................................................................. 46.99% 55.96% 60.17%
======== ======== ========
Offering price as a multiple of pro forma net income per share ................ 8.77x 11.11x 12.35x
======== ======== ========
</TABLE>
26
<PAGE>
- ---------------------------------
(1) Does not give effect to the non-recurring expense that will be recognized in
2000 as a result of the contribution of common stock to Berkshire Hills
Foundation. The following table shows the estimated after-tax expense
associated with the contribution to the foundation, as well as pro forma net
income and pro forma net income per share assuming the contribution to the
foundation was expensed during the periods presented. The pro forma data
assumes that Berkshire Hills will realize 100% of the income tax benefit as
a result of the contribution to the foundation based on a 36% tax rate. The
realization of the tax benefit is limited annually to 10% of Berkshire
Hills' annual taxable income. However, for federal and state tax purposes,
Berkshire Hills can carry forward any unused portion of the deduction for
five years following the year in which the contribution is made.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
-------------- -------------- --------------
6,145,500 8,314,500 9,561,675
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
-------------- -------------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
After-tax expense of contribution to foundation:
Year ended December 31, 1999 ......................................... $3,146 $4,257 $4,896
Pro forma net income:
Year ended December 31, 1999 ......................................... 3,868 3,269 2,925
Pro forma net income per share:
Year ended December 31, 1999 ......................................... 0.63 0.39 0.31
</TABLE>
(2) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock issued in the conversion.
Shares purchased are assumed to be purchased at $10.00 per share. The
employee stock ownership plan will borrow the funds used to acquire these
shares from a subsidiary to be established by Berkshire Hills. The
subsidiary will receive these funds from the net proceeds from the
conversion retained by Berkshire Hills. The amount of this borrowing, which
will have an interest rate equal to the prime rate as published in The Wall
Street Journal, which was 8.5% at December 31, 1999, has been reflected as a
reduction from gross proceeds to determine estimated net investable
proceeds. Berkshire Bank intends to make contributions to the employee
stock ownership plan in amounts at least equal to the principal and interest
requirement of the debt. As the debt is paid down, stockholders' equity
will be increased. Berkshire Bank's payment of the employee stock ownership
plan debt is based upon equal installments of principal over a 15-year
period, assuming a combined federal and state income tax rate of 36%.
Interest income earned by Berkshire Hills on the loan to the employee stock
ownership plan offsets the interest paid on the loan by Berkshire Bank. No
reinvestment is assumed on proceeds contributed to fund the employee stock
ownership plan. Applicable accounting principles require that compensation
expense for the employee stock ownership plan be based upon shares committed
to be released and that unallocated shares be excluded from earnings per
share computations. The valuation of shares committed to be released would
be based upon the average market value of the shares during the year, which,
for purposes of this calculation, was assumed to be equal to the $10.00 per
share purchase price. See "Management of Berkshire Bank--Benefits--Employee
Stock Ownership Plan."
(3) Assumes that the stock-based incentive plan will acquire an amount of stock
equal to 4% of the common stock issued in the conversion for award to key
employees and directors. In calculating the pro forma effect of the stock-
based incentive plan, it is assumed that the required stockholder approval
has been received, that the shares were acquired by the stock-based
incentive plan at the beginning of the respective period in open market
purchases at the $10.00 per share purchase price, that 20% of the amount
contributed was an amortized expense during the period, that the combined
federal and state income tax rate is 36%, and that stock options which may
be issued under the stock-based incentive plan are not granted or exercised.
The issuance of authorized but unissued shares of the common stock instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 3.85%.
27
<PAGE>
For purposes of this table, shares issued under the stock-based incentive
plan vest 20% per year and compensation expense is recognized on a straight-
line basis over each vesting period. If the fair market value per share is
greater than $10.00 per share on the date shares are awarded under the
stock-based incentive plan, total stock-based incentive plan expense would
be greater. The total estimated stock-based incentive plan expense was
multiplied by 20%, which is the total percent of shares for which expense is
recognized in the first year.
The following table shows the estimated pro forma net income and
stockholders' equity per share if shares for the stock-based incentive plan
were authorized but unissued shares instead of repurchased shares. The table
also shows the estimated pre-tax stock-based incentive plan expense.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
--------------- --------------- ---------------
6,145,500 8,314,500 9,561,675
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
--------------- --------------- ---------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Year ended December 31, 1999 ...................................... $ 1.11 $ 0.88 $ 0.80
Pro forma stockholders' equity per share:
At December 31, 1999 .............................................. 20.46 17.18 15.97
Pre-tax stock-based incentive plan expense:
Year ended December 31, 1999 ...................................... 2,655 3,592 4,131
</TABLE>
(4) In calculating the pro forma effect of the stock-based incentive plan, no
effect has been given for any shares that may be reserved for issuance upon
the exercise of stock options that may be granted under the stock-based
incentive plan. The number of options available under the stock-based
incentive plan will be equal to 10% of the number of shares issued in the
conversion. The issuance of authorized but unissued shares of common stock
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 9.09%.
The following table shows the estimated pro forma net income and
stockholders' equity per share if shares for stock issued as a result of the
exercise of stock options were authorized but unissued shares instead of
repurchased shares.
<TABLE>
<CAPTION>
15% Above
Minimum Maximum Maximum
of Estimated of Estimated of Estimated
Valuation Valuation Valuation
Range Range Range
-------------- -------------- --------------
6,145,500 8,314,500 9,561,675
Shares Shares Shares
at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
-------------- -------------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income per share:
Year ended December 31, 1999 ..................... $ 1.03 $ 0.82 $ 0.74
Pro forma stockholders' equity per share:
At December 31, 1999 ............................. 20.26 17.15 16.01
</TABLE>
28
<PAGE>
COMPARISON OF INDEPENDENT VALUATION AND
PRO FORMA FINANCIAL INFORMATION WITH AND WITHOUT THE FOUNDATION
As set forth in the following table, if Berkshire Hills Foundation is not
established and funded as part of the conversion, FinPro estimates that the pro
forma valuation of Berkshire Hills and Berkshire Bank would be greater than if
the foundation is included, and would result in an increase in the amount of
common stock offered for sale in the conversion. If the foundation is not
established, there is no assurance that the appraisal prepared at that time of
conversion would conclude that the pro forma market value of Berkshire Hills and
Berkshire Bank would be the same as the estimate set forth in the table below.
Any appraisal prepared at the time of conversion would be based on the facts and
circumstances existing at that time, including, among other things, market and
economic conditions.
The information presented in the following table is for comparative purposes
only. It assumes that the conversion was completed at December 31, 1999, based
on the assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum of At the Maximum of as Adjusted, of
Estimated Valuation Estimated Valuation Estimated Valuation
Range Range Range
------------------------ --------------------------- -----------------------
With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ------------- ------------ ----------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Estimated pro forma valuation (1) .............. $ 61,455 $ 69,275 $ 83,145 $ 93,725 $ 95,617 $107,784
Pro forma market capitalization ................ 66,371 69,275 89,797 93,725 103,266 107,784
Total assets ................................... 894,550 900,138 913,757 921,317 924,800 933,495
Total liabilities .............................. 756,360 756,360 756,360 756,360 756,360 756,360
Pro forma stockholders' equity ................. 141,251 146,839 160,458 168,018 171,501 180,196
Pro forma net income ........................... 7,014 7,272 7,526 7,874 7,821 8,221
Pro forma stockholders' equity per share ....... 21.28 21.19 17.87 17.93 16.62 16.72
Pro forma net income per share ................. 1.14 1.13 0.90 0.90 0.81 0.81
Pro Forma Pricing Ratios:
Offering price as a percentage of
pro forma stockholders' equity ........... 46.99% 47.19% 55.96% 55.77% 60.17% 59.81
Offering price as a multiple of pro
forma net income per share ............... 8.77 8.85 11.11 11.11 12.35 12.35
Offering price to assets ................. 7.42 7.70 9.83 10.17 11.17 11.55
Pro Forma Financial Ratios:
Return on assets (annualized) ............ 0.78 0.81 0.82 0.85 0.85 0.88
Return on stockholders' equity
(annualized) ............................. 4.97 4.95 4.69 4.69 4.56 4.56
Stockholders' equity to total assets ..... 15.79 16.31 17.56 18.24 18.54 19.30
</TABLE>
- -------------------------
(1) Based on independent valuation prepared by FinPro as of March 8, 2000.
29
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for each of the years in the
three year period ended December 31, 1999 have been audited by Wolf & Company,
P.C., independent public accountants. The report of Wolf & Company, P.C. on
these Consolidated Statements of Income appears on page F-2 of this prospectus.
These statements should be read in conjunction with the Consolidated Financial
Statements and Notes and with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
------------ ----------- -------------
(In thousands)
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans............................................ $52,522 $46,449 $41,514
Interest and dividends on securities.................................. 5,595 5,392 6,387
Interest on short-term investments and other investments.............. 351 654 522
------- ------ ------
Total interest and dividend income.............................. 58,468 52,495 48,423
------- ------ ------
Interest expense:
Interest on deposits.................................................. 23,848 22,601 21,564
Interest on Federal Home Loan Bank advances........................... 2,796 1,214 394
Interest on securities sold under agreements to repurchase............ 278 367 332
------- ------ ------
Total interest expense ......................................... 26,922 24,182 22,290
------- ------ ------
Net interest income...................................................... 31,546 28,313 26,133
Provision for loan losses................................................ 3,030 2,055 1,477
------- ------ ------
Net interest income, after provision for loan losses..................... 28,516 26,258 24,656
------- ------ ------
Other income:
Customer service fees................................................. 1,333 1,180 1,089
Trust department fees................................................. 1,730 1,154 1,006
Loan servicing fees................................................... 342 234 345
Gain on sales and dispositions of securities, net..................... 491 425 2,653
Gain on sale of other real estate..................................... -- 119 --
Loss on sale of equipment............................................. (30) -- --
Miscellaneous......................................................... 432 181 512
------- ------ ------
Total other income.............................................. 4,298 3,293 5,605
------- ------ ------
Operating expenses:
Salaries and employee benefits........................................ 13,767 11,842 12,305
Occupancy and equipment............................................... 4,152 3,591 3,483
Data processing....................................................... 1,493 1,204 1,298
Charitable contributions.............................................. -- 200 2,488
Foreclosed real estate, net........................................... (8) 54 766
Office supplies....................................................... 687 930 1,006
Professional fees..................................................... 869 895 1,007
Advertising........................................................... 599 792 921
Amortization of goodwill.............................................. 549 259 286
Other general and administrative expenses............................. 3,088 2,592 2,506
------- ------ ------
Total operating expenses........................................ 25,196 22,359 26,066
------- ------ ------
Income before income taxes............................................... 7,618 7,192 4,195
Provision for income taxes............................................... 1,995 2,768 1,692
------- ------ ------
Net income...................................................... $5,623 $4,424 $2,503
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Information" and the Consolidated Financial Statements
and Notes appearing elsewhere in the prospectus. In addition to historical
information, the following "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward looking statements as a
result of certain factors, including those discussed in "Risk Factors,"
contained elsewhere in this prospectus.
General
Berkshire Bancorp owns all of the outstanding common stock of Berkshire Bank.
Berkshire Bancorp does not transact any business other than through Berkshire
Bank. Berkshire Bank's results of operations depend primarily on net interest
income, which is the difference between the interest income earned on its
interest-earning assets, such as loans and securities, and the interest expense
on its interest-bearing liabilities, such as deposits and borrowings. Berkshire
Bank also generates non-interest income primarily from fees charged on
customers' accounts and fees earned on its trust services. Gains on the sales
of securities is another source of non-interest income. Berkshire Bank's non-
interest expenses primarily consist of employee compensation and benefits,
occupancy expense, advertising and other operating expenses. Berkshire Bank's
results of operations are also affected by general economic and competitive
conditions, notably changes in market interest rates, government policies and
regulations. Berkshire Bank exceeded all of its regulatory capital requirements
at December 31, 1999.
Forward Looking Statements
This prospectus contains forward looking statements that are based on
assumptions and describe future plans, strategies, and expectations of Berkshire
Bank and Berkshire Hills. These forward looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. Berkshire Bank's and Berkshire
Hills' ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
effect on the operations of Berkshire Bank and Berkshire Hills and their
subsidiaries include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in Berkshire Bank's and Berkshire Hills' market area and
changes in relevant accounting principles. These risks and uncertainties should
be considered in evaluating forward looking statements and undue reliance should
not be placed on such statements. Berkshire Bank and Berkshire Hills do not
undertake--and specifically disclaim any obligation--to publicly release the
result of any revisions which may be made to any forward looking statements to
reflect events or circumstances after the date of the statements or to reflect
the occurrence of anticipated or unanticipated events.
Operating Strategy
Berkshire Bank is an independent, community-oriented savings bank, delivering
quality customer service and offering a wide range of deposit, loan and
investment products to its customers. In recent years, Berkshire Bank's
strategy has been to enhance profitability through controlled balance sheet
growth by emphasizing the origination of real estate mortgages, commercial
loans, home equity loans and automobile loans, increasing sources of noninterest
income and by improving operating efficiencies while managing its capital
position and limiting its credit and interest rate risk exposure. To accomplish
these objectives, Berkshire Bank has sought to:
. Operate as a full service community bank by expanding the services and
products it offers.
. Provide superior customer service and innovative products by expanding
delivery systems through the opening of new branch offices, increasing
the functionality of its ATM network and expanding the capability of
its call center.
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. Increase fee income by broadening non-depository product offerings and
services, including expansion of its trust services, and expanding the
offering of insurance products through the establishment of an
insurance agency.
. Increase fee income through the sale of a portion of its indirect
automobile loan portfolio, while retaining the servicing rights.
. Continue to increase its emphasis on high quality commercial and
consumer loans to increase the yields earned on its overall loan
portfolio, without incurring unacceptable credit risk.
. Control credit risk by continuing to employ conservative underwriting
standards to minimize the level of new problem assets.
. Manage interest rate risk by emphasizing investments in shorter-term
loans and investment securities.
. Invest primarily in debt instruments and money market type equity
investments to provide adequate liquidity, to meet cash flow needs and
to earn a reasonable return on investment.
Comparison of Financial Condition at December 31, 1999 and December 31, 1998
Total assets increased $61.4 million, or 7.9%, to $841.7 million at
December 31, 1999 from $780.3 million at December 31, 1998, primarily due to
growth in loans. Loans increased $66.4 million, or 11.1%, to $665.6 million
from $599.2 million, primarily due to a $36.6 million, or 21.2%, increase in
consumer loans, primarily automobile loans, to $208.7 million at December 31,
1999 from $172.2 million at December 31, 1998, due to increased originations.
The growth in the automobile portfolio was offset by sales of $39.2 million of
automobile loans in the second half of fiscal 1999 to bolster Berkshire Bank's
liquidity position. Loan growth was also due to an increase in one- to four-
family real estate loans of $24.6 million, or 11.2%, to $245.2 million from
$220.6 million, due primarily to increased refinancing activity due to a lower
interest rate environment in 1999. Commercial loans also increased $12.1
million, or 9.0%, to $146.2 million at December 31, 1999 from $134.1 million at
December 31, 1998, due to aggressive marketing efforts. These increases were
offset by a $6.1 million, or 7.6%, decrease in commercial real estate, multi-
family real estate and construction loans from a total of $79.8 million at
December 31, 1998 to $73.7 million at December 31, 1999.
The growth in loans was offset, in part, by a decrease in the securities
portfolio of $6.2 million, or 5.0%, to $116.0 million from $122.1 million at
December 31, 1998, as the funds which had been received from the purchase of the
three Fleet branch offices in August 1998 and which were temporarily invested in
short-term securities, were used to support loan growth. Berkshire Bank's net
loans to assets ratio at December 31, 1999 was 79.08% compared to 76.79% at
December 31, 1998.
Nonperforming assets totaled $3.1 million at December 31, 1999 compared to
$3.9 million at December 31, 1998, a decrease of $827,000, or 21.3%. This
decrease was primarily due to a $1.1 million decrease in nonaccruing commercial
real estate loans and an $822,000 decrease in nonaccruing one- to four-family
real estate loans, offset by a $960,000 increase in nonaccruing commercial loans
and a $277,000 increase in consumer loans.
Total interest-bearing liabilities increased $57.9 million, or 9.4%, due to
increased deposits and Federal Home Loan Bank advances. Total deposits
increased $33.6 million, or 5.2%, to $680.8 million at December 31, 1999 from
$647.1 million at December 31, 1998, due primarily to an increase in money
market deposits, particularly from commercial entities and municipalities.
Their balances increased $23.0 million, or 32.9%, to $92.7 million at December
31, 1999 from $69.8 million at December 31, 1998 due to increased marketing
efforts and continuing growth of the government banking program established
during 1998. Certificates of deposit increased $4.6 million, or 1.6%, to $295.3
million from $290.7 million, due primarily to increased marketing activities in
the fourth quarter of 1999. Regular savings accounts also increased by $6.8
million, or 4.9%, to $145.5 million from $138.7 million. Slightly offsetting
these increases was a decline in non-interest bearing
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checking accounts of $762,000. Federal Home Loan Bank advances increased $29.3
million, or 99.2%, to $58.9 million from $29.6 million at December 31, 1998, and
were used primarily to fund loan growth. Retail repurchase agreements decreased
$5.9 million, or 84.0%, to $1.1 million at December 31, 1999 from $7.0 million
at December 31, 1998 due to Berkshire Bank's efforts to encourage its retail
repurchase agreement customers to switch to money market accounts.
Total equity was $88.4 million at December 31, 1999 compared to $84.2
million at December 31, 1998, an increase of $4.2 million, or 4.9%, primarily
due to net income of $5.6 million, offset by a decline in net accumulated
unrealized gains on available for sale securities of $1.5 million. The decrease
in the unrealized gains on securities occurred due to market declines in
Berkshire Bank's equity portfolio consisting primarily of bank, financial and
industrial stocks, which experienced greater market declines than other sectors
of the overall market.
Comparison of Financial Condition at December 31, 1998 and 1997
Total assets increased $142.9 million, or 22.4%, to $780.3 million at
December 31, 1998 from $637.3 million at December 31, 1997. This increase was
primarily attributable to an increase in Berkshire Bank's net loan portfolio of
$107.4 million, or 21.9%, to $599.2 million at December 31, 1998 from $491.7
million at December 31, 1997, primarily due to the addition of three new
automobile dealers to Berkshire Bank's indirect automobile loan program whose
originations significantly contributed to an increase in consumer loans of $55.5
million, or 47.6%, to $172.2 million at December 31, 1998 from $116.7 million at
December 31, 1997. The increase in loan growth was also due to the purchase of
three local branch offices from Fleet Bank in August 1998 which resulted in the
acquisition of $16.8 million in loans, primarily commercial and commercial real
estate loans. Increased marketing efforts also contributed to the $22.7
million, or 20.4%, increase in commercial loans from $111.4 million at December
31, 1997 to $134.1 million at December 31, 1998. Commercial real estate loans
increased $10.3 million, or 25.0%, from $41.3 million at December 31, 1997 to
$51.6 million at December 31, 1998. Residential real estate loans also
increased by $18.3 million, or 9.1%, in 1998 to $220.6 million from $202.3
million in 1997, due to increased refinancings due to a lower interest rate
environment. Loan growth was primarily funded by deposits purchased in
connection with the acquisition of the three branches from Fleet Bank, Federal
Home Loan Bank advances and deposit growth.
The securities portfolio also increased by $11.1 million, or 10.0%, to
$122.1 million at December 31, 1998 from $111.0 million at December 31, 1997,
primarily due to the purchase of short-term securities, primarily collateralized
mortgage obligations (both agency and private label) and corporate bonds and
notes. Security purchases were funded by deposits acquired from the purchase of
the Fleet branches.
Nonperforming assets totaled $3.9 million at December 31, 1998 compared to
$2.5 million at December 31, 1997, an increase of $1.4 million, or 54.3%. This
increase was primarily due to a $728,000, or 216.7%, increase in nonaccruing
commercial real estate loans and a $649,000, or 104.2%, increase in nonaccruing
one- to four-family real estate loans from December 31, 1997 to December 31,
1998.
Total interest-bearing liabilities increased $112.7 million, or 22.5%, due
to increased deposits and Federal Home Loan Bank advances. Total deposits
increased $108.1 million, or 20.1%, to $647.1 million at December 31, 1998 from
$539.1 million at December 31, 1997. This growth was primarily due to the
assumption of $69.7 million in deposits through the acquisition of the three
branches in 1998. The increased emphasis on commercial deposits, generally due
to additional relationships generated with Berkshire Bank's commercial lending
borrowers, and the establishment of government banking in 1998 contributed to
the increase in deposits. Deposit growth was spread relatively evenly among the
various deposit categories as demand deposit accounts grew by $20.0 million, or
40.2%, NOW checking accounts grew by $26.7 million, or 51.8%, money market
accounts increased by $17.6 million, or 33.7%, savings accounts rose by $13.7
million, or 11.0% and certificates of deposit grew by $30.0 million, or 11.5%.
Advances from the Federal Home Loan Bank of Boston increased $22.7 million, or
330.1%, to $29.6 million at December 31, 1998 from $6.9 million at December 31,
1997 and were used to fund the loan growth.
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Total equity was $84.2 million at December 31, 1998 compared to $75.3
million at December 31, 1997, an increase of $8.9 million, or 11.8%. The
increase in equity was primarily attributable to net accumulated unrealized
gains on available for sale securities of $4.5 million and net income of $4.4
million.
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998
Net Income. Net income increased $1.2 million, or 27.1%, to $5.6 million
for 1999 from $4.4 million for the previous year, primarily due to an increase
in net interest income of $3.2 million, or 11.4%, an increase in non-interest
income, of $1.0 million, and a decrease in income taxes of $773,000, or 27.9%,
to $2.0 million for 1999 from $2.8 million for the previous year. Also, non-
interest expense increased $2.8 million, or 12.7%, to $25.2 million for 1999
from $22.4 million for 1998, due to additional accruals for certain items, and
an increase in the provision for loan losses of $1.0 million, or 47.5%, to $3.0
million due to loan growth, in particular, growth in consumer loans. Berkshire
Bancorp's efficiency ratio was 71.27% for 1999 compared to 71.71% for 1998.
Net Interest Income. Net interest income increased by $3.2 million, or
11.4%, to $31.5 million for 1999 from $28.3 million for 1998. Total interest
and dividend income rose $6.0 million, or 11.4%, to $58.5 million for 1999 from
$52.5 million for 1998, offset in part by a $2.7 million, or 11.3%, increase in
interest expense to $26.9 million for 1999 from $24.2 million for 1998.
The increase in interest income was due to a $93.6 million, or 14.0%,
increase in average interest earning assets to $764.2 million from $670.6
million, partially offset by an 18 basis point decrease in the average yield on
interest earning assets to 7.65% for 1999 from 7.83% for 1998 due to increased
competition and a lower interest rate environment. Interest on loans rose $6.1
million, or 13.1%, to $52.5 million for 1999 from $46.4 million in 1998,
primarily due to increases in one- to four-family real estate loans and consumer
loans, partially offset by a competitive pricing environment which caused
management to more aggressively price such loans and resulted in the average
yield on the loan portfolio decreasing to 8.21% for 1999 from 8.49% for 1998.
Investment security income, including dividends on Federal Home Loan Bank stock
and Savings Bank Life Insurance stock rose $203,000, or 3.8%, to $5.6 million
from $5.4 million for 1998 as average balances increased $6.5 million, or 5.8%,
to $119.2 million from $112.6 million for 1998. The higher balances were offset
by a 8 basis point decline on the average rate earned on investments to 4.70%
for 1999 from 4.78% for 1998, due to investment securities in lower-yielding,
higher liquidity securities in preparation for the Year 2000 transition.
Interest expense increased $2.7 million, or 11.3%, to $26.9 million for
1999 from $24.2 million for 1998, due to a $1.2 million, or 5.5%, increase in
interest expense on deposits and a $1.6 million, or 130.3%, increase in interest
expense on Federal Home Loan Bank advances. The Federal Home Loan Bank interest
expense includes an additional $277,000, which resulted from Berkshire Bank
accounting for Federal Home Loan Bank interest on an accrual basis. The increase
in interest expense was due to a $69.1 million, or 13.2%, increase in average
interest bearing deposit balances to $592.1 million for the year from $523.1
million for the previous year. The increased deposit balances for 1999 are due
to the assumption of $69.7 million of deposits associated with the purchase of
three Fleet branches in August 1998, an increased emphasis on attracting
commercial and governmental deposit accounts and increased marketing efforts in
late 1999. The increase in the average balance on interest-bearing deposits was
offset by a 29 basis point decrease in the average rate paid on interest-bearing
deposit accounts for 1999 to 4.03%, from 4.32% for 1998. Average borrowings
increased $27.0 million, or 112.8%, to $51.0 million for 1999 from $23.9 million
for 1998. Also, a number of lower cost borrowings repriced into higher cost
obligations throughout the year from the increase in market interest rates
resulting in a higher effective cost of borrowings and an additional $100,000 in
interest expense. The average rate paid for 1999 was 5.49%, compared to 5.07%
for 1998. The additional Federal Home Loan Bank advances primarily were used to
fund loan growth.
Provision for Loan Losses. The provision for loan losses increased
$975,000, or 47.4%, for 1999 to $3.0 million from $2.1 million to reflect the
growth in the loan portfolio and, in particular, the increase in the average
balance of commercial and consumer loans, which generally bear a greater degree
of risk than one- to four-family mortgage loans. The increase in the provision
also reflects management assessment of increased charge-offs
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which increased to $2.4 million for 1999 from $812,000 the previous year due
primarily to increased charge-offs of commercial loans which increased by
$974,000, or 416.2%, and increases in consumer loan charge-offs of $420,000, or
135.1%. The ratio of net charge-offs to interest earning loans was 0.31% for
1999 and 0.09% for 1998. At December 31, 1999 and December 31, 1998, the
allowance for loan losses was $8.5 million and $7.6 million, respectively, which
represented 300.39% of nonperforming loans and 1.27% of total loans at December
31, 1999, compared to 217.45% of nonperforming loans and 1.25% of total loans at
December 31, 1998.
Provisions for loan losses are charges to earnings to bring the total
allowance for loan losses to a level considered by management as adequate to
provide for estimated loan losses based on management's evaluation of the
collectibility of the loan portfolio. Management assesses the adequacy of the
allowance for loan losses based on known and inherent risks in the loan
portfolio and upon management's continuing analysis of the factors underlying
the quality of the loan portfolio. While management believes that, based on
information currently available, Berkshire Bank's allowance for loan losses is
sufficient to cover losses inherent in its loan portfolio at this time, no
assurances can be given that Berkshire Bank's level of allowance for loan losses
will be sufficient to cover future loan losses incurred by Berkshire Bank or
that future adjustments to the allowance for loan losses will not be necessary
if economic and other conditions differ substantially from the economic and
other conditions used by management to determine the current level of the
allowance for loan losses. Management may increase its level of allowance for
loan losses as a percentage of total loans and non-performing loans if the level
of commercial real estate, multi-family, commercial, construction and
development or consumer lending as a percentage of its total loan portfolio
increases. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Berkshire Bank's allowance for
loan losses. These agencies may require Berkshire Bank to provide additions to
the allowance based upon judgments different from management. See "Business of
Berkshire Bank--Lending Activities--Allowance for Loan Losses."
Noninterest Income. Non-interest income totaled $4.3 million for 1999 and
$3.3 million for 1998, an increase of $1.0 million, or 30.5%, due primarily to a
$576,000, or 49.9%, increase in trust fees to $1.7 million for 1999 from $1.2
million for 1998 of which $245,000 resulted from a one-time adjustment made in
connection with accounting for trust fees during 1999. The remainder of the
increase in trust fees primarily resulted from increased trust account activity
and revisions to the fee structure. Also contributing to the increase in non-
interest income was a $251,000 increase in other fee income, including ATM fees
and government banking advisory fees, a $92,000 increase in service charges on
checking accounts due to increased volume, and a $66,000 increase in gains on
the sale of securities.
Noninterest Expense. Noninterest expense increased $2.8 million, or 12.7%,
to $25.2 million for 1999, compared to $22.4 million for 1998, primarily due to
the increased expenses associated with the purchase of three branches in August
1998. The additional personnel required to staff the branches contributed to an
increase in other salary and benefit costs of $1.9 million. Additionally,
expense for the amortization of goodwill rose $290,000, or 112.0%, in 1999 due
to the purchase of the three branches. Also contributing to the increase in
noninterest expense was $300,000 in consulting expenses incurred in streamlining
Berkshire Bank's management information system and Year 2000 preparedness. Audit
and examination fees increased by $131,000 and salary expense increased
$170,000. In addition, severance costs were $189,000 for 1999 while there were
none for 1998. The increase in noninterest expense also reflects a $210,000
expense relating to the acceleration of depreciation on a branch office which
closed in April 2000.
Income Taxes. Income taxes for the year ending December 31, 1999 were $2.0
million, a decrease of $773,000, or 27.9%, from $2.8 million for the year ended
December 31, 1998. The effective tax rates for 1999 and 1998 were 26.2% and
38.5%, respectively. The lower effective tax rate for 1999 was attributable to
a projected $850,000 carryforward of the deduction in connection with the
establishment of Greater Berkshire Foundation, Inc. in 1997. Under the Internal
Revenue Code, Berkshire Bank may only deduct up to 10% of its consolidated
taxable income before the charitable contribution to any one year. The excess
of the deductible amount will be deductible over each of the five succeeding
taxable years, subject to a 10% limitation each year. In 1998, $381,000 of the
carryforward was utilized and approximately $545,000 of such carryforward
remains to be utilized. Additionally, federal tax credits of an estimated
$300,000 in 1999, obtained in connection with Berkshire Bank's rehabilitation of
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a historic firehouse in Pittsfield, Massachusetts, contributed to lowering
taxes. At the state level, Greenland Development Corporation and Forward
Development Corporation, two wholly owned bank subsidiaries, utilized the
remaining $1.5 million and $1.8 million, respectively, of their unused state net
operating loss carryforwards available at December 31, 1998.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
Net Income. Net income increased by $1.9 million, or 76.8%, from $2.5
million for 1997 to $4.4 million for 1998. The increase was primarily due to a
$2.2 million, or 8.3%, increase in net interest income and a decrease in
noninterest expense of $3.7 million, or 14.2%, partially offset by a decrease in
noninterest income of $2.3 million. The decrease in non-interest income was due
to a decrease in the gains on the sale or contribution of securities from $2.7
million for 1997 to $425,000 for 1998 due to the recognition of a $2.4 million
gain in 1997 resulting from the funding of Greater Berkshire Foundation, Inc. in
May 1997 with appreciated securities. The gain represents the excess of the
market value of the contributed securities over the cost basis of the securities
at the date of transfer. Greater Berkshire Foundation, Inc. was created in
connection with the merger of Berkshire County Savings Bank and Great Barrington
Savings Bank which were merged to form Berkshire Bank. Berkshire Bancorp's
efficiency ratio was 71.71% for 1998 compared to 89.62% for 1997.
Net Interest Income. Net interest income increased $2.2 million, or 8.3%,
to $28.3 million for 1998 from $26.1 million for 1997. This increase was
primarily due to a $72.5 million, or 12.1%, increase in the average balance of
interest-earning assets to $670.6 million for the year ended December 31, 1998
from $598.1 million for the year ended December 31, 1997. The increase in
interest income due to the higher average balance of interest-earning assets was
offset in part by a decline in the average yield on interest-earning assets of
27 basis points to 7.83% for 1998 from 8.10% for 1997 due primarily to a lower
interest rate environment. Total interest and dividend income increased $4.1
million, or 8.4%, to $52.5 million for the year ended December 31, 1998 from
$48.4 million for the year ended December 31, 1997. The increase in interest
and dividend income was due to a $4.9 million, or 11.9%, increase in interest
income on loans to $46.4 million for the year ended December 31, 1998 from $41.5
million for the prior year. The increase in interest income on loans was due to
an increase in the average balance of loans of $70.5 million, or 14.8%, to
$546.8 million for 1998 from $476.3 million for 1997 due to: (1) a higher level
of one- to four-family refinancings; (2) the addition of new automobile dealers
as indirect automobile lenders; and (3) the purchase of $16.8 million of loans
in connection with the branch purchases in 1998. The increase in interest
income from loans was partially offset by a 23 basis point decline in the
average yield to 8.49% from 8.72% due to a lower interest environment. Interest
and dividend on investment securities, including dividends on Federal Home Loan
Bank stock and Savings Bank Life Insurance stock, decreased $995,000, or 15.6%,
to $5.4 million for 1998 from $6.4 million for 1997 due to a 90 basis point
decrease in the average rate earned from 5.69% for 1997 to 4.79% for 1998 due to
the lower interest rate environment. The decrease in interest income and
dividends was offset, in part, by an increase in the average balance of
investment securities to $112.6 million for 1998 from $112.3 million for the
previous year due in part to additional investments with funds acquired in the
three branch purchases in 1998.
Interest expense increased $1.9 million, or 8.5%, to $24.2 million for 1998
from $22.3 million for 1997. The increase in interest expense was attributable
to a $1.0 million, or 4.8%, increase in interest on deposits and a $820,000
increase in interest on Federal Home Loan Bank advances. The increase in
interest expense on deposits was due to a higher average balance of deposits of
$35.8 million, or 7.4%, to $523.1 million for the year ended December 31, 1998
from $487.3 million for the year ended December 31, 1997, predominately in money
market accounts which increased $536,000. The increase in interest expense due
to the increase in deposits was partially offset by an 11 basis point decrease
in the average rate paid on deposits from 4.43% for 1997 to 4.32% for 1998 due,
again, to the lower interest rate environment. The increase in the interest
expense of Federal Home Loan Bank advances was due to a $16.9 million increase
in the average balance to $23.9 million for 1998 from $7.0 million for 1997,
offset by a 56 basis point decrease in the average rate paid from 5.63% for 1997
to 5.07% for 1997. The additional Federal Home Loan Bank advances were used
primarily to fund loan growth.
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Provision for Loan Losses. The provision for loan losses increased
$578,000, or 39.1%, to $2.1 million for 1998 from $1.5 million for 1997 as
Berkshire Bank recognized the need to increase its provision in response to the
strong growth in loan balances. In determining the provision for 1998,
management considered the decrease in charge-offs from $2.3 million for 1997 to
$812,000 for 1998 and recoveries of previously charged-off loans, which amounted
to $268,000 for 1998 versus $594,000 for 1997. At December 31, 1998 and 1997,
the allowance for loan losses was $7.6 million and $6.1 million, respectively,
which represented 217.45% of non-performing loans and 1.25% of total loans at
December 31, 1998 compared to 281.91% of non-performing loans and 1.22% of total
loans at December 31, 1997.
Noninterest Income. Noninterest income totaled $3.3 million and $5.6
million for the years ended December 31, 1998 and 1997, respectively. The $2.3
decrease in noninterest income was attributable to the one-time gain of $2.4
million recognized on the donation of appreciated marketable equity securities
to Greater Berkshire Foundation, Inc. in May 1997. A decrease of $158,000 in
service fees on checking accounts contributed to this decrease as Berkshire
Bank's fee structure was realigned to the lower of the two merged institutions.
These decreases were partially offset by trust department fees, which rose
$148,000, or 14.7%, in 1998 over 1997 levels.
Noninterest Expense. Noninterest expense totaled $22.4 million for 1998, a
decrease of $3.7 million, or 14.2%, from $26.1 million for 1997. This decrease
was primarily attributable to higher expenses in 1997 due to merger-related
activities and to a decrease in charitable contributions of $2.3 million to
$200,000 in 1998 from $2.5 million in 1997. A donation of $2.5 million of
appreciated securities was made to Greater Berkshire Foundation, Inc. in 1997
while no contribution was made in 1998. Also contributing to the decrease in
noninterest expense was a $129,000, or 14.0%, decrease in marketing and
advertising expense to $792,000 for 1998 from $921,000 for 1997. Other real
estate owned and nonaccrual expenses declined $276,000 to $181,000 for 1998 from
$457,000 for 1997 due to a decrease in the amount of real estate owned.
Additionally, the consolidation of accounts resulted in an $83,000 decline in
service charges paid from $265,000 for the year ended December 31, 1997 to
$182,000 for the year ended December 31, 1998. Offsetting these decreases in
noninterest expense were acquisition expenses related to the August 1998
purchase of three local branch offices from Fleet Bank totaling $585,000,
including goodwill from the purchases, which is being amortized over 15 years
and amounted to $207,000 in 1998 and other items relating to the purchase such
as legal fees, equipment purchases, and system conversion costs, which totaled
$380,000.
Income Taxes. Income taxes increased $1.1 million, or 63.6%, to $2.8
million for 1998 from $1.7 million for 1997 resulting in effective tax rates of
38.5% and 40.3% for 1998 and 1997, respectively. The lower effective tax rate in
1998 was attributable to the utilization of $1.5 million, $498,000 and $14,000
of state net operating loss carryforwards at Greenland Development Corporation,
Forward Development Corporation and Woodland Realty, Inc., respectively, three
wholly owned subsidiaries of Berkshire Bank. The lower tax amount in 1997 was
partially attributable to the contribution of appreciated securities to Greater
Berkshire Foundation, Inc. Although common stock with a market value of $2.5
million was donated to Greater Berkshire Foundation, Inc. in 1997, only $682,000
was allowable as a deduction for tax purposes. In 1998, $381,000 of the carry
forward was utilized. Berkshire Bank anticipates that it will be able to fully
use the contribution carryover for the six-year period.
37
<PAGE>
Average Balances, Interest and Average Yields/Cost
The following table presents certain information for the years indicated
regarding average balances of assets and liabilities, as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and the resulting
average yields and costs. The yields and costs for the years indicated are
derived by dividing income or expense by the average balances of assets or
liabilities, respectively, for the years presented. Average balances for the
1999 and 1998 years were derived from average daily balances. Average balances
for 1997 were derived from average monthly balances. The yields and rates
include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
At For the Year Ended December 31,
December 31, -------------------------------
1999 1999
---------- -------------------------------
Average
Average Yield/
Balance Balance Interest Rate
---------- ---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans (1).................................... $665,554 $639,517 $52,522 8.21%
Federal funds sold........................... 1,000 4,042 215 5.32
Investment securities........................ 110,098 113,929 5,351 4.70
Federal Home Loan Bank stock................. 3,843 3,193 181 5.67
Savings Bank Life Insurance stock............ 2,043 2,043 63 3.08
Interest-earning deposits.................... 341 1,470 136 9.25
-------- -------- ------- ----
Total interest-earning assets............. 782,879 764,194 58,468 7.65
Non-interest earning assets.................. 58,772 51,111
-------- --------
Total assets.............................. $841,651 $815,305
======== ========
Interest-bearing liabilities:
Deposits:
Money market accounts .................... $92,721 $84,971 3,169 3.73
NOW accounts.............................. 78,223 73,615 830 1.13
Savings accounts (2)...................... 145,486 142,193 4,366 3.07
Certificates of deposit................... 295,303 291,344 15,483 5.31
-------- -------- ------- ----
Total interest-bearing deposits..... 611,733 592,123 23,848 4.03
Federal Home Loan Bank advances........... 58,928 50,951 2,796 5.49
Repurchase agreements..................... 1,120 5,923 278 4.69
-------- -------- ------- ----
Total interest-bearing liabilities.. 671,781 648,997 26,922 4.15
Non-interest-bearing demand deposits...... 69,034 67,571
Other noninterest-bearing liabilities..... 12,484 12,388
-------- --------
Total liabilities................... 753,299 728,956
Equity.................................... 88,352 86,349
-------- --------
Total liabilities and equity........ $841,651 $816,105
======== ========
Net interest-earning assets............... $111,223 $115,197
======== ========
Net interest income....................... $31,546
=======
Interest rate spread...................... 3.50%
Interest margin (net interest income as a
percentage of total interest-earning
assets)............................... 4.13%
Total interest-earning assets to total
interest-bearing liabilities........... 117.75%
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------
1998 1997
------------------------------ ---------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1).................................... $546,845 $46,449 8.49% $476,335 $41,514 8.72%
Federal funds sold........................... 9,336 498 5.33 6,450 324 5.02
Investment securities........................ 108,048 5,165 4.78 107,763 6,169 5.72
Federal Home Loan Bank stock................. 2,546 164 6.44 2,527 155 6.13
Savings Bank Life Insurance stock............ 2,043 63 3.08 2,043 63 3.08
Interest-earning deposits.................... 1,754 156 8.89 2,984 198 6.64
-------- ------- ---- -------- ------- ----
Total interest-earning assets............. 670,572 52,495 7.83 598,102 48,423 8.10
Non-interest earning assets.................. 30,933 27,977
-------- --------
Total assets.............................. $701,505 $626,079
======== ========
Interest-bearing liabilities:
Deposits:
Money market accounts .................... $62,043 2,173 3.50 $49,159 1,637 3.33
NOW accounts.............................. 60,039 1,165 1.94 50,696 998 1.97
Savings accounts (2)...................... 129,020 3,925 3.04 125,020 3,752 3.00
Certificates of deposit................... 271,959 15,338 5.64 262,379 15,177 5.78
-------- ------- ---- -------- ------- ----
Total interest-bearing deposits..... 523,061 22,601 4.32 487,254 21,564 4.43
Federal Home Loan Bank advances........... 23,941 1,214 5.07 7,001 394 5.63
Repurchase agreements..................... 7,446 367 4.93 6,498 332 5.11
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities.. 554,448 24,182 4.36 500,753 22,290 4.45
Non-interest-bearing demand deposits...... 55,259 45,218
Other noninterest-bearing liabilities..... 12,266 9,384
-------- --------
Total liabilities................... 621,973 555,355
Equity.................................... 79,532 70,724
-------- --------
Total liabilities and equity........ $701,505 $626,079
======== ========
Net interest-earning assets............... $116,124 $ 97,349
======== ========
Net interest income....................... $28,313 $26,133
======= =======
Interest rate spread...................... 3.47% 3.65%
Interest margin (net interest income as a
percentage of total interest-earning
assets)............................... 4.22% 4.37%
Total interest-earning assets to total
interest-bearing liabilities........... 120.94% 119.44%
</TABLE>
- -----------------------------
(1) Average balances include nonaccrual loans.
(2) Includes mortgagors' escrow accounts.
38
<PAGE>
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on the
interest income and interest expense of Berkshire Bank. The rate column shows
the effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The net column represents the sum
of the prior columns. For purposes of this table, changes attributable to
changes in both rate and volume, which cannot be segregated, have been allocated
proportionately based on the absolute value of the change due to rate and the
change due to volume.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Compared to Compared to
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------------------------- -------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------- -------------------------
Rate Volume Net Rate Volume Net
------------- ----------- ---------- ------------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans....................................... $(1,581) $7,654 $6,073 $(1,077) $6,012 $4,935
Federal funds sold.......................... (1) (282) (283) 21 153 174
Investment securities....................... (103) 306 203 (1,012) 17 (995)
Interest-bearing deposits................... 6 (26) (20) 55 (97) (42)
------- ------ ------ ------- ------ ------
Total interest-earning assets............ (1,679) 7,652 5,973 (2,013) 6,085 4,072
------- ------ ------ ------- ------ ------
Interest-bearing liabilities:
Deposits:
Money market accounts.................... 149 847 996 88 448 536
NOW accounts............................. (560) 225 (335) (14) 181 167
Savings accounts......................... 37 404 441 52 121 173
Certificates of deposit ................. (913) 1,058 145 (385) 546 161
------- ------ ------ ------- ------ ------
Total deposits........................ (1,287) 2,534 1,247 (259) 1,296 1,037
Federal Home Loan Bank advances............. 107 1,475 1,582 (43) 863 820
Repurchase agreements....................... 17 (72) (89) (12) 47 35
------- ------ ------ ------- ------ ------
Total interest-bearing liabilities.... (1,196) 3,936 2,740 (314) 2,206 1,892
------- ------ ------ ------- ------ ------
Increase (decrease) in net interest income..... $ (483) $3,716 $3,233 $(1,699) $3,879 $2,180
======= ====== ====== ======= ====== ======
</TABLE>
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Berkshire Bank's most significant form of
market risk is interest rate risk. The principal objectives of Berkshire Bank's
interest rate risk management are to evaluate the interest rate risk inherent in
certain balance sheet accounts, determine the level of risk appropriate given
its business strategy, operating environment, capital and liquidity requirements
and performance objectives, and manage the risk consistent with its established
policies. Berkshire Bank maintains an Asset/Liability Committee that is
responsible for reviewing its asset/liability policies and interest rate risk
position, which meets quarterly and reports trends and interest rate risk
position to the Executive Committee of the Board of Directors and the Board of
Directors on a quarterly basis. The Asset/Liability Committee consists of
Berkshire Bank's President and Chief Executive Officer, Senior Vice President-
Chief Financial Officer, Executive Vice President-Senior Loan Officer, Executive
Vice President-Retail Banking and Executive Vice President-Commercial Lending.
The extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of Berkshire Bank.
39
<PAGE>
In recent years, Berkshire Bank has managed interest rate risk by:
. emphasizing the origination of adjustable-rate loans and, from time to
time, selling a portion of its longer term fixed-rate loans as market
interest rate conditions dictate;
. originating shorter-term commercial and consumer loans, with an
emphasis on automobile loans;
. investing in a high quality liquid securities portfolio that provides
adequate liquidity and flexibility to take advantage of opportunities
that may arise from fluctuations in market interest rates, the overall
maturity and duration of which is monitored in relation to the
repricing of its loan portfolio;
. promoting lower cost liability accounts such as core deposits; and
. using Federal Home Loan Bank advances to better structure maturities
of its interest rate sensitive liabilities.
Berkshire Bank's market risk also includes equity price risk. Berkshire
Bank's marketable equity securities portfolio had gross unrealized gains of
$28.4 million at December 31, 1999 and gross unrealized losses of $501,000 which
are included, net of taxes, in accumulated other comprehensive income, a
separate component of Berkshire Bank's equity. If equity security prices
decline due to unfavorable market conditions or other factors, Berkshire Bank's
equity would decrease.
Quantitative Aspects of Market Risk. Berkshire Bank uses a simulation
model to measure the potential change in net interest income, incorporating
various assumptions regarding the shape of the yield curve, the pricing
characteristics of loans, deposits and borrowings, prepayments on loans and
securities and changes in balance sheet mix. The table below sets forth, as of
December 31, 1999, estimated net interest income and the estimated changes in
Berkshire Bank's net interest income for the next twelve month period which may
result given instantaneous increases or decreases in market interest rates of
100 and 200 basis points.
<TABLE>
<CAPTION>
Increase/
(Decrease) -----------------------------------------------
in Market At December 31, 1999
Interest Rates -----------------------------------------------
in Basis Points $ %
(Rate Shock) Amount Change Change
-------------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
200 $31,624 $ 78 0.24%
100 31,596 50 0.15
Static 31,546 -- --
(100) 31,318 (228) (0.72)
(200) 31,031 (515) (1.63)
</TABLE>
The above table indicates that in the event of a sudden and sustained
decline in prevailing market interest rates of 100 basis points and 200 basis
points, Berkshire Bank's net interest income would be expected to decrease by
$228,000 and $515,000, respectively.
Computation of prospective effects of hypothetical interest rate changes
are based on a number of assumptions including the level of market interest
rates, the degree to which certain assets and liabilities with similar
maturities or periods to repricing react to changes in market interest rates,
the expected prepayment rates on loans and investments, the degree to which
early withdrawals occur on certificates of deposit and other deposit flows. As
40
<PAGE>
a result, these computations should not be relied upon as indicative of actual
results. Further, the computations do not reflect any actions that management
may undertake in response to changes in interest rates.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations
of a short-term nature. Berkshire Bank further defines liquidity as the ability
to respond to the needs of depositors and borrowers as well as maintaining the
flexibility to take advantage of investment opportunities. Primary sources of
funds consist of deposit inflows, loan repayments, maturities, paydowns, and
sales of investment and mortgage-backed securities and borrowings from the
Federal Home Loan Bank of Boston. While maturities and scheduled amortization
of loans and securities are predictable sources of funds, deposit outflows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Berkshire Bank's primary investing activities are: (1) originating
residential one-to four-family mortgage loans, commercial business and real
estate loans, multi-family loans, home equity loans and lines of credit and
consumer loans, and (2) investing in mortgage- and asset-backed securities, U.S.
Government and agency obligations and corporate equity securities and debt
obligations. These activities are funded primarily by principal and interest
payments on loans, maturities of securities, deposits and Federal Home Loan Bank
of Boston advances. During years ended December 31, 1999 and 1998, Berkshire
Bank's loan originations totaled $280.4 million, and $277.7 million,
respectively. At December 31, 1999 and 1998, Berkshire Bank's investments in
mortgage- and asset-backed securities, U.S. Government and agency obligations
and corporate equity securities and debt obligations totaled $116.0 million and
$122.1 million, respectively. Berkshire Bank experienced a net increase in total
deposits of $33.6 million and $108.1 million for the years ended December 31,
1999 and 1998, respectively, primarily as a result of: (1) the assumption of
$69.7 million in deposits in connection with the acquisition of three branches
in 1998; (2) the increase in governmental and commercial deposits, in part due
to the establishment of the government banking program in 1998; and (3)
increased marketing efforts and special promotions. Deposit flows are affected
by the overall level of interest rates, the interest rates and products offered
by Berkshire Bank and its local competitors and other factors. Berkshire Bank
closely monitors its liquidity position on a daily basis. If Berkshire Bank
should require funds beyond its ability to generate them internally, additional
sources of funds are available through advances or a line of credit with the
Federal Home Loan Bank and through a repurchase agreement with the Mutual
Savings Central Fund, Inc.
Outstanding commitments for all loans and unadvanced construction loans and
lines of credit totaled $117.4 million at December 31, 1999. Management of
Berkshire Bank anticipates that it will have sufficient funds available to meet
its current loan commitments. Certificates of deposit that are scheduled to
mature in one year or less from December 31, 1999 totaled $206.6 million.
Berkshire Bank relies primarily on competitive rates, customer service, and
long-standing relationships with customers to retain deposits. Occasionally,
Berkshire Bank will also offer special competitive promotions to its customers
to increase retention and promote deposit growth. Based upon Berkshire Bank's
historical experience with deposit retention, management believes that, although
it is not possible to predict future terms and conditions upon renewal, a
significant portion of such deposits will remain with Berkshire Bank.
Berkshire Bank must satisfy various regulatory capital requirements
administered by the federal and state banking agencies including a risk-based
capital measure. The risk-based capital guidelines include both a definition of
capital and a framework for calculating risk-weighted assets by assigning
balance sheet assets and off-balance sheet items to broad risk categories. At
December 31, 1999, Berkshire Bank exceeded all of its regulatory capital
requirements with Tier 1 capital to total assets of $63.9 million, or 7.91% of
average assets, which is above the required level of $32.3 million, or 4.0%, and
total capital to risk-weighted assets of $84.7 million, or 12.90% of risk-
weighted assets, which is above the required level of $52.5 million, or 8.0%.
Berkshire Bank is considered "well capitalized" under regulatory guidelines.
The capital from the conversion will significantly increase liquidity and
capital resources. Over time, the initial level of liquidity will be reduced as
net proceeds are used for general corporate purposes, including the
41
<PAGE>
funding of lending activities. Berkshire Bank's financial condition and results
of operations will be enhanced by the capital from the conversion, resulting in
increased net interest-earning assets and net income. However, due to the large
increase in equity resulting from the capital injection, return on equity will
be adversely impacted following the conversion. See "Risk Factors--Berkshire
Bank's lower than average return on equity may decrease the market price of the
common stock."
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this
prospectus have been prepared in conformity with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Unlike many
industrial companies, substantially all of the assets and liabilities of
Berkshire Bank are monetary in nature. As a result, interest rates have a more
significant impact on Berkshire Bank's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily move
in the same direction or in the same magnitude as inflation.
Impact of New Accounting Standards
Accounting for Derivative Instruments and Hedging Activities. In June 1998,
the Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations and requires that an entity formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. This statement was amended by SFAS No. 137, "Accounting for
Derivatives and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." As a result, SFAS No. 133 will be effective on June 15,
2001 for Berkshire Hills. Management does not expect that the adoption of this
statement will have a material impact on Berkshire Hills' financial position or
results of operations.
BUSINESS OF BERKSHIRE BANCORP
Berkshire Bancorp is a mutual holding company that was created when
Berkshire County Savings Bank reorganized into the mutual holding company form
of organization in 1996. Berkshire Bancorp is registered with the Federal
Reserve Board as a bank holding company under the Bank Holding Company Act of
1956, as amended. Since its formation, Berkshire Bancorp has owned 100% of
Berkshire Bank's outstanding capital stock. After consummation of the
conversion, Berkshire Bancorp will cease to exist.
In addition to the capital stock of Berkshire Bank, Berkshire Bancorp's
assets consist of approximately $15,600 in cash and $80,300 in securities as of
December 31, 1999. Berkshire Bancorp is subject to regulation and supervision
by the Federal Reserve Bank and the Massachusetts Division of Banks. At the
present time, Berkshire Bancorp does not employ any persons other than certain
officers who are also officers of Berkshire Bank but uses the support staff of
Berkshire Bank from time to time.
42
<PAGE>
BUSINESS OF BERKSHIRE HILLS
General
Berkshire Hills was organized as a Delaware business corporation at the
direction of Berkshire Bank in January 2000 to become the holding company for
Berkshire Bank upon completion of the conversion. As a result of the conversion,
Berkshire Bank will be a wholly owned subsidiary of Berkshire Hills, which will
own all of the issued and outstanding capital stock of Berkshire Bank.
Business
Before the completion of the conversion, Berkshire Hills will not engage in
any significant activities other than of an organizational nature. Upon
completion of the conversion, Berkshire Hills' business activity will be the
ownership of the outstanding capital stock of Berkshire Bank and management of
the investment of offering proceeds retained from the conversion. In the
future, Berkshire Hills may acquire or organize other operating subsidiaries;
however, there are no current plans, arrangements, agreements or understandings,
written or oral, to do so.
Initially, Berkshire Hills will neither own nor lease any property but will
instead use the premises, equipment and other property of Berkshire Bank with
the payment of appropriate rental fees, as required by applicable law and
regulations.
Since Berkshire Hills will hold the outstanding capital stock of Berkshire
Bank after the conversion, the competitive conditions applicable to Berkshire
Hills will be the same as those confronting Berkshire Bank. See "Business of
Berkshire Bank--Competition."
BUSINESS OF BERKSHIRE BANK
General
Berkshire Bank is the product of the May 1, 1997 merger of Berkshire County
Savings Bank and Great Barrington Savings Bank, which at the time of the merger
were the two largest banks headquartered in Berkshire County, with assets of
$335.9 million and $282.9 million, respectively. Berkshire County Savings Bank
was incorporated in 1846 as a Massachusetts-chartered mutual savings bank. In
1996, Berkshire County Savings Bank converted to stock form as part of the
Berkshire Bancorp mutual holding company formation. Berkshire County Savings
Bank had six full-service banking offices at the time of the merger. Great
Barrington Savings Bank was incorporated in 1869 as a Massachusetts-chartered
mutual savings bank. While it offered commercial and trust services, its
business was primarily dependent on residential mortgage lending, primarily in
the southern portion of Berkshire County. It had five full-service banking
offices at the time of the merger.
Berkshire Bank is regulated by the Massachusetts Division of Banks and the
Federal Deposit Insurance Corporation. Berkshire Bank's deposits are insured to
the maximum allowable amount by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation and the Depositors Insurance Fund of the Mutual Savings
Central Fund, Inc. Berkshire Bank has been a member of the Federal Home Loan
Bank System since 1973.
Berkshire Bank is a community bank that accepts retail deposits from the
general public in the areas surrounding its 14 banking offices and uses those
funds, together with funds generated from operations and borrowings, to
originate residential mortgage loans, commercial business and real estate loans
and consumer loans, primarily indirect automobile loans. Berkshire Bank
primarily holds the loans that it originates for investment, but sells some of
its loans, including automobile and fixed-rate mortgage loans, in the secondary
market, while generally retaining the servicing. See "--Lending Activities."
Berkshire Bank also invests in U.S. Government and agency securities, mortgage-
and asset-backed securities, including real estate mortgage investment conduits
and
43
<PAGE>
collateralized mortgage obligations, debt and equity securities and other
permissible investments. Berkshire Bank's revenues are derived principally from
the generation of interest and fees on loans originated and, to a lesser extent,
interest and dividends on its investment securities. Berkshire Bank's primary
sources of funds are deposits, principal and interest payments on loans and
investments and advances from the Federal Home Loan Bank of Boston.
Berkshire Bank currently offers savings bank life insurance. Berkshire
Bank intends to expand the offering of insurance products to its customers
through the establishment of an insurance agency. On February 24, 2000,
Berkshire Bank entered into an agreement with a third party vendor for
consulting and management services with respect to the offering of insurance
services. The agreement has an initial term of four years with a total
management fee of $325,000 and servicing fees based upon a percentage of gross
revenues.
Market Area
Berkshire Bank is headquartered in Pittsfield, Massachusetts, in Berkshire
County. Berkshire Bank's primary deposit gathering and lending areas are
concentrated in the communities surrounding its 14 banking offices located in
Berkshire County. However, Berkshire Bank also makes loans throughout western
Massachusetts, northern Connecticut, eastern New York and southern Vermont.
Berkshire County, the western-most county in Massachusetts, is
approximately two and one-half hours from both Boston and New York City.
Berkshire County borders Vermont, Connecticut and New York. Berkshire County
has experienced a shift in its economy as manufacturing jobs have been replaced
with service-related jobs, primarily in tourism, social service and health care.
Other than Berkshire Bank, the major employers in the area include Berkshire
Life Insurance Company, Crane & Company, GE Plastics, Kay Bee Toys, Berkshire
Health Systems, General Dynamics Defense Systems and Mead Corporation and
several institutions of higher education. The Berkshire Regional Planning
Commission identified economic development as a critical issue to aid the region
in accommodating this shift away from manufacturing jobs. The goal is to find
land suitable for modern industry, technology based businesses and corporate
offices. According to published statistics, Berkshire County's 1998 population
was approximately 134,100 and consisted of approximately 36,100 households. The
population decreased approximately 3.8% from 1990. Per capita income in 1998
for Berkshire County was approximately $19,300, which was less than the
Massachusetts average of approximately $22,500 but higher than the national
average of $18,000. 1998 median household income for Berkshire County was
$36,006 compared to approximately $45,250 for Massachusetts and $38,100 for the
U.S.
Massachusetts is in the midst of a broad-based recovery from the severe
recession experienced in the New England region in the late 1980s and early
1990s. This is evidenced by the state's 3.3% unemployment rate. While the
western Massachusetts economy has improved from that experienced in the late
1980s and early 1990s, as illustrated by higher property values, increased
income levels and lower unemployment, it continues to lag behind the improved
economy of eastern Massachusetts, particularly the Boston metropolitan area
which has occurred over the past few years.
Competition
Berkshire Bank faces intense competition for the attraction of deposits and
origination of loans in its primary market area. Berkshire Bank's most direct
competition for deposits has historically come from credit unions in the area,
which have a competitive advantage as they do not have to pay state or federal
taxes. Additionally, Berkshire Bank faces competition for deposits from the
several commercial and savings banks operating in its primary market area and,
to a lesser extent, from other financial institutions, such as brokerage firms
and insurance companies. While these entities continue to provide a source of
competition for deposits, Berkshire Bank increasingly faces significant
competition for deposits from the mutual fund industry as customers seek
alternative sources of investment for their funds. Berkshire Bank also faces
significant competition for investors' funds from their direct purchase of
short-term money market securities and other corporate and government
securities. Berkshire Bank faces competition for loans from the significant
number of traditional financial institutions,
44
<PAGE>
primarily savings banks and commercial banks in its market area, as well as the
mortgage companies and mortgage brokers operating in its primary market area.
The increase of internet accessible financial institutions which solicit
deposits and originate loans on a nationwide basis may also increase competition
for Berkshire Bank's customers and have an adverse impact on its future
operations. Additionally, competition is likely to increase as a result of
recent regulatory actions and legislative changes, most notably the recent
enactment of the Gramm-Leach-Bliley Act of 1999. These changes have eased and
likely will continue to ease restrictions on interstate banking and the entrance
into the financial services market by non-depository and non-traditional
financial services providers, including insurance companies, securities
brokerage and underwriting firms and specialty financial services companies
(such as internet-based providers). Competition for deposits, for the
origination of loans and the provision of other financial services may limit
Berkshire Bank's growth in the future. See "Risk Factors--Competition has hurt
Berkshire Bank's net interest income."
Lending Activities
General. The types of loans that Berkshire Bank may originate are limited
by federal and state laws and regulations. Interest rates charged by Berkshire
Bank on loans are affected principally by Berkshire Bank's current
asset/liability strategy, the demand for such loans, the supply of money
available for lending purposes and the rates offered by competitors. These
factors, in turn, are affected by general and economic conditions, monetary
policies of the federal government, including the Federal Reserve Board,
legislative tax policies and governmental budgetary matters.
45
<PAGE>
Loan Portfolio Analysis. The following table sets forth the composition of
Berkshire Bank's loan portfolio in dollar amounts and as a percentage of the
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
--------- ---------- --------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......... $245,240 36.39% $220,612 36.36% $202,305 40.64%
Commercial................... 46,419 6.89 51,598 8.50 41,267 8.29
Multi-family................. 14,793 2.20 15,393 2.54 14,740 2.96
Construction ................ 12,534 1.86 12,821 2.11 11,531 2.32
-------- ----- -------- ----- -------- -----
Total real estate loans.... 318,986 47.34 300,424 49.51 269,843 54.21
-------- ----- -------- ----- -------- -----
Consumer loans:
Home equity lines of credit.. 33,168 4.92 31,628 5.21 25,801 5.18
Automobiles.................. 164,862 24.46 134,616 22.19 84,979 17.07
Other........................ 10,706 1.59 5,933 0.98 5,889 1.18
-------- ----- -------- ----- -------- -----
Total consumer loans...... 208,736 30.97 172,177 28.38 116,669 23.43
-------- ----- -------- ----- -------- -----
Commercial loans................ 146,196 21.69 134,115 22.11 111,372 22.36
-------- ----- -------- ----- -------- -----
Total loans............... 673,918 100.00% 606,716 100.00% 497,884 100.00%
====== ====== ======
Net deferred loan
origination costs (fees)..... 170 44 (63)
Allowance for loan losses.... (8,534) (7,589) (6,078)
-------- -------- --------
Total loans, net.......... $665,554 $599,171 $491,743
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------
1996 1995
-------------------------- -----------------------
Percent of Percent of
Amount Total Amount Total
--------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......... $196,712 42.26% $195,786 43.76%
Commercial................... 50,824 10.92 55,507 12.41
Multi-family................. 12,451 2.67 11,591 2.59
Construction ................ 6,229 1.34 8,324 1.86
-------- ----- -------- -----
Total real estate loans.... 266,216 57.19 271,208 60.62
-------- ----- -------- -----
Consumer loans:
Home equity lines of credit.. 24,945 5.36 22,417 5.01
Automobiles.................. 67,006 14.39 47,031 10.51
Other........................ 3,446 0.74 5,710 1.28
-------- ----- -------- -----
Total consumer loans...... 95,397 20.49 75,158 16.80
-------- ----- -------- -----
Commercial loans................ 103,884 22.32 101,061 22.58
-------- ----- -------- -----
Total loans............... 465,497 100.00% 447,427 100.00%
====== ======
Net deferred loan
origination costs (fees)..... (135) (182)
Allowance for loan losses.... (6,303) (6,484)
-------- --------
Total loans, net.......... $459,059 $440,761
======== ========
</TABLE>
46
<PAGE>
Real Estate Lending
One- to Four-Family Real Estate Loans. One of Berkshire Bank's primary
lending activities is to originate loans secured by one- to four-family
residences located in its primary market area. At December 31, 1999, $245.2
million, or 36.4%, of Berkshire Bank's total loans consisted of one- to four-
family mortgage loans. Of the one- to four-family loans outstanding at that
date, approximately 40.2% were fixed-rate mortgage loans and approximately 59.8%
were adjustable-rate loans.
Berkshire Bank originates fixed-rate fully amortizing loans with maturities
of 15, 20 and 30 years. Management establishes the loan interest rates based on
market conditions. Berkshire Bank offers mortgage loans that conform to Fannie
Mae and Freddie Mac guidelines, as well as jumbo loans, which presently are
loans in amounts over $250,000. Fixed-rate conforming loans are generally
originated for portfolio. However, such loans may be sold by Berkshire Bank
from time to time. The determination of whether to sell loans is determined
periodically by management in response to changes in prevailing market interest
rates and liquidity needs. Loans that are sold are generally sold to a local
financial institution, with the servicing rights retained.
Berkshire Bank also currently offers adjustable-rate mortgage loans, with
an interest rate based on the one year, three year or five year Constant
Maturity Treasury index, which adjust every one, three or five years from the
outset of the loan or which adjust annually after a seven or ten year initial
fixed period and with terms of up to 30 years. Interest rate adjustments on
such loans range from 2% to 5% during any adjustment period and are limited to
no more than 6% over the life of the loan. All of Berkshire Bank's adjustable-
rate mortgages are originated at an interest rate below the fully indexed rate
on adjustable-rate mortgages. At December 31, 1999, the initial discounted rate
on these loans was 200 to 300 basis points below the current fully indexed rate.
Generally, these loans will begin to reprice towards their fully indexed rate in
their second year. However, Berkshire Bank's experience, which cannot be
guaranteed in future periods, is that discounted adjustable-rate loans tend to
be more stable and less susceptible to prepayment activity in a falling interest
rate environment.
Adjustable-rate mortgage loans help reduce Berkshire Bank's exposure to
changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by borrowers. It is possible that during periods of rising interest rates the
risk of default on adjustable-rate mortgage loans may increase as a result of
repricing and the increased payments required to be made by borrowers. In
addition, although adjustable-rate mortgage loans allow Berkshire Bank to
increase the sensitivity of its asset base to changes in interest rates, the
extent of this interest sensitivity is limited by the annual and lifetime
interest rate adjustment limits. Because of these considerations Berkshire Bank
has no assurance that yields on adjustable-rate mortgage loans will be
sufficient to offset increases in Berkshire Bank's cost of funds during periods
of rising interest rates. Berkshire Bank believes these risks, which have not
had a material adverse effect on Berkshire Bank to date, generally are less than
the risks associated with holding fixed-rate loans in its portfolio in a rising
interest rate environment.
Berkshire Bank underwrites fixed- and variable-rate one- to four-family
residential mortgage loans with loan-to-value ratios of up to 100% on a one- to
two-family primary residence; up to 90% on a three- to four-family primary
residence or a vacation home; and up to 75% on a condominium. A borrower is
required to obtain private mortgage insurance on loans that exceed 80%, or 75%
in the case of a condominium, of the appraised value or sales price, whichever
is less, of the secured property. Berkshire Bank also generally requires fire,
casualty, title, hazard insurance and, if appropriate, flood insurance be
maintained on all properties securing real estate loans made by Berkshire Bank.
An independent licensed appraiser generally appraises all properties.
Berkshire Bank also offers adjustable-rate home equity loans with an
interest rate based on the prime rate as reported in The Wall Street Journal,
which adjusts monthly. The combined loan-to-value ratio of home equity loans is
generally limited to 80%. Second mortgages are also offered on owner-occupied
primary or secondary residences and are adjustable-rate, either adjusting
annually or with a five-year initial fixed period which adjusts annually
thereafter, with terms up to 30 years.
47
<PAGE>
In an effort to provide financing for low- and moderate-income families,
Berkshire Bank offers Federal Housing Authority, Veterans Administration and
Massachusetts Housing Finance Agency residential mortgage loans to qualified
individuals with adjustable- and fixed-rates of interest and terms of up to 30
years. Such loans may be secured by one- to four-family residential property
and are underwritten using modified underwriting guidelines. Berkshire Bank
also participates in the Good Samaritan Home Ownership Program, which is a non-
profit venture established to advise and assist low- and middle-income families
in the purchase of their first home in Berkshire County. Qualified individuals
can obtain a 30 year fixed-rate mortgage loan on a one- to four-family, owner
occupied property. Additionally, Berkshire Bank maintains its own First-Time
Home Buyer loan program. This program offers one- and two-family residential
mortgage loans to first-time home buyers. These loans are offered with initial
five-year fixed-rates of interest which adjust annually thereafter with terms of
up to 30 years.
Construction Loans. At December 31, 1999, construction loans totaled $12.5
million, or 1.9% of Berkshire Bank's total loan portfolio, of which $5.6 million
were residential construction loans and $6.9 million were commercial
construction loans. At December 31, 1999, the unadvanced portion of
construction loans totaled $4.7 million.
Berkshire Bank originates construction loans to individuals for the
construction and acquisition of personal residences. Berkshire Bank's
residential construction loans generally provide for the payment of interest
only during the construction phase, which is usually twelve months. At the end
of the construction phase, the loan converts to a permanent mortgage loan. Loans
can be made with a maximum loan to value ratio of 90%, provided that the
borrower obtains private mortgage insurance on the loan if the loan balance
exceeds 80% of the appraised value or sales price, whichever is less, of the
secured property. At December 31, 1999, the largest outstanding residential
construction loan commitment was for $500,000, $106,000 of which was
outstanding. This loan was performing according to its terms at December 31,
1999. Construction loans to individuals are generally made on the same terms as
Berkshire Bank's one- to four-family mortgage loans.
Before making a commitment to fund a residential construction loan,
Berkshire Bank requires an appraisal of the property by an independent licensed
appraiser. Berkshire Bank also reviews and inspects each property before
disbursement of funds during the term of the construction loan. Loan proceeds
are disbursed after inspection based on the percentage of completion method.
Berkshire Bank also makes construction loans for commercial development
projects, including multi-family, commercial properties, single-family
subdivisions and condominiums. These loans generally have an interest-only
phase during construction then convert to permanent financing. Disbursement of
funds are at the sole discretion of Berkshire Bank and are based on the progress
of construction. The maximum loan to value ratio for these loans depends upon
the type of commercial development project being undertaken, but generally will
not exceed 80%. At December 31, 1999, the largest outstanding commercial
construction loan commitment was $5.2 million, of which $5.2 million was
outstanding.
Berkshire Bank also originates land loans to local contractors and
developers for the purpose of making improvements thereon, or for the purpose of
holding or developing the land for sale. Such loans are secured by a lien on
the property; have loan to value ratios that are limited to 70% of the value of
the land used for residential development and 65% of the value of the land used
for commercial development (based on the lower of the acquisition price or the
appraised value of the land) and are written with a fixed interest rate based on
a margin over the prime rate as reported in The Wall Street Journal. Land loans
are offered with a term of three years in which only interest is required to be
paid each month. A balloon payment for the principal plus any accrued interest
is due at the end of the three year period. Additionally, Berkshire Bank offers
fully-amortized land loans with a term of 15 years. Berkshire Bank's land loans
are generally secured by property in its primary market area. Berkshire Bank
requires title insurance and, if applicable, a hazardous waste survey reporting
that the land is free of hazardous or toxic waste.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent
48
<PAGE>
largely upon the accuracy of the initial estimate of the property's value at
completion of construction compared to the estimated cost (including interest)
of construction and other assumptions. If the estimate of construction cost
proves to be inaccurate, Berkshire Bank may be required to advance funds beyond
the amount originally committed in order to protect the value of the property.
Additionally, if the estimate of value proves to be inaccurate, Berkshire Bank
may be confronted with a project, when completed, having a value which is
insufficient to assure full repayment.
Commercial and Multi-Family Real Estate Loans. Berkshire Bank originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small office buildings, industrial facilities or retail facilities primarily
located in Berkshire Bank's primary market area. At December 31, 1999,
Berkshire Bank had $61.2 million in commercial and multi-family real estate
loans which amounted to 9.1% of total loans. Berkshire Bank's multi-family and
commercial real estate underwriting policies provide that such real estate loans
may be made in amounts of up to 80% of the appraised value of the property or
the selling price, whichever is less. Loans secured by single-family
subdivisions and condominium projects may be made in amounts of up to 75% and
70%, respectively, of the appraised value of the property or selling price,
whichever is less. All loans must comply with Berkshire Bank's current in-house
loans-to-one-borrower limit, which at December 31, 1999 was $8.8 million.
Berkshire Bank's multi-family and commercial real estate loans may be made with
terms of up to 20 years and substantially all of which are originated with
interest rates that adjust periodically and are generally indexed to the prime
rate as reported in The Wall Street Journal. In reaching its decision on whether
to make a multi-family or commercial real estate loan, Berkshire Bank considers
the net operating income of the property, the borrower's expertise, credit
history and profitability and the value of the underlying property. In addition,
with respect to commercial real estate rental properties, Berkshire Bank will
also consider the term of the lease and the quality of the tenants. Berkshire
Bank has generally required that the properties securing these real estate loans
have debt service coverage ratios (the ratio of earnings before debt service to
debt service) of at least 1.25x. Environmental surveys are generally required
for commercial real estate loans. Additionally, in larger real estate projects,
it is recommended that a feasibility study be obtained to determine the
viability of the project. A feasibility study is particularly important with
respect to multi-family housing projects, hotel/motel construction and health
care facilities. Generally, multi-family and commercial real estate loans made
to corporations, partnerships and other business entities require personal
guarantees by the principals. The largest multi-family or commercial real estate
loan in Berkshire Bank's portfolio at December 31, 1999 was a performing $5.3
million real estate loan secured by a motel located in Lenox, Massachusetts.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be affected by adverse conditions in the real estate market or
the economy. Berkshire Bank seeks to minimize these risks through strict
adherence to its underwriting standards. See "Risk Factors--Berkshire Bank's
increased emphasis on commercial lending may hurt both asset quality and
profits."
Commercial Lending
Commercial Loans. At December 31, 1999, Berkshire Bank had $146.2 million
in commercial loans which amounted to 21.7% of total loans. In addition, at such
date, Berkshire Bank had $49.6 million of unadvanced commercial lines of credit.
Berkshire Bank makes commercial business loans primarily in its market area to a
variety of professionals, sole proprietorships and small businesses. Berkshire
Bank offers a variety of commercial lending products, the maximum amount of
which is limited by Berkshire Bank's in-house loans-to-one-borrower limit.
Berkshire Bank's largest commercial loan relationship was a $6.0 million loan
secured by various types of business assets located in Hillsdale and Millerton,
New York and Lakeville, Connecticut. This loan was performing according to its
original terms at December 31, 1999.
49
<PAGE>
Berkshire Bank offers secured commercial term loans, which have a maturity
of greater than one year and the payment of which is dependent on future
earnings. The term for repayment of the loan will normally be limited to the
lesser of the expected useful life of the asset being financed or a fixed amount
of time, generally less than seven years. Berkshire Bank also offers loans
originated in order to finance a business' operating facility, revolving lines
of credit secured by business assets other than real estate, such as business
equipment, inventory and accounts receivable, letters of credit, time notes and
Small Business Administration guaranteed loans. Business lines of credit have
adjustable rates of interest and are payable on demand, subject to annual review
and renewal. Time notes are short-term loans, generally limited to 90 days which
do not require payment of principal or interest until maturity.
Berkshire Bank also offers a Business Manager Line of Credit. Unlike a
traditional line of credit, the Business Manager Line is a program whereby
Berkshire Bank purchases a customer's accounts receivable on a recourse basis.
Berkshire Bank's income from the program arises primarily from: (1) service
charges, which range from two to five percent, which are discounted from each
receivable purchased, and (2) the interest, if any, charged to account debtors
on unpaid balances. At December 31, 1999, Business Manager Lines of Credit
totaled $1.6 million, or 1.2% of commercial loans. Additionally, the unadvanced
amounts of Business Manager Lines of Credit totaled approximately $1.0 million.
When making commercial business loans, Berkshire Bank considers the
financial statements of the borrower, the borrower's payment history of both
corporate and personal debt, the debt service capabilities of the borrower, the
projected cash flows of the business, and viability of the industry in which the
customer operates and the value of the collateral. Commercial business loans
are generally secured by a variety of collateral, primarily accounts receivable,
inventory and equipment, and are generally supported by personal guarantees.
Depending on the collateral used to secure the loans, commercial loans are made
in amounts of up to 95% of the value of the collateral securing the loan.
Berkshire Bank generally does not make unsecured commercial loans.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment or other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial loans are of higher risk and typically are made
on the basis of the borrower's ability to make repayment from the cash flow of
the borrower's business. As a result, the availability of funds for the
repayment of commercial loans may depend substantially on the success of the
business itself. Further, any collateral securing such loans may depreciate
over time, may be difficult to appraise and may fluctuate in value. See "Risk
Factors--Berkshire Bank's increased emphasis on commercial lending may hurt both
asset quality and profits."
Consumer Lending
Automobile Lending. At December 31, 1999, automobile loans totaled $164.9
million, or 24.5% of Berkshire Bank's total loans and 79.0% of consumer loans.
The Bank offers fixed-rate automobile loans on a direct and indirect basis with
terms of up to 72 months for new and recent model used cars and up to 60 months
for older model used cars. Berkshire Bank generally will make such loans up to
100% of the retail value shown in the NADA Used Car Guide. The interest rates
offered differ depending on the age of the automobile and current interest rates
offered by competitors.
Berkshire Bank began offering indirect automobile loans through automobile
dealers approximately seven years ago. Currently, Berkshire Bank maintains
contractual relationships with over 100 new and used car dealers throughout
western Massachusetts, northern Connecticut, eastern New York and southern
Vermont. Such loans are only made following an underwriting review and
acceptance by Berkshire Bank. These loans are closed by the automobile dealer
and immediately assigned to Berkshire Bank, who then services the loans. On
loans originated by its automobile dealers, Berkshire Bank compensates the
originator based upon the higher rate paid on the loan, up to a maximum of four
percent. For the fiscal years 1999 and 1998, Berkshire Bank originated $131.0
million and $90.0 million of automobile loans, respectively, of which 96.1% and
95.6% were originated indirectly through the automobile dealers in fiscal years
1999 and 1998, respectively. The substantial majority of such loans are
50
<PAGE>
secured by used automobiles. The large growth in the automobile portfolio in the
past few years is primarily attributable to the addition of one automobile
dealer in 1997 and two automobile dealers in 1998. These three dealers, located
in eastern New York, northern Connecticut and western Massachusetts, accounted
for approximately 30% of the loans originated in 1999. Berkshire Bank has been
selling automobile loans since 1998. Berkshire Bank anticipates that it will
continue to sell a portion of its automobile loans in the secondary market for
liquidity purposes and to manage the credit risk of the loan portfolio.
Home Equity Lines of Credit and Other Consumer Loans. Berkshire Bank
offers home equity lines of credit secured by owner-occupied one- to four-family
residences. At December 31, 1999, home equity lines of credit totaled $33.2
million, or 4.9% of Berkshire Bank's total loans and 15.9% of consumer loans.
Additionally, at December 31, 1999, the unadvanced amounts of home equity lines
of credit totaled $35.2 million. The underwriting standards employed by
Berkshire Bank for home equity lines of credit include a determination of the
applicant's credit history, an assessment of the applicant's ability to meet
existing obligations and payments on the proposed loan and the value of the
collateral securing the loan. Home equity loans will not be made if the
borrower's first mortgage payment, monthly real estate payment and amortized
equity line payment exceeds 25% of the borrower's gross monthly income.
Additionally, the borrower's monthly debt cannot exceed 35% of the borrower's
gross monthly income. Home equity lines of credit have adjustable rates of
interest which are indexed to the prime rate as reported in The Wall Street
Journal. Generally, the maximum combined loan-to-value ratio on home equity
lines of credit is 80% for loans less than $200,000 and 60% for loans greater
than $200,000. A home equity line of credit may be drawn down by the borrower
for an initial period of five years from the date of the loan agreement. During
this period, the borrower has the option of paying, on a monthly basis, either
principal and interest or only the interest. If not renewed, the borrower has
to pay back the amount outstanding under the line of credit over a term not to
exceed ten years, beginning at the end of the five year period.
Other consumer loans at December 31, 1999 amounted to $10.7 million, or
1.6% of Berkshire Bank's total loans and 5.1% of consumer loans. These loans
include education, collateral, personal and unsecured loans. Collateral loans
are generally secured by a passbook account, a certificate of deposit or
marketable securities. Unsecured loans generally have a maximum borrowing
limitation of $10,000 and a maximum term of five years.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family mortgage loans. In such
cases, repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral. The
remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. Further,
collections on these loans are dependent on the borrower's continuing financial
stability and, therefore, are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Repossed collateral relating to
consumer loans at December 31, 1999 approximated $996,000. Finally, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans if a borrower defaults.
Loans to One Borrower. The maximum amount that Berkshire Bank may lend to
one borrower is limited by statute. At December 31, 1999, Berkshire Bank's
statutory limit on loans to one borrower was $17.6 million. At that date,
Berkshire Bank's largest amount of loans to one borrower, including the
borrower's related interests, was approximately $7.3 million and consisted of
six loans secured by residential and commercial real estate and marketable
equity securities. These loans were performing according to their original
terms at December 31, 1999.
51
<PAGE>
Maturity of Loan Portfolio. The following table shows the remaining
contractual maturity of Berkshire Bank's total loans at December 31, 1999,
excluding the effect of future principal prepayments.
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------------------------------------------------
Commercial Home
One- to and Equity
four- Multi-Family Lines of Other
family (1) Construction (2) Real Estate Commercial Credit Automobile Consumer Total
------------ ---------------- ------------- ---------- ---------- ------------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less ......... $ 869 $12,369 $ 1,440 $ 38,458 $ 1,980 $ 1,674 $ 2,133 $ 58,923
After one year:
More than one year
to three years ...... 1,432 54 1,027 11,011 -- 24,030 3,128 40,682
More than three years
to five years ....... 2,835 83 3,142 14,830 -- 104,271 4,356 129,517
More than five years
to 15 years ......... 68,686 28 33,457 33,794 14,278 34,887 950 186,080
More than 15 years ..... 171,418 -- 22,146 48,103 16,910 -- 139 258,716
-------- ------- -------- -------- ------- -------- ------- --------
Total amount due..... $245,240 $12,534 $61,212 $146,196 $33,168 $164,862 $10,706 $673,918
======== ======= ======== ======== ======= ======== ======= ========
</TABLE>
- ---------------------------------
(1) Includes second mortgages on one- to four-family residences.
(2) Includes residential and commercial construction loans.
The following table sets forth, at December 31, 1999, the dollar amount of
loans contractually due after December 31, 2000, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 2000
-----------------------------------------------
Fixed Adjustable Total
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family (1) ................. $ 97,651 $146,720 $244,371
Construction ............................ 165 -- 165
Commercial and multi-family ............. 6,348 53,424 59,772
-------- -------- --------
Total real estate loans .............. 104,164 200,144 304,308
Home equity loans ......................... -- 31,188 31,188
Commercial loans .......................... 10,959 96,779 107,738
Automobile ................................ 163,188 -- 163,188
Other ..................................... 8,406 167 8,573
--------- -------- --------
Total loans.......................... $286,717 $328,278 $614,995
========= ======== ========
</TABLE>
- ---------------------------------
(1) Includes second mortgages on one- to four-family residences.
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Berkshire Bank the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
52
<PAGE>
Loan Approval Procedures and Authority. Berkshire Bank's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by Berkshire Bank's Board of Directors and
management. The Board of Directors has designated certain individuals of
Berkshire Bank and certain branch managers to consider and approve loans within
their designated authority.
The Board of Directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: several residential
mortgage lenders have been delegated authority to approve residential mortgage
loans ranging from $240,000 to $300,000; home equity lines of credit ranging
from $50,000 to $100,000; unsecured consumer loans from $10,000 to $30,000; and
secured consumer loans from $30,000 to $50,000. All one- to four-family
mortgage loans and home equity lines of credit in amounts of up to $300,000, all
secured consumer loans up to $50,000 and all unsecured installment loans up to
$30,000, may be approved by the Chairman of the Board, the President, the
Executive Vice President-Senior Loan Officer, the Senior Vice President-Retail
Lending and the Vice President-Residential Mortgage. All such loans in excess
of these amounts require the approval of a majority of the members and the
signature of two of the members of Berkshire Bank's Residential Mortgage Lending
Committee, which consists of the President, the Executive Vice President-Senior
Loan Officer, the Senior Vice President-Retail Lending, the Vice President-
Residential Mortgage, the Retail Loan Administration Officer and the residential
mortgage lenders. Combining any delegated approval authorities is permitted
provided that individual limits may be combined only up to $600,000 for
residential mortgage loan approvals without requiring the approval of the
Residential Mortgage Lending Committee provided that residential mortgage loans
approved by a combination of authorities must include the signature of either
the Executive Vice President-Senior Loan Officer, the Senior Vice President-
Retail Lending or the Senior Vice President-Commercial Lending. All residential
loans in excess of $1.0 million require the approval of the Executive Committee
of the Board of Directors or the full Board of Directors.
The Board of Directors has delegated the authority to approve loans to
several commercial loan officers in amounts ranging from $20,000 to $150,000 for
secured commercial loans and in amounts ranging from $20,000 to $75,000 for
unsecured commercial loans. All secured commercial loans in amounts up to
$300,000 and unsecured commercial loans in amounts up to $175,000 may be
approved by the Chairman of the Board, the President, the Executive Vice
President-Senior Loan Officer, the Senior Vice Presidents of Lending and certain
commercial loan managers. Such loans in excess of these amounts require the
approval of a majority of the members of Berkshire Bank's Senior Lending
Committee, which consists of the Executive Vice President, Senior Loan Officer,
the Senior Vice Presidents of Lending and all commercial loan officers. The
President and the Credit Administration Officer are non-voting members of the
Senior Loan Committee. Delegated approval authorities may be combined.
However, individual limits may be combined only up to $500,000 for commercial
loan approvals without requiring approval of the Senior Lending Committee
provided that commercial loans approved by a combination of authorities must
include the signature of either the Executive Vice President-Senior Loan
Officer, Senior Vice President-Commercial Lending or the Senior Commercial
Lender. All commercial loans in excess of $1.0 million require the approval of
the Executive Committee of the Board of Directors or the full Board of
Directors.
Loan Originations, Purchases and Sales. Berkshire Bank lending activities
are conducted by its salaried and commissioned loan personnel and through its
relationship with automobile dealers. Currently, Berkshire Bank has contractual
relationships with approximately 100 automobile dealers who originate automobile
loans for Berkshire Bank. Berkshire Bank underwrites such loans. The
automobile dealers close the loans and immediately assign them to Berkshire
Bank. These automobile dealers accounted for approximately 43.0% of the loans
originated by Berkshire Bank in 1999. The automobile dealers are compensated
based on the difference between the interest rate on the loan offered in excess
of the interest rate prescribed by Berkshire Bank, up to a maximum of 4 points.
The compensation is paid at the time the loan is closed and assigned to
Berkshire Bank. Additionally, Berkshire Bank utilizes third parties, including
finance companies to originate loans.
From time to time, Berkshire Bank will purchase whole loans or
participations in loans. Historically, Berkshire Bank generally purchased
consumer loans from a third party which originates loans through smaller
automobile dealers and has participated in loans secured by commercial real
estate. The consumer loans purchased from the third party are underwritten and
closed by that third party. Berkshire Bank, however, will also perform its
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<PAGE>
own credit analysis before purchasing the loan. Berkshire Bank purchased $11.9
million of these consumer loans in 1999. The commercial real estate loans
participated in by Berkshire Bank are underwritten according to Berkshire Bank's
own underwriting criteria and procedures and are generally purchased with the
accompanying servicing rights. Berkshire Bank purchased $2.2 million of such
loans in 1999. Amounts outstanding related to loan participation interests
purchased by Berkshire Bank totaled $2.9 million and $6.3 million at December
31, 1999 and December 31, 1998, respectively, and consisted primarily of loans
secured by commercial real estate.
At December 31, 1999, Berkshire Bank was servicing $66.4 million of loans
for others, consisting primarily of automobile and one-to four-family mortgage
loans sold by Berkshire Bank. Loan servicing includes collecting and remitting
loan payments, accounting for principal and interest, contacting delinquent
borrowers, supervising foreclosures and property dispositions when there are
unremedied defaults, making insurance and tax payments on behalf of the
borrowers and generally administering the loans. The gross servicing fee income
from loans sold is generally between 25 basis points for one- to four-family
mortgage loans and 100 basis points for automobile loans of the total balance of
the loan being serviced.
Berkshire Bank generally originates loans for portfolio but from time to
time will sell loans in the secondary market based on prevailing market interest
rate conditions and an analysis of the composition and risk of the loan
portfolio and liquidity needs. Historically, Berkshire Bank, from time to time,
sold one-to four-family mortgage loans in the secondary market while retaining
the servicing. However, in recent years Berkshire Bank has begun to primarily
sell a portion of its automobile loans in the secondary market to a financial
institution in Vermont. In 1999, Berkshire Bank sold $44.3 million of loans,
which consisted primarily of automobile loans. The determination of which loans
to sell depends upon liquidity needs, the loan mix of the portfolio and interest
rate risk management. Berkshire Bank currently anticipates that future loan
sales will consist predominately of automobile loans. Generally, loans are sold
without recourse.
54
<PAGE>
The following table presents total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Loans at beginning of period................................... $606,716 $497,884 $465,497
-------- -------- --------
Originations:
Real estate loans:
One-to four-family.................................... 49,207 66,410 34,203
Construction.......................................... 7,199 10,978 4,736
Multifamily........................................... 3,620 926 4,036
Commercial real estate................................ 9,478 24,454 9,224
-------- -------- ---------
Total real estate loans......................... 69,504 102,768 52,199
-------- -------- ---------
Consumer loans:
Home equity lines of credit........................... 10,796 21,942 6,252
Other................................................. 135,574 101,035 75,778
-------- -------- ---------
Total consumer loans............................ 146,370 122,977 82,030
Commercial loans........................................ 64,542 51,989 42,019
-------- -------- ---------
Total loans originated.......................... 280,416 277,734 176,248
-------- -------- ---------
Purchases:
Real estate loans:
Multi-family.......................................... 566 2,080 --
Commercial real estate................................ 2,228 -- --
-------- -------- ---------
Total real estate loans......................... 2,794 2,080 --
Consumer loans:
Other................................................. 11,877 6,006 --
Commercial loans......................................... 1,088 15,567 1,160
-------- -------- --------
Total loans purchased........................... 15,759 23,653 1,160
-------- -------- --------
Deduct:
Principal loan repayments, repayments and other, net..... 182,474 186,014 140,908
Loan sales............................................... 44,308 5,763 1,903
Net loan charge-offs..................................... 2,085 544 1,702
Transfers to real estate owned........................... 106 234 508
-------- -------- --------
Total deductions................................... 228,973 192,555 145,021
-------- -------- --------
Net increase in loans.......................................... 67,202 108,832 32,387
-------- -------- --------
Loans at end of period......................................... $673,918 $606,716 $497,884
======== ======== ========
</TABLE>
Loan Commitments. Berkshire Bank issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
generally honored for up to 60 days from approval. At December 31, 1999,
Berkshire Bank had loan commitments and unadvanced loans and lines of credit
totaling $117.4 million. See Note 10 of the Notes to Consolidated Financial
Statements included in this prospectus.
Loan Fees. In addition to interest earned on loans, Berkshire Bank
receives income from fees derived from loan originations, loan modifications,
late payments and for miscellaneous services related to its loans. Income from
these activities varies from period to period depending upon the volume and type
of loans made and competitive conditions.
55
<PAGE>
Berkshire Bank charges loan origination fees which are calculated as a
percentage of the amount borrowed. As required by applicable accounting
principles, loan origination fees, discount points and certain loan origination
costs are deferred and recognized over the contractual remaining lives of the
related loans on a level yield basis. At December 31, 1999, Berkshire Bank had
approximately $170,000 of net deferred loan fees and costs. Berkshire Bank
amortized $44,000 of net deferred loan fees and costs during the year ended
December 31, 1999.
Nonperforming Assets, Delinquencies and Impaired Loans. When a borrower
fails to make a required loan payment, Berkshire Bank attempts to cure the
deficiency by mailing a past due notice on the 10th day of the month. In most
cases, delinquencies are cured promptly. If a delinquency continues beyond the
15th day, the loan will appear on a delinquency list and the account officer
will contact the borrower. If a delinquency continues beyond the 30th day of
the month, the borrower is again contacted and if it is determined that the late
payment is not a short-term cash flow problem, the account is reported to the
Senior Workout Officer. While Berkshire Bank generally prefers to work with
borrowers to resolve problems, Berkshire Bank generally will initiate
foreclosure or other proceedings no later than the 90th day of a delinquency, as
necessary, to minimize any potential loss.
Management informs the Board of Directors monthly of the amount of loans
delinquent more than 30 days, all loans in foreclosure, and all foreclosed and
repossessed property that Berkshire Bank owns. Berkshire Bank generally ceases
accruing interest on all loans when principal or interest payments are
delinquent 90 days or more unless management determines the loan principal and
interest to be fully-secured and in the process of collection. Once the accrual
of interest on a loan is discontinued, all interest previously accrued is
reversed against current period interest income once management determines that
interest is uncollectible.
On January 1, 1995, Berkshire Bank adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan--an amendment to SFAS No. 114." At December
31, 1999 and December 31, 1998, Berkshire Bank had a $1.5 million and $938,000,
respectively, recorded investment in impaired loans, which had no specific
allowances and $50,000 and $1.5 million in loans with valuation allowances of
$14,000 and $304,000, respectively.
The following table sets forth information regarding nonperforming assets
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
----------- --------- --------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans:
One- to four-family real estate...................................... $ 450 $1,272 $ 623 $ 766 $1,411
Commercial real estate............................................... -- 1,064 336 1,421 966
Commercial........................................................... 1,572 612 613 2,619 1,393
Consumer............................................................. 819 542 584 39 142
------- ------- ------- ------- -------
Total nonperforming loans........................................ 2,841 3,490 2,156 4,845 3,912
Real estate owned....................................................... 220 398 364 2,888 219
------- ------- ------- ------- -------
Total nonperforming assets....................................... $3,061 $3,888 $2,520 $7,733 $4,131
======= ======= ======= ======= =======
Total nonperforming loans as a percentage of total loans................ 0.42% 0.58% 0.43% 1.04% 0.87%
Total nonperforming assets as a percentage of total assets.............. 0.36% 0.50% 0.40% 1.23% 0.69%
</TABLE>
Interest income that would have been recorded for the year ended December
31, 1999 had nonaccruing loans been current according to their original terms
amounted to approximately $362,000, $209,000 of which was included in interest
income related to these loans.
56
<PAGE>
The following tables set forth the delinquencies in Berkshire Bank's loan
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------------
60-89 Days 90 Days or More
----------------------------- ---------------------------
Principal Principal
Number of Balance of Number of Balance of
Loans Loans Loans Loans
------------ -------------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family................................... 6 $ 384 1 $ 106
Commercial real estate................................ -- -- -- --
Multi-family.......................................... -- -- -- --
Consumer loans:
Equity lines of credit................................ -- -- -- --
All other............................................. 95 831 121 776
Commercial loans......................................... 6 335 11 1,168
----- ------ ---- ------
Total.............................................. 107 $1,550 133 $2,050
===== ====== ==== ======
Delinquent loans to total loans.......................... 0.34% 0.23% 0.43% 0.31%
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------------------
60-89 Days 90 Days or More
----------------------------- ----------------------------------
Principal Principal
Number of Balance of Number of Balance of
Loans Loans Loans Loans
---------- --------------- -------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family..................................... 2 $ 169 4 $ 375
Commercial real estate.................................. -- -- -- --
Multi-family........................................... -- -- 1 79
Consumer loans:
Equity lines of credit.................................. -- -- 1 50
All other............................................... 68 607 65 492
Commercial loans......................................... 2 150 19 1,397
-- ----- -- ------
Total.................................................. 72 $ 926 90 $2,393
== ===== == ======
Delinquent loans to
total loans........................................... 0.29% 0.15% 0.36% 0.39%
<CAPTION>
At December 31, 1997
-------------------------------------------------------------------
60-89 Days 90 Days or More
---------------------------- ----------------------------------
Principal Principal
Number of Balance of Number of Balance of
Loans Loans Loans Loans
------------ ------------- ------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family..................................... 10 $ 719 4 $ 988
Commercial real estate.................................. -- -- -- --
Multi-family........................................... -- -- -- --
Consumer loans:
Equity lines of credit.................................. -- -- 1 115
All other............................................... 59 414 52 469
Commercial loans......................................... 3 311 9 556
-- ------ -- ------
Total.................................................. 72 $1,444 66 $2,128
== ====== == ======
Delinquent loans to
total loans........................................... 0.35% 0.29% 0.32% 0.43%
</TABLE>
Real Estate Owned. Real estate acquired by Berkshire Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure, establishing a new cost basis. Holding costs and declines
in fair value after acquisition are expensed. At December 31, 1999, Berkshire
Bank had $220,000 of real estate owned, net, consisting primarily of three
commercial properties.
Asset Classification. Regulators have adopted various regulations and
practices regarding problem assets of savings institutions. Under such
regulations, federal and state examiners have authority to identify problem
assets during examinations and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful
and loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
57
<PAGE>
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover probable losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention." Berkshire Bank performs an internal analysis
of its loan portfolio and assets to classify such loans and assets similar to
the manner in which such loans and assets are classified by the federal banking
regulators. In addition, Berkshire Bank regularly analyzes the losses inherent
in its loan portfolio and its nonperforming loans in determining the appropriate
level of the allowance for loan losses.
The following table sets forth Berkshire Bank's classified assets at
December 31, 1999.
<TABLE>
<CAPTION>
Loss Doubtful Substandard Special Mention
-------------------------- ------------------------ --------------------------- -----------------------
Number Principal Number Principal Number Principal Number Principal
of Loans Balance of Loans Balance of Loans Balance of Loans Balance
------------ ----------- ---------- ----------- ------------- ----------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family... -- $ -- -- $ -- 7 $ 450 11 $1,477
Commercial
real estate....... -- -- -- -- 21 6,003 19 2,198
Multi-family......... -- -- -- -- 10 1,550 -- --
Consumer loans:
Equity lines of
credit.............. -- -- -- -- -- -- -- --
All other............ -- -- -- -- 181 776 109 831
Commercial loans........ -- -- -- -- 30 1,344 20 1,761
------- -------- ------- ------- ------- ------- ------ -------
Total............. -- $ -- -- $ -- 249 $10,123 159 $ 6,267
======= ======== ======= ======= ======= ======= ===== =======
</TABLE>
At December 31, 1999, Berkshire Bank had six outstanding loans with one
borrower, which were adversely classified or identified as a problem credit,
totalling $1.2 million. These loans, all of which were delinquent and
classified as Substandard, were secured by commercial real estate, commercial
business assets and accounts receivable. Berkshire Bank charged-off
approximately $600,000 in fiscal 1999 in connection with these loans and
anticipates that it will incur additional charge-offs in the future. Berkshire
Bank had no other classified loans greater than $500,000 which were not
performing according to their terms on December 31, 1999.
Allowance for Loan Losses. In originating loans, Berkshire Bank recognizes
that losses will be experienced on loans and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. Berkshire
Bank maintains an allowance for loan losses to absorb losses inherent in the
loan portfolio. The allowance for loan losses represents management's estimate
of probable losses based on information available as of the date of the
financial statements. The allowance for loan losses is based on management's
evaluation of the collectibility of the loan portfolio, including past loan loss
experience, known and inherent risks in the nature and volume of the portfolio,
information about specific borrower situations and estimated collateral values,
and economic conditions.
The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, management employs an independent third party to
perform a review of all of Berkshire Bank's commercial loan
58
<PAGE>
relationships exceeding $1.0 million, all material credits on Berkshire Bank's
watch list or classified as Substandard and a random sampling of new loans. The
regulatory agencies, as an integral part of their examination process, also
periodically review Berkshire Bank's allowance for loan losses. Such agencies
may require Berkshire Bank to make additional provisions for estimated losses
based upon judgments different from those of management.
In assessing the allowance for loan losses, loss factors are applied to
various pools of outstanding loans and certain unused commitments. Berkshire
Bank segregates the loan portfolio according to risk characteristics (i.e.,
mortgage loans, home equity, consumer, commercial). Loss factors are derived
using Berkshire Bank's historical loss experience and may be adjusted for
significant factors that, in management's judgment, affect the collectibility of
the portfolio as of the evaluation date.
In addition, management assesses the allowance using factors that cannot be
associated with specific credit or loan categories. These factors include
management's subjective evaluation of local and national economic and business
conditions, portfolio concentration and changes in the character and size of the
loan portfolio. The allowance methodology reflects management's objective that
the overall allowance appropriately reflects a margin for the imprecision
necessarily inherent in estimates of expected credit losses.
At December 31, 1999, Berkshire Bank had an allowance for loan losses of
$8.5 million which represented 1.27% of total loans and 302.62% of nonperforming
loans at that date. Although management believes that it uses the best
information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations. Furthermore, while
Berkshire Bank believes it has established its existing allowance for loan
losses in conformity with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing Berkshire Bank's loan portfolio, will
not request Berkshire Bank to increase its allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above.
Any material increase in the allowance for loan losses may adversely affect
Berkshire Bank's financial condition and results of operations.
59
<PAGE>
The following table presents an analysis of Berkshire Bank's allowance for
loan losses for the years indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of year........ $ 7,589 $ 6,078 $ 6,303 $ 6,484 $ 5,079
------- ------- ------- ------- -------
Charged-off loans:
One- to four-family real estate.................. 117 14 66 188 395
Multi-family..................................... -- -- 82 -- --
Commercial real estate........................... 297 253 959 103 64
Consumer (1)..................................... 731 311 699 363 257
Commercial....................................... 1,208 234 490 1,754 748
------- ------- ------- ------- -------
Total charged-off loans....................... 2,353 812 2,296 2,408 1,464
Recoveries on loans previously charged off.......... 268 268 594 247 360
------- ------- ------- ------- -------
Net loans charged off............................... 2,085 544 1,702 2,161 1,104
------- ------- ------- ------- -------
Provision for loan losses........................... 3,030 2,055 1,477 1,980 2,509
------- ------- ------- ------- -------
Allowance for loan losses, end of year.............. $ 8,534 $ 7,589 $ 6,078 $ 6,303 $ 6,484
======= ======= ======= ======= =======
Ratios:
Net loans charged-off to interest-earning loans..... 0.31% 0.09% 0.34% 0.47% 0.25%
Allowance for loan losses to total loans............ 1.27% 1.25% 1.22% 1.35% 1.45%
Allowance for loan losses to nonperforming loans.... 302.62% 217.45% 281.91% 130.09% 165.75%
Net loans charged-off to allowance
for loan losses.................................. 24.43 7.17 28.00 34.29 17.03
Recoveries to charge-offs........................... 11.39 33.00 25.87 10.26 24.59
</TABLE>
- -----------------------------------
(1) Consists primarily of indirect automobile loans.
For additional discussion regarding the provision for loan losses in recent
periods, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Operating Results for the year ended
December 31, 1999 and 1998--Provision for Loan Losses."
60
<PAGE>
The following table presents the approximate allocation of the allowance
for loan losses by loan categories at the dates indicated and the percentage of
such amounts to the total allowance and to total loans. Management believes that
the allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not indicative of future losses
and does not restrict the use of any of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------- --------------------------------- --------------------------------
Percent of Percent of Percent of
Allowance Percent Allowance Percent Allowance Percent of
in Each of Loans in Each of Loans in Each of Loans
Category in Each Category in Each Category in Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
------ --------- ----------- ------ --------- ----------- ------ --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans......... $2,322 27.20% 47.34% $2,262 29.81% 49.51% $1,938 31.88% 54.21
Consumer loans............ 2,867 33.60 30.97 2,339 30.82 28.38 1,590 26.16 23.43
Commercial................ 3,345 39.20 21.69 2,988 39.37 22.11 2,550 41.96 22.36
------ ------ ------ ------- ------ ------ ------ ------ ------
Total allowance
for loan losses..... $8,534 100.00% 100.00% $7,589 100.00% 100.00% $6,078 100.00% 100.00
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1996 1995
------------------------------------- ----------------------------------
Percent of Percent of
Allowance Percent Allowance Percent
in Each of Loans in Each of Loans
Category in Each Category in Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
-------- ------------ ------------- ------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans......... $1,866 29.60% 57.19% $1,973 30.43% 60.61%
Consumer loans............ 1,901 30.15 20.49 1,883 29.04 16.80
Commercial................ 2,536 40.25 22.32 2,628 40.53 22.59
------ ------ ------ ------ ------ ------
Total allowance
for loan losses..... $6,303 100.00% 100.00% $6,484 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
61
<PAGE>
Investment Securities Activities
General. Under Massachusetts law, Berkshire Bank has authority to purchase
a wide range of investment securities. As a result of recent changes in federal
banking laws, however, financial institutions such as Berkshire Bank may not
engage as principals in any activities that are not permissible for a national
bank, unless the Federal Deposit Insurance Corporation has determined that the
investments would pose no significant risk to the Bank Insurance Fund and
Berkshire Bank is in compliance with applicable capital standards. In 1993, the
Regional Director of the Federal Deposit Insurance Corporation approved a
request by Berkshire Bank to acquire and retain certain listed stocks and/or
registered stocks subject to certain conditions. See "Regulation and
Supervision."
Berkshire Bank's main source of income has been and will continue to be
derived from its loan portfolio. The investment securities portfolio is
primarily used to provide for Berkshire Bank's cash flow needs, to provide
adequate liquidity to protect the safety of customer deposits and to earn a
reasonable return on investment. The structure of the investment securities
portfolio is based upon the composition and quality of the loan portfolio and
Berkshire Bank's liquidity position and deposit structure. Berkshire Bank
currently utilizes its fixed income investment securities portfolio as a source
of liquidity to its loan portfolio and to manage its interest rate risk profile.
As such, higher priority has generally been given to investments in money market
and shorter-term readily marketable securities.
Berkshire Bank's investment securities policy divides investments into two
categories, fixed income and equity portfolios. The primary objectives of the
fixed income portfolio are to: (1) maintain an adequate source of liquidity
sufficient to meet regulatory and operating requirements, including funding for
loans; (2) safeguard against deposit outflows, reduced loan amortization and
increased loan demand; and (3) manage interest rate risk. The fixed income
securities portfolio primarily consists of debt issues, including corporate and
municipal bonds, U.S. government and agency obligations and mortgage-backed and
asset-backed securities, including collateralized mortgage obligations and real
estate mortgage investments conduits. A collateralized mortgage obligation is a
mortgage-backed bond that separates mortgage pools into different maturities
called "tranches." Tranches pay different rates of interest and can mature in a
few months, or a few years. In return for a lower yield, collateralized
mortgage obligations provide increased security about the life of the
investment. However, in a lowering interest rate risk environment,
collateralized mortgage obligations tend to be repaid before their expected
maturities as prepayments increase. This may result in Berkshire Bank having to
reinvest the funds at a lower interest rate. Real estate mortgage investments
conduits, a type of collateralized mortgage obligation, are similar in that
securities representing an undivided interest in such mortgages are issued.
However, real estate mortgage investments conduits have more flexibility than
other types of collateralized mortgage obligations as issuers can separate
mortgage pools not only into different maturity classes but also into different
risk classes. Approximately 71.2% of Berkshire Bank's mortgage-backed
securities are issued or guaranteed by agencies of the U.S. Government, which
carry lower credit risk than mortgage-backed securities of a private issuer.
Other types of asset-backed securities in which Berkshire Bank invests are
typically collateralized by the cash flow from a pool of auto loans, credit card
receivables, consumer loans and other similar obligations. Both mortgage-backed
and asset-backed securities carry market risk, the risk that increases in market
interest rates may cause a decrease in market value.
The marketable equity securities portfolio is currently managed to produce
capital gains through price appreciation and lowering taxable income through
deductions permitted for a portion of dividends received. The total book value
of the marketable equity securities portfolio is currently limited by the
investment policy to 100% of total capital. At December 31, 1999, the cost of
the marketable equity securities portfolio, including restricted equity
securities, totaled $16.3 million or 18.5% of its authorized limit and consisted
primarily of bank, utility and industrial stocks. At December 31, 1999, the
gross unrealized gains associated with the marketable equity securities
portfolio were $28.4 million and the gross unrealized losses were $501,000. The
market equity securities portfolio carries equity price risk in that, if equity
prices decline due to unfavorable market conditions or other factors, Berkshire
Bank's capital would decrease.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's
62
<PAGE>
intent as to the ultimate disposition of each security. SFAS No. 115 allows debt
securities to be classified as "held to maturity" and reported in financial
statements at amortized cost only if the reporting entity has the positive
intent and ability to hold those securities to maturity. Securities that might
be sold in response to changes in market interest rates, changes in the
security's prepayment risk, increases in loan demand, or other similar factors
cannot be classified as "held to maturity." Debt and equity securities held for
current resale are classified as "trading securities." These securities are
reported at fair value, and unrealized gains and losses on the securities would
be included in earnings. Berkshire Bank does not currently use or maintain a
trading account. Debt and equity securities not classified as either "held to
maturity" or "trading securities" are classified as "available for sale." These
securities are reported at fair value, and unrealized gains and losses on the
securities are excluded from earnings and included in accumulated other
comprehensive income, net of taxes.
The Executive Committee of the Board of Directors is responsible for
developing and reviewing Berkshire Bank's investment policy, which is designed
to complement Berkshire Bank's lending activities, improve liquidity and earn a
reasonable return through interest, dividend and capital gain income while
minimizing Berkshire Bank's federal tax liability through deductions available
on corporate dividends. Investment decisions are made in accordance with
Berkshire Bank's investment policy and are based upon the quality of a
particular investment, its inherent risks, Berkshire Bank's liquidity needs,
prospects for yield and/or appreciation and the potential tax consequences.
While general investment strategies are developed and authorized by the
Executive Committee, the execution of specific investment actions and the day-
to-day oversight of Berkshire Bank's investment portfolio rests with the
Chairman, President and Treasurer. These officers are authorized to execute
investment transactions up to specified limits based on the type of security
without the prior approval of the Executive Committee. However, such purchases
require the ratification of the Executive Committee at their next scheduled
meeting. The Board of Directors receives a monthly report of all securities
transactions made during the previous month.
Berkshire Bank's investment policy allows the use of certain hedging
strategies, including the purchase of options in an effort to increase the
return and decrease the risk on the securities portfolio. However, Berkshire
Bank has not engaged in such practices to date and does not currently intend to
do so in the future. If circumstances warrant the use of such derivative
instruments in the future, Berkshire Bank's current investment securities policy
would be amended to specifically authorize such transactions and provide
limitations on such investments.
63
<PAGE>
The following table presents the amortized cost and fair value of
Berkshire Bank's available for sale securities, by type of security, at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------ ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------- ---------- ----------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Obligations of U.S. Treasury
and U.S. Government agencies....... $10,986 $10,711 $12,243 $12,286 $21,310 $21,257
Corporate bonds and notes........... 31,177 30,634 18,054 18,073 1,078 1,083
Asset-backed securities............. 3,253 3,207 2,639 2,604 2,191 2,209
Marketable equity securities........ 10,454 38,399 10,538 39,786 11,096 33,526
------- ------ ------ ------ ------ ------
Total investment securities....... 55,870 82,951 43,474 72,749 35,675 58,075
Mortgage-backed securities:
Freddie Mac......................... $ 2,469 $ 2,493 $ 3,591 $ 3,654 $ 3,448 $ 3,539
Fannie Mae.......................... 1,604 1,618 2,124 2,188 3,951 4,020
Private label REMICs................ 5,878 5,841 14,877 14,886 5,651 5,648
Ginnie Mae.......................... 180 181 293 297 487 496
------- ------ ------ ------ ------ ------
Total mortgage-backed securities.. 10,131 10,133 20,885 21,025 13,537 13,703
------- ------ ------ ------ ------ ------
Total available-for-sale
securities...................... $66,001 $93,084 $64,359 $93,774 $49,212 $71,778
======= ======= ======= ======= ======= =======
</TABLE>
The following table presents the amortized cost and fair value of Berkshire
Bank's held for maturity securities, by type of security, at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ----------------------------- ------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------ -------------- ------------ -------------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Obligations of U.S. Treasury
and U.S. Government agencies ... $ -- $ -- $ -- $ -- $ 2,000 $ 2,001
Municipal notes.................. 6,720 6,720 6,997 6,997 3,464 3,464
Other bonds and notes............ -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total investment securities..... 6,720 6,720 6,997 6,997 5,464 5,465
------ ------ ------ ------ ------ ------
Mortgage-backed securities:
Freddie Mac ..................... 5,368 5,334 8,642 8,643 11,679 11,668
Fannie Mae....................... 4,352 4,303 7,306 7,288 15,962 15,940
Ginnie Mae....................... 574 565 835 828 1,570 1,566
------ ------ ------ ------ ------ ------
Total mortgage-backed
securities................ 10,294 10,202 16,783 16,759 29,211 29,174
------ ------ ------ ------ ------ ------
Total held-to-maturity
securities $17,014 $16,922 $23,780 $23,756 $34,675 $34,639
======= ======= ======= ======= ======= =======
</TABLE>
At December 31, 1999, Berkshire Bank did not own any investment or
mortgage-backed securities of a single issuer, other than U.S. Government and
agency securities, which had an aggregate book value in excess of 10% of
Berkshire Bank's capital at that date.
64
<PAGE>
The following presents the activity in the investment securities and
mortgage-backed securities portfolios for the years indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ---------- --------------
(In thousands)
<S> <C> <C> <C>
Investment securities:
Investment securities, beginning of year................. $ 79,746 $ 63,539 $ 79,256
Purchases................................................... 34,636 56,472 13,566
Sales....................................................... (240) (16,554) (11,219)
Maturities and calls........................................ (16,646) (27,220) (26,568)
Net (premium)/discount...................................... (5,626) (3,373) 2,297
(Decrease)/increase in unrealized gain...................... (2,199) 6,882 6,207
-------- -------- --------
Net (decrease)/increase in investment securities......... 9,925 16,207 (15,717)
Investment securities, end of year....................... 89,671 79,746 63,539
-------- -------- --------
Mortgage-backed securities:
Mortgage-backed securities, beginning of year............ 37,808 42,914 36,809
Purchases................................................ 18,256 58,638 42,045
Sales.................................................... -- -- (346)
Repayments and prepayments............................... (36,246) (62,592) (30,559)
Net (premium)/discount...................................... 742 (1,122) (5,140)
(Decrease)/increase in unrealized gain...................... (133) (30) 105
-------- -------- --------
Net (decrease)/increase in mortgage-backed securities.... (17,381) (5,106) 6,105
Mortgage-backed securities, end of year.................. 20,427 37,808 42,914
-------- -------- --------
Total securities, end of year............................... $110,098 $117,554 $106,453
======== ======== ========
</TABLE>
65
<PAGE>
The following table presents certain information regarding the amortized
cost, weighted average yields and estimated maturities or periods to repricing
of Berkshire Bank's debt securities at December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
------------------------------------------------------------------------------
More than One Year More than Five Years
One Year or Less to Five Years to Ten Years
--------------------------- --------- ---------- ---------- -----------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
-------------- ---------- --------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Obligations of U.S. Treasury and
U.S. Government agencies......... $ 2,349 5.15% $ 7,639 5.81% $ 998 5.82%
Mortgage-backed securities.......... 13,073 6.37 6,957 6.47 334 6.76
Municipals.......................... 5,888 3.85 221 5.62 -- --
Corporate bonds and notes........... 8,590 6.30 20,742 6.40 1,002 6.35
Asset-backed securities (1)......... 2,599 6.45 623 6.60 31 8.27
------- ------- ------
Total......................... $32,499 5.81% $36,182 6.29% $2,365 6.25%
======= ======= ======
<CAPTION>
At December 31, 1999
------------------------------------------------
More than Ten Years Total
----------------------- ----------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
---------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Investment securities:
Obligations of U.S. Treasury and
U.S. Government agencies..................... $ -- --% $10,986 5.69%
Mortgage-backed securities...................... 61 6.29 20,425 6.41
Municipals...................................... 611 4.99 6,720 4.01
Corporate bonds and notes....................... 843 7.99 31,177 6.41
Asset-backed securities (1)..................... -- -- 3,253 6.50
------ -------
Total..................................... $1,515 6.68% $72,561 6.09%
====== =======
</TABLE>
___________________________
(1) Includes small business administration securities with a fair value of
$800,000 at December 31, 1999.
66
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Berkshire
Bank's lending and other investment activities. In addition, Berkshire Bank also
generates funds internally from loan principal repayments and prepayments and
maturing investment securities. Scheduled loan repayments are a relatively
stable source of funds, while deposit inflows and outflows and loan prepayments
are influenced significantly by general interest rates and money market
conditions. Berkshire Bank may use borrowings from the Federal Home Loan Bank of
Boston as a source of funding for loan and securities investment activity. To a
lesser extent, Berkshire Bank also utilizes retail repurchase agreements as a
source of funds.
Deposit Accounts. Substantially all of Berkshire Bank's deposits are
generated from the areas surrounding its branch offices. Berkshire Bank offers a
wide variety of deposit accounts with a range of interest rates and terms.
Berkshire Bank's deposit accounts consist of interest-bearing checking,
noninterest-bearing checking, regular savings, money market savings and
certificates of deposit. The maturities of Berkshire Bank's certificate of
deposit accounts range from three months to ten years. In addition, Berkshire
Bank offers retirement accounts, including Traditional IRAs, Roth IRAs, Simple
IRAs, Self-Directed IRAs and Keogh accounts, simplified employee pension plan,
profit-sharing qualified plan and money purchase pension plan accounts.
Berkshire Bank also offers commercial business products to small businesses
operating within its primary market area. Deposit account terms vary with the
principal differences being the minimum balance deposit, early withdrawal
penalties, limits on the number of transactions and the interest rate.
Berkshire Bank reviews its deposit mix and pricing on a weekly basis.
Berkshire Bank also offers a variety of deposit accounts designed for the
businesses operating in its market area. Berkshire Bank's business banking
deposit products include a commercial checking account which provides an
earnings credit to offset monthly service charges and a checking account
specifically designed for small business. Additionally, Berkshire Bank offers
sweep accounts and money market accounts for businesses and IOLTA interest
checking and escrow accounts. Berkshire Bank has sought to increase its
commercial deposits through the offering of these products, particularly to its
commercial borrowers and to the municipalities that participate in its
government banking program.
Berkshire Bank believes it offers competitive interest rates on its deposit
products. Berkshire Bank determines the rates paid based on a number of
factors, including rates paid by competitors, Berkshire Bank's need for funds
and cost of funds, borrowing costs, Berkshire Bank's current asset/liability
structure, the amount of maturing deposits and movements of market interest
rates. Berkshire Bank currently does not utilize brokers to obtain deposits but
may choose to do so in the future. At December 31, 1999, Berkshire Bank had no
brokered deposits. All Massachusetts savings banks are required to be members
of the Mutual Savings Central Fund, Inc. and as such must pay its assessments.
The Mutual Savings Central Fund, Inc. maintains the Depositors' Insurance Fund,
a private deposit insurer, which insures all deposits in member banks in excess
of Federal Deposit Insurance Corporation deposit insurance limits. See
"Regulation and Supervision--Massachusetts Banking Laws and Supervision."
In the unlikely event Berkshire Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to Berkshire Hills as the sole stockholder of Berkshire Bank.
The following table presents the deposit activity of Berkshire Bank for the
years indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
1999 1998 1997
------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C>
Increase/(Decrease) before interest credited............ $ 9,797 $ 85,460 $(18,008)
Interest credited....................................... 23,848 22,601 21,564
-------- --------- ---------
Net increase............................................ $33,645 $108,061 $ 3,556
======== ========= =========
</TABLE>
67
<PAGE>
At December 31, 1999, Berkshire Bank had certificate of deposit accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Rate
--------------- ------------ -------------
(In thousands)
<S> <C> <C>
Three months or less................... $16,550 5.11%
Over 3 months through 6 months......... 15,645 5.22
Over 6 months through 12 months........ 18,947 5.54
Over 12 months......................... 31,623 6.10
--------
Total............................. $82,765 5.61%
========
</TABLE>
The following table presents information concerning average balances and
weighted average interest rates on Berkshire Bank's deposit accounts for the
years indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------ ----------------------------------- --------------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
----------- --------- --------- ---------- ---------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market accounts.... $ 84,971 12.88% 3.73% $ 62,043 10.73% 3.50% $ 49,159 9.23% 3.33%
NOW accounts............. 73,615 11.16 1.13 60,039 10.38 1.94 50,696 9.52 1.97
Savings (1).............. 142,193 21.55 3.07 129,020 22.31 3.04 125,020 23.48 3.00
Certificates of deposit.. 291,344 44.16 5.31 271,959 47.02 5.64 262,379 49.28 5.78
Demand accounts.......... 67,571 10.25 -- 55,259 9.56 -- 45,218 8.49 --
-------- ------ -------- ------ -------- ------
Total.............. $659,694 100.00% 3.62% $578,320 100.00% 3.91% $532,472 100.00% 4.05%
======== ====== ======== ====== ======== ======
</TABLE>
_______________________________________
(1) Includes mortgagors' escrow accounts.
68
<PAGE>
Certificates of Deposit by Rates and Maturities. The following table
presents the amount of certificate accounts categorized by rates and maturities,
for the periods and years indicated.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1999
-------------------------------------------------------------------------
Less than One to Two Two to Three Over Three
One Year Years Years Years
-------------- ---------------- -------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
0.00-4.00%....................... $ 851 $ -- $ -- $ --
4.01-5.00%....................... 103,577 4,093 184 183
5.01-6.00%....................... 90,224 46,615 8,253 9,769
6.01-7.00%....................... 11,163 2,709 932 7,438
7.01% and above.................. 741 14 7,206 1,351
--------- -------- -------- -------
Total................... $206,556 $53,431 $16,575 $18,741
========= ======== ======== =======
<CAPTION>
Total at December 31,
---------------------------------------------------------
1999 1998 1997
---------------- -------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
0.00-4.00%........................ $ 851 $ 1,095 $ 698
4.01-5.00%........................ 108,037 61,510 6,110
5.01-6.00%........................ 154,861 188,280 195,356
6.01-7.00%........................ 22,242 27,626 41,413
7.01% and above................... 9,312 12,146 17,016
-------- -------- --------
Total.................... $295,303 $290,657 $260,593
======== ======== ========
</TABLE>
Borrowings. Berkshire Bank utilizes advances from the Federal Home Loan
Bank of Boston to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The Federal Home Loan Bank of Boston functions as a
central reserve bank providing credit for savings banks and certain other member
financial institutions. As a member of the Federal Home Loan Bank of Boston,
Berkshire Bank is required to own capital stock in the Federal Home Loan Bank of
Boston and is authorized to apply for advances on the security of the capital
stock and certain of its mortgage loans and other assets, principally securities
that are obligations of, or guaranteed by, the U.S. Government or its agencies,
provided certain creditworthiness standards have been met. Advances are made
under several different credit programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations on
the amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
December 31, 1999, Berkshire Bank had the ability to borrow a total of
approximately $209.2 million from the Federal Home Loan Bank of Boston. At that
date, Berkshire Bank had outstanding advances of $58.9 million. In addition,
Berkshire Bank had a $2.0 million repurchase agreement line of credit to be
secured by securities or other assets of Berkshire Bank with the Depositors
Insurance Fund. Berkshire Bank only intends to use this line of credit on an
emergency basis to solve a funding problem. At December 31, 1999 Berkshire Bank
had no outstanding borrowings against this agreement.
Berkshire Bank offers retail repurchase agreements to selected higher
balance customers and certain municipalities. These agreements are direct
obligations of Berkshire Bank, which are then transferred to the customer, to
repay at maturity or on demand the purchase price of an undivided interest in a
U.S. Government or agency security owned by Berkshire Bank. Since these
agreements are not deposits, they are not insured by the Federal Deposit
Insurance Corporation. At December 31, 1999, such retail repurchase agreement
borrowings totaled $1.1 million.
69
<PAGE>
The following tables presents certain information regarding Berkshire
Bank's Federal Home Loan Bank advances during the periods and at the dates
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ---------- ---------
<S> <C> <C> <C>
Maximum amount of advances
outstanding at any month end....... $76,861 $42,892 $9,972
Approximate average advances
outstanding........................ 50,951 24,597 7,297
Approximate weighted average rate
paid on advances................... 5.49% 4.93% 5.37%
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -------
<S> <C> <C> <C>
Balance outstanding at end of year........ $58,928 $29,590 $6,880
Weighted average rate paid on advances.... 5.64% 4.52% 6.20%
</TABLE>
Trust Services
Berkshire Bank maintains the Asset Management/Trust Department Group as a
department within Berkshire Bank which primarily provides trust and investment
services to individuals, partnerships, corporations and institutions and also
acts as a fiduciary of estates and conservatorships as a trustee under various
wills, trusts and other plans. Berkshire Bank believes that the trust
department allows it to provide investment opportunities and fiduciary services
to both current and prospective customers. Consistent with Berkshire Bank's
operating strategy, Berkshire Bank will continue to emphasize the growth of its
trust service operations to grow assets and increase fee-based income.
Berkshire Bank has implemented several policies governing the practices and
procedures of the trust department, including policies relating to maintaining
confidentiality of trust records, investment of trust property, handling
conflicts of interest, and maintaining impartiality. At December 31, 1999, the
trust department managed 622 accounts with aggregate assets of $242.8 million,
of which the largest relationship totaled $4.5 million, or 1.9% of the trust
department's total assets, at December 31, 1999. For 1999, trust services
generated $1.7 million of net and service income compared to $1.2 million for
1998, an increase of 49.9%.
Government Banking
In 1998, Berkshire Bank began offering full-service government banking for
cities, towns and municipal school districts in western Massachusetts, eastern
New York, northern Connecticut and southern Vermont. Berkshire Bank offers
municipalities all aspects of financial advisory services for the sale of notes
and bonds, actively working with bond counsel, rating agencies, consulting
agencies and bond buyers. Additionally, Berkshire Bank offers a wide range of
commercial deposit products and checking accounts, as well as the origination of
payroll accounts. At December 31, 1999, Berkshire Bank was working with
approximately 25 municipalities. For 1999, government banking generated $94,500
of net fee income compared to $53,900 for 1998.
Subsidiary Activities
The following are descriptions of Berkshire Bank's wholly owned active
subsidiaries, which will be indirectly owned by Berkshire Hills following the
conversion.
70
<PAGE>
G.B.S.B., Inc. G.B.S.B., Inc. was established in August 1990 to acquire
and hold investment securities of a type that are permissible for banks to hold
under applicable law. G.B.S.B. was qualified as a "securities corporation" for
Massachusetts income tax purposes. Income earned by a qualifying securities
corporation is generally entitled to special tax treatment from Massachusetts
income tax. As of December 31, 1999, G.B.S.B., Inc. had assets totaling $44.9
million, consisting primarily of state and municipal bonds and bank, utility and
industrial stocks.
North Street Securities Corporation. North Street, originally named GBSB
Leasing Corporation, was established in January 1984 to acquire and hold
investment securities of a type that are permissible for banks to hold under
applicable law. North Street was qualified as a "securities corporation" for
Massachusetts income tax purposes. Income earned by a qualifying securities
corporation is generally entitled to special tax treatment from Massachusetts
income tax. As of December 31, 1999, North Street had assets totaling $31.6
million, consisting primarily of corporate and private label REMICs.
Greater Berkshire Foundation, Inc.
In 1997, Berkshire Bank established a private charitable foundation,
Greater Berkshire Foundation, Inc. This foundation, which is not a subsidiary
of Berkshire Bank, provides grants to public charities that are operated for
charitable, scientific, literary or educational purposes, within the communities
that Berkshire Bank serves. In 1997, Berkshire Bank contributed marketable
equity securities with a cost basis and fair market value of $97,000 and $2.5
million, respectively, at the date of contribution and transfer. At December
31, 1999, the foundation had assets of approximately $2.1 million. The
foundation's current six member Board of Directors consists of current directors
of Berkshire Bank. After the conversion, Berkshire Bank will continue to
maintain the foundation. However, Berkshire Bank does not expect to make any
further contributions to the foundation. The existence of Berkshire Bank's
current foundation is not expected to impact the business and affairs of
Berkshire Hills Foundation which is being established in connection with
Berkshire Bank's conversion. See "The Conversion--Establishment of the
Charitable Foundation."
71
<PAGE>
Properties
Berkshire Bank currently conducts its business through its main office
located in Pittsfield, Massachusetts, and 12 other full-service banking offices
and other facilities listed below. Berkshire Hills believes that Berkshire
Bank's facilities will be adequate to meet the then present and immediately
foreseeable needs of Berkshire Bank and Berkshire Hills.
<TABLE>
<CAPTION>
Net Book Value
of Property
Original or Leasehold
Lease Year Improvements
or Leased Date of Lease at December 31,
Location Own or Acquired Expiration 1999
- --------------------------------------- ----------- -------------- ------------- ------------------
(In thousands)
<S> <C> <C> <C> <C>
Main Office:
24 North Street
Pittsfield, Massachusetts.............. Own 1898 -- $1,184
Banking Offices:
244 Main St.
Great Barrington, Massachusetts........ Own 1950 -- 1,347
Main Street
Sheffield, Massachusetts............... Own 1966 -- 240
Old Town Hall
Pittsfield, Massachusetts.............. Lease 1969 2030 50
Allendale Shopping Center
Pittsfield, Massachusetts.............. Lease 1970 2001 66
2 Depot Street
W. Stockbridge, Massachusetts.......... Own 1975 -- 123
165 Elm Street
Pittsfield, Massachusetts.............. Own 1977 -- 329
255 Stockbridge Road
Great Barrington, Massachusetts........ Own 1985 -- 296
37 Main Street
North Adams, Massachusetts............. Lease 1985 2005(1) 95
1 Park Street
Lee, Massachusetts..................... Own 1991 -- 261
32 Main Street
Stockbridge, Massachusetts............. Own 1991 -- 297
39 Cheshire Road
Pittsfield, Massachusetts.............. Lease 1998 2002(2) 5
66 West Street
Pittsfield, Massachusetts.............. Lease 1998 2015(1) 71
Other Office:
66 Allen Street (3)
Pittsfield, Massachusetts.............. Own 1999 -- 2,421
</TABLE>
- ----------------------------
(1) Berkshire Bank has two options to renew this lease, each for an additional
five-year period.
(2) Berkshire Bank has an option to renew this lease for an additional ten-year
period.
(3) This facility houses Berkshire Bank's Commercial Lending Division, Asset
Management/Trust Department and Government Banking Program.
72
<PAGE>
Personnel
As of December 31, 1999, Berkshire Bank had 255 full-time employees and 32
part-time employees, none of whom is represented by a collective bargaining
unit. Berkshire Bank believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
Berkshire Bank, such as claims to enforce liens, condemnation proceedings on
properties in which Berkshire Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
Berkshire Bank's business. Berkshire Bank is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of Berkshire Bank.
MANAGEMENT OF BERKSHIRE HILLS
Directors are elected by the stockholders of Berkshire Hills for staggered
three-year terms, or until their successors are elected and qualified. Berkshire
Hills' Board of Directors consists of 18 persons divided into three classes,
each of which contains approximately one-third of the Board. One class,
consisting of Messrs. Henry D. Granger, Edward G. McCormick, Raymond B. Murray,
III, Robert A. Wells, Ms. Ann H. Trabulsi and Ms. Anne Everest Wojtkowski, has a
term of office expiring at the first annual meeting of stockholders; a second
class, consisting of Messrs. Thomas O. Andrews, A. Allen Gray, Michael G.
Miller, Louis J. Oggiani, William E. Williams and Ms. Catherine B. Miller, has a
term of office expiring at the second annual meeting of stockholders; and a
third class, consisting of Messrs. James A. Cunningham, Jr., Thomas R. Dawson,
John Kittredge, Peter J. Lafayette, Robert S. Raser and Corydon L. Thurston, has
a term of office expiring at the third annual meeting of stockholders. Berkshire
Hills anticipates that its first annual meeting of stockholders will be held in
December 2000.
The executive officers of Berkshire Hills are elected annually and serve at
the Board's discretion. The executive officers of Berkshire Hills are:
Name Position
---- --------
Robert A. Wells Chairman of the Board
James A. Cunningham, Jr. President and Chief Executive Officer
Michael P. Daly Executive Vice President
Charles F. Plungis, Jr. Senior Vice President, Treasurer
and Chief Financial Officer
Susan M. Santora Executive Vice President
73
<PAGE>
MANAGEMENT OF BERKSHIRE BANK
Directors and Executive Officers
The Board of Directors of Berkshire Bank is presently composed of 18
members who are elected annually as required by the Bylaws of Berkshire Bank.
The executive officers of Berkshire Bank are appointed annually by the Board of
Directors and hold office until their respective successors are chosen and
qualified, or until their death, earlier resignation or removal from office. The
following table presents information with respect to the directors and executive
officers of Berkshire Bank.
Directors
<TABLE>
<CAPTION> Director Term
Name Age(1) Position Held With Berkshire Bank(2) Since (3) Expires
- ---- ----------- ------------------------------------ --------- -----------
<S> <C> <C> <C> <C>
Thomas O. Andrews 61 Director 1980 2000
James A. Cunningham, Jr. 49 President, Chief Executive Officer 1990 2000
and Director
Thomas R. Dawson 52 Director 1993 2000
Henry D. Granger 63 Director 1985 2000
A. Allen Gray 55 Director 1996 2000
John Kittredge 71 Director 1974 2000
Peter J. Lafayette 52 Director 1996 2000
Edward G. McCormick 52 Director 1994 2000
Catherine B. Miller 58 Director 1983 2000
Michael G. Miller 57 Director 1989 2000
Raymond B. Murray, III 53 Director 1991 2000
Louis J. Oggiani 48 Director 1995 2000
Robert S. Raser 43 Director 1996 2000
Corydon L. Thurston 47 Director 1988 2000
Ann H. Trabulsi 64 Director 1976 2000
Robert A. Wells 60 Chairman of the Board 1976 2000
William E. Williams 48 Director 1992 2000
Anne Everest Wojtkowski 64 Director 1973 2000
</TABLE>
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age(1) Position Held With Berkshire Bank
- ---- ----------- ---------------------------------
<S> <C> <C>
Michael P. Daly 38 Executive Vice President - Senior Loan Officer
Charles F. Plungis, Jr. 48 Senior Vice President, Treasurer and
Chief Financial Officer
Susan M. Santora 46 Executive Vice President - Retail Banking
</TABLE>
- ---------------------
(1) As of December 31, 1999.
(2) All of the directors are also trustees of Berkshire Bancorp.
(3) Includes term of service as a trustee of either Great Barrington Savings
Bank or Berkshire County Savings Bank.
74
<PAGE>
Biographical Information
Below is certain information regarding the directors and executive officers of
Berkshire Bank. Unless otherwise stated, each director and executive officer has
held his or her current occupation for the last five years. There are no family
relationships among or between the directors or executive officers except as set
forth below.
Thomas O. Andrews is the President and Chief Executive Officer of H.S. Andrews
Insurance Agency in Great Barrington, Massachusetts.
James A. Cunningham, Jr. serves as President and Chief Executive Officer of
Berkshire Bank and President and Chief Operating Officer of Berkshire Bancorp.
Mr. Cunningham was President and Chief Executive Officer of Great Barrington
Savings Bank prior to its merger with Berkshire County Savings Bank in May 1997.
Thomas R. Dawson is a self-employed certified public accountant.
Henry D. Granger is the owner of Northeast Technical Associates, Inc., a real
estate appraisal firm, located in Great Barrington, Massachusetts.
A. Allen Gray is a vice president and general counsel of General Dynamics
Defense Systems, Inc., a government contractor located in Pittsfield,
Massachusetts.
John Kittredge is a former vice president of Crane and Company, Inc., a paper
manufacturer located in Dalton, Massachusetts. Mr. Kittredge serves as the
clerk of Berkshire Bank.
Peter J. Lafayette is President of Berkshire Housing Development Corporation,
a non-profit housing organization located in Pittsfield, Massachusetts.
Edward G. McCormick is a partner in the law firm of McCormick, Murtagh, Marcus
& Smith, located in Great Barrington, Massachusetts.
Catherine B. Miller is a former partner and vice-president of Wheeler &
Taylor, Inc., an insurance agency with offices in Stockbridge, Great Barrington
and Sheffield, Massachusetts.
Michael G. Miller has served as the President of South Mountain Products, a
food importer located in Pittsfield, Massachusetts since 1997. Mr. Miller was
retired from 1995 until 1997. Mr. Miller served as President and Chief
Executive Officer of EPC Holding, a newspaper publishing company located in
Pittsfield, Massachusetts prior to his two-year retirement.
Raymond B. Murray, III is vice president and co-owner of Ray Murray, Inc., a
regional wholesale equipment distributor for propane, natural and industrial gas
markets located in Lee, Massachusetts.
Louis J. Oggiani is an attorney with a private office in Great Barrington,
Massachusetts.
Robert S. Raser is the President of Carr Brothers Hardware Co, Inc. located in
Great Barrington, Massachusetts.
Corydon L. Thurston serves as executive vice president of Berkshire
Broadcasting, Inc., which owns and operates three radio stations in North Adams
and Great Barrington, Massachusetts.
Ann H. Trabulsi is a community volunteer serving on various not-for-profit
boards, including Berkshire Medical Center and Berkshire Health Systems.
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Robert A. Wells is Chairman of the Board of Berkshire Bank and Chairman of the
Board and Chief Executive Officer of Berkshire Bancorp. Mr. Wells served as
President and Chief Executive Officer of Berkshire County Savings Bank prior to
its merger with Great Barrington Savings Bank in May 1997.
William E. Williams is the President of W.E. Williams Paving, Inc., a company
located in West Stockbridge, Massachusetts, providing all types of excavating
and paving services throughout Berkshire County and surrounding areas.
Anne Everest Wojtkowski is a professor of engineering at Berkshire Community
College.
Executive Officers Who Are Not Directors
Michael P. Daly was named Executive Vice President and Senior Loan Officer in
December 1999. Before being named to these positions, Mr. Daly served as Senior
Vice President of Commercial Banking. Prior to the merger of Berkshire County
Savings Bank and Great Barrington Savings Bank, Mr. Daly was in charge of
commercial lending, consumer lending and operations.
Charles F. Plungis, Jr. has served as Senior Vice President and Treasurer with
both Great Barrington Savings Bank and Berkshire Bank. Mr. Plungis was
additionally named Chief Financial Officer in December 1999.
Susan M. Santora served as Senior Vice President in charge of branch
administration before being named Executive Vice President of Retail Banking in
December 1999. Prior to the merger, Ms. Santora was a vice president of Great
Barrington Savings Bank.
Meetings and Committees of the Board of Directors of Berkshire Bank and
Berkshire Hills
The business of Berkshire Bank is conducted through meetings and activities of
the Board of Directors and its committees. During the year ended December 31,
1999 the Board of Directors held 12 regular meetings and three special meetings.
The Board of Directors has established the following committees:
The Auditing Committee consists of Messrs. Gray, Raser and Williams. This
committee reviews Berkshire Bancorp's consolidated financial statements,
supervises the internal auditor and engages the external auditors. The
committee meets quarterly and met four times in 1999.
The Compensation Committee, which consists of Ms. Miller, Ms. Trabulsi and
Messrs. Murray and Thurston, is responsible for all matters regarding
compensation and fringe benefits for executive officers. This committee meets
as needed. The Committee was established by the Board of Directors in December
1999.
The CRA Committee, which consists of Messrs. Lafayette, McCormick and Ms.
Wojtkowski, monitors Berkshire Bank's compliance with the Community Reinvestment
Act of 1977, ensures that Berkshire Bank serves the various credit needs of
individuals and businesses in its delineated market area and reviews Berkshire
Bank's CRA examinations. The Committee meets quarterly and met four times in
1999.
The Executive Committee, which consists of Messrs. Cunningham, Murray,
Thurston, Wells, Ms. Miller and Ms. Trabulsi, reviews and approves certain loans
and evaluates issues of major importance between regularly scheduled board
meetings. The Committee meets bi-monthly and as necessary, and met 24 times in
1999.
The Trust Committee, which consists of Messrs. Andrews, Kittredge and Wells,
oversees Berkshire Bank's Asset Management/Trust Department activities. Such
oversight includes the review and approval of the department's policies, the
coordination of the annual audit and review of the department's examination
reports. The Committee meets monthly and met 12 times in 1999.
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The Board of Directors of Berkshire Hills has established the following
committees: the Audit Committee consisting of Messrs. Gray, Raser, Miller and
Williams; the Pricing Committee consisting of the entire Board of Directors of
Berkshire Hills; the Compensation Committee consisting of Messrs. Murray and
Thurston, Ms. Miller and Ms. Trabulsi; the Nominating Committee and the
Executive Committee, both consisting of Messrs. Cunningham, Murray, Thurston,
Wells, Ms. Miller and Ms. Trabulsi.
Directors' Compensation
Fees. Non-employee directors of Berkshire Bank currently receive an annual
retainer of $3,000 for membership on the Board of Directors and $5,000 for
membership on the Executive Committee of the Board of Directors. The Clerk of
Berkshire Bank receives an annual retainer of $500. In addition, non-employee
directors each receive $500 for each board meeting attended, $250 for each
Trust, Audit or CRA Committee meeting attended, and $500 for each Executive
Committee meeting attended. The meeting fee for attendance at Executive
Committee meetings is $250 if it immediately precedes a Board of Directors'
meeting. Following the conversion, non-employee directors of Berkshire Bank
will each receive an annual retainer of $7,500, and members of the Executive
Committee will receive an additional $1,500. In addition, non-employee
directors will receive $500 for each board meeting attended, $750 for each
Executive Committee meeting attended, $500 for each CRA or Audit Committee
meeting attended and $250 for each Trust Committee meeting attended.
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Executive Compensation
Summary Compensation Table. The following information is furnished for the
President and Chief Executive Officer and the four other highest paid executive
officers of Berkshire Bank who received a salary and bonus of $100,000 or more
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation(1)
-------------------------------------------------
Name and All Other
Position Year (2) Salary (3) Bonus Compensation
- --------------------- ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
James A. Cunningham, Jr. 1999 $260,400 $52,080 $266,699(4)
President and Chief Executive Officer
Robert A. Wells 1999 248,750 45,000 81,674(4)
Chairman of the Board
Susan M. Santora 1999 109,140 32,742 15,543(5)
Executive Vice President-Retail
Banking
Michael P. Daly 1999 116,601 23,320 12,582(5)
Executive Vice President-Senior
Loan Officer
Charles F. Plungis, Jr. 1999 110,775 22,155 16,197(5)
Senior Vice President, Treasurer
and Chief Financial Officer
</TABLE>
- -------------------------------------------
(1) Does not include the aggregate amount of perquisites and other benefits,
which was less than $50,000 or 10% of the total annual salary and bonus
reported.
(2) Compensation information for the 1998 and 1997 fiscal years has been omitted
because Berkshire Bank was neither a public company nor a subsidiary of a
public company at that time.
(3) Includes $23,750 of directors' fees for Mr. Wells.
(4) Consists of employer contributions to Berkshire Bank's 401(k) plan of
$4,800. Also consists of employer contributions of $261,899 and $76,874 to
Berkshire Bank's supplemental executive retirement plan for Messrs.
Cunningham and Wells, respectively.
(5) Consists of employer contributions of $3,274, $3,498 and $3,323 to Berkshire
Bank's 401(k) plan and employer service costs of $12,269, $9,084 and $12,874
to Berkshire Bank's defined benefit plan for Ms. Santora, Mr. Daly and Mr.
Plungis, respectively.
Employment Agreements. Berkshire Bank currently has employment agreements
with Messrs. Wells and Cunningham. However, upon the completion of the
conversion, Berkshire Bank and Berkshire Hills each intend to enter into new
employment agreements with Messrs. Wells and Cunningham, as well as with Messrs.
Daly, Plungis and Ms. Santora. The employment agreements are intended to ensure
that Berkshire Bank and Berkshire Hills will be able to maintain a stable and
competent management base after the conversion. The continued success of
Berkshire Bank and Berkshire Hills depends to a significant degree on the skills
and competence of officers.
The employment agreements will provide for a three-year term. The term of
the employment agreements will automatically extend on a daily basis unless
written notice of non-renewal is given by the Board of Directors of Berkshire
Hills or Berkshire Bank or by the executive. The employment agreements provide
that each executive's base salary will be reviewed annually. The base salaries
which will be effective for such employment agreements for Messrs. Cunningham,
Wells, Daly, and Plungis and Ms. Santora will be $320,000, $250,000, $139,250,
$140,750 and $125,510, respectively. In addition to the base salary, the
employment agreements provide for, among other things, participation in stock
and employee benefits plans and fringe benefits applicable to executive
personnel. The employment agreements provide for termination by Berkshire Bank
or Berkshire Hills for cause, as defined in the employment agreements, at any
time. If Berkshire Bank or Berkshire Hills chooses to terminate an
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executive's employment for reasons other than for cause, or if an executive
resigns from Berkshire Bank or Berkshire Hills after a: (1) failure to re-elect
the executive to his/her current offices; (2) material change in the executive's
functions, duties or responsibilities; (3) relocation of the executive's
principal place of employment by more than 25 miles; (4) reduction in the
benefits and perquisites being provided to the executive in the employment
agreement; (5) liquidation or dissolution of Berkshire Bank or Berkshire Hills;
or (6) breach of the employment agreement by Berkshire Bank or Berkshire Hills,
the executive or, if the executive dies, his/her beneficiary, would be entitled
to receive an amount equal to the remaining base salary and incentive
compensation payments due to the executive for the remaining term of the
employment agreement and the contributions that would have been made on the
executive's behalf to any employee benefit plans of Berkshire Bank and Berkshire
Hills during the remaining term of the employment agreement. Berkshire Bank and
Berkshire Hills would also continue and/or pay for the executive's life, health,
dental and disability coverage for the remaining term of the employment
agreement. Upon termination of the executive for reasons other than a change in
control, the executive must adhere to a one year non-competition restriction.
Under the employment agreements, if voluntary (upon circumstances discussed
in the agreements) or involuntary termination follows a change in control of
Berkshire Bank or Berkshire Hills, the executive or, if the executive dies,
his/her beneficiary, would be entitled to a severance payment equal to the
greater of: (1) the payments due for the remaining terms of the agreement; or
(2) three times the average of the executive's compensation (as described in the
agreements) for the five preceding taxable years. Berkshire Bank and Berkshire
Hills would also continue the executive's life, health, and disability coverage
for thirty-six months. Even though both Berkshire Bank and Berkshire Hills
employment agreements provide for a severance payment if a change in control
occurs, the executive would only be entitled to receive a severance payment
under one agreement. The executive would also be entitled to receive an
additional tax indemnification payment if payments under the employment
agreements or any other payments constituting "excess parachute payments"
trigger liability under the Internal Revenue Code of an excise tax. Under
applicable law, the excise tax is triggered by change in control-related
payments which equal or exceed three times the executive's average annual
compensation over the five taxable years preceding the change in control. The
excise tax equals 20% of the amount of the payment in excess of one times the
executive's average compensation over that preceding five-year period. If a
change in control of Berkshire Bank and Berkshire Hills occurred, the total
amount of payments due under the Agreements, based solely on the 1999 cash
compensation (and without regard to future base salary adjustments or bonuses
and excluding any benefits under any employee benefit plan which may be payable)
would be approximately $3.0 million.
Payments to the executive under Berkshire Bank's employment agreement will be
guaranteed by Berkshire Hills if payments or benefits are not paid by Berkshire
Bank. Payment under Berkshire Hills' employment agreement would be made by
Berkshire Hills. All reasonable costs and legal fees paid or incurred by the
executive in any dispute or question of interpretation relating to the
employment agreements will be paid by Berkshire Bank or Berkshire Hills,
respectively, if the executive is successful on the merits in a legal judgment,
arbitration or settlement. The employment agreements also provide that
Berkshire Bank and Berkshire Hills will indemnify the executive to the fullest
extent legally allowable.
Change in Control Agreements. Upon conversion, Berkshire Bank and Berkshire
Hills intend to enter into change in control agreements with six senior officers
who will not be covered by an employment agreement. Each change in control
agreement will be renewable on an annual basis. The change in control
agreements will have terms of three years. The change in control agreements
will provide that if voluntary (upon the occurrence of circumstances discussed
in the agreements) or involuntary termination follows a change in control of
Berkshire Bank or Berkshire Hills, the officers would be entitled to receive a
severance payment equal three times their average annual compensation (as
described in the agreements) for the five most recent taxable years. Berkshire
Bank would also continue to pay for the officers' life, health and disability
coverage for 36 months following termination. If a change in control of
Berkshire Bank and Berkshire Hills occurred, the total payments that would be
due under the change in control agreements, based solely on the current annual
compensation paid to the officers covered by the change in control agreements
and excluding any benefits under any employee benefit plan which may be payable,
would equal approximately $2.1 million.
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Benefits
General. Berkshire Bank currently pays 75% of the total costs of the medical
and health benefits for newly eligible employees and former employees of
Berkshire County Savings Bank. A greater portion is paid for grand-fathered
employees of Great Barrington Savings Bank. Berkshire Bank also pays 100% of
the total costs of dental insurance plans and 100% of premiums for life and
disability benefits for full-time employees.
Pension Plan. Berkshire Bank maintains a pension plan for its eligible
employees. Generally, employees of Berkshire Bank begin participation in the
pension plan once they reach age 21 and complete 1,000 hours of service in a
consecutive 12-month period. Participants in the pension plan becomes vested in
their accrued benefit under the pension plan upon the earlier of the: (1)
attainment of their "normal retirement age" (as described in the pension plan)
while employed at Berkshire Bank; (2) completion of three vesting years of
service with Berkshire Bank; or (3) death or disability of the participant.
Participants are generally credited with a vesting year of service for each year
in which they complete at least 1,000 hours of service.
A participant's normal benefit under the pension plan equals the sum of (1)
1.35% of the participant's average compensation (generally defined as the
average taxable compensation for the three consecutive limitation years that
produce the highest average) by the number of years of service the participant
has under the plan up to 25 years of service, plus (2) .6% of the excess of the
participant's average compensation over the participant's covered compensation
(the social security taxable wage base for the 35 years ending in the year the
participant becomes eligible for non-reduced social security benefits) for each
year of service under the plan up to 25 years of service. Participants may
retire at or after age 65 and receive their full benefit under the plan.
Participants may also retire early at age 62 or at age 55 with ten years of
service or at age 50 with 15 years of service under the plan and receive a
reduced retirement benefit. Pension benefits are payable in equal monthly
installments for life, or for married persons, as a joint survivor annuity over
the lives of the participant and spouse. Participants may also elect a lump sum
payment with the consent of their spouse. If a participant dies while employed
by Berkshire Bank, a death benefit will be payable to either his or her spouse
or estate, or named beneficiary, equal to the entire amount of the participant's
accrued benefit in the plan.
The following table indicates the annual employer-provided retirement
benefits that would be payable under the pension plan upon retirement at age 65
to a participant electing to receive his pension benefit in the standard form of
benefit, assuming various specified levels of plan compensation and various
specified years of credited service. Under the Internal Revenue Code, maximum
annual benefits under the pension plan are limited to $135,000 per year and
annual compensation for benefit calculation purposes is limited to $170,000 per
year for the 2000 calendar year.
<TABLE>
<CAPTION>
Years of Service
Average Annual --------------------------------------------------------------------------------
Compensation 10 15 20 25 30 35
- --------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 $ 3,375 $ 5,063 $ 6,750 $ 8,438 $ 8,438 $ 8,438
50,000 7,766 11,649 15,532 19,415 19,415 19,415
75,000 12,641 18,962 25,282 31,603 31,603 31,603
100,000 17,516 26,274 35,032 43,790 43,790 43,790
125,000 22,391 33,587 44,782 55,978 55,978 55,978
150,000 27,266 40,899 54,532 68,165 68,165 68,165
175,000 29,216 43,824 58,432 73,040 73,040 73,040
200,000 29,216 43,824 58,432 73,040 73,040 73,040
250,000 29,216 43,824 58,432 73,040 73,040 73,040
300,000 29,216 43,824 58,432 73,040 73,040 73,040
350,000 29,216 43,824 58,432 73,040 73,040 73,040
</TABLE>
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At October 31, 1999, which is the date of the most recent pension plan
statement, the pension plan's assets exceeded the benefit obligation by
approximately $5.0 million. The benefits listed on the table above, for the
pension plan are not subject to a deduction for Social Security benefits or any
other offset amount. As of January 1, 2000, Messrs. Cunningham, Wells, Daly,
Plungis and Ms. Santora had 27, 39, 14, 25 and 14 years of service,
respectively, for purposes of the pension plan.
Other Retirement Arrangements. Berkshire Bank has entered into a split-
dollar life insurance arrangement with Mr. Cunningham primarily to provide a
specified level of benefits upon Mr. Cunningham's retirement from Berkshire
Bank. Berkshire Bank has also entered into a separate agreement with Mr. Wells
to provide similar benefits. The arrangements were designed to provide Messrs.
Wells and Cunningham with an annual retirement benefit at age 60 equal to 70% of
the average of the three consecutive years during which each of the executive's
compensation is the highest. The determination of the total expected retirement
benefit consideration of the benefits the executives would receive under the
pension plan, the 401(k) plan, social security and certain life insurance
arrangements. Upon the executive's death, Berkshire Bank expects to recover all
of the premium payments it made with respect to the life insurance policies
purchased in connection with such arrangements.
Supplemental Executive Retirement Plan. Upon conversion, Berkshire Bank
intends to implement a supplemental executive retirement plan to provide for
supplemental retirement benefits with respect to the 401(k) plan and the
employee stock ownership plan; specifically benefits otherwise limited by other
provisions of the Internal Revenue Code or the terms of the employee stock
ownership plan loan (see below). Specifically, the plan will provide benefits
to eligible individuals (those designated by the Board of Directors of Berkshire
Bank or its affiliates) that cannot be provided under the 401(k) Plan and/or the
employee stock ownership plan as a result of the limitations imposed by the
Internal Revenue Code, but that would have been provided under the 401(k) Plan
and/or the employee stock ownership plan but for such limitations. In addition
to providing for benefits lost under tax-qualified plans as a result of
limitations imposed by the Internal Revenue Code, the new plan will also provide
supplemental benefits to designated individuals upon a change of control before
the complete scheduled repayment of the employee stock ownership plan loan.
Generally, upon such an event, the supplemental executive retirement plan will
provide the individual with a benefit equal to what the individual would have
received under the employee stock ownership plan had he remained employed
throughout the term of the employee stock ownership plan loan less the benefits
actually provided under the employee stock ownership plan on behalf of such
individual. An individual's benefits under the supplemental executive
retirement plan will generally become payable upon the change in control of
Berkshire Bank or Berkshire Hills. The Board of Directors intends to designate
Messrs. Cunningham and Wells as participants in the supplemental executive
retirement plan.
Berkshire Bank may utilize a grantor trust in connection with the
supplemental executive retirement plan in order to set funds aside with which to
ultimately pay benefits under the plan. The assets of the grantor trust would
be subject to the claims of Berkshire Bank's general creditors in the event of
Berkshire Bank's insolvency until paid to the individual according to the terms
of the supplemental executive retirement plans.
401(k) Plan. Berkshire Bank has implemented a 401(k) plan (the "401(k)
Plan"), a tax-qualified profit sharing plan with a qualified cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code for the benefit of
its eligible employees. The 401(k) Plan currently provides participants with
savings and retirement benefits based on employee deferrals of compensation, as
well as matching contributions made by Berkshire Bank. Eligible employees may
begin participating in the 401(k) Plan upon the completion of one year of
service (generally the completion of 1,000 hours of service during a twelve
consecutive month period) and attainment of age 21. Participants currently may
make pre-tax salary deferrals to the 401(k) Plan in amounts from 1% to 15% of
their total compensation, within a legally permissible limit ($10,500 for 2000).
Berkshire Bank makes a regular matching contribution equal to 100% of the
elective deferrals made by each participant up to 3% of a participant's eligible
compensation. This match is discretionary and may increase or decrease as
determined by Berkshire Bank. A participant is always 100% vested in his or her
account under the 401(k) Plan.
Currently, participants may invest their accounts under the 401(k) Plan in
eight investment vehicles with varying investment characteristics. Berkshire
Bank intends to add, as an investment option, an employer stock fund
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in which participants may invest a portion of their account balances primarily
in Berkshire Hills common stock within the limitations set forth in the 401(k)
Plan document. However, a participant's ability to acquire common stock in the
conversion will be based on his or her status as an eligible account holder.
Regardless of the source of funds, no eligible account holders may elect to
invest more than $250,000 in common stock.
Generally, distributions from the 401(k) Plan may commence upon a
participant's separation from service for any reason. However, participants may
request in-service distributions from the 401(k) Plan in the form of hardship
withdrawals and loans. Distributions from the 401(k) Plan generally must comply
with federal and state income taxes and distributions made before a participant
attains the required minimum age also may be subject to a federal excise tax.
Incentive Compensation Programs. The Board of Directors of Berkshire Bank
has approved an incentive compensation program for employees of Berkshire Bank
based on the Board's evaluation of the fiscal year's operating results. The
size of the available incentive compensation pool may not exceed 10% of the
monthly net operating income of Berkshire Bank. The maximum bonus under the
program is generally limited to either 10%, 15%, or 20% of a participant's base
salary, depending on the individual's job classifications; however, greater
bonuses may be paid under special circumstances.
Employee Stock Ownership Plan. Berkshire Bank's Board of Directors has
authorized the adoption of an employee stock ownership plan for employees of
Berkshire Bank to be effective upon the completion of the conversion. Eligible
employees who are age 21 and employed by Berkshire Bank on the conversion
effective date participate in the plan immediately. Thereafter, new employees
of Berkshire Hills and Berkshire Bank who have been credited with at least one
year of service and attain age 21 will be eligible to participate in the
employee stock ownership plan.
The employee stock ownership plan expects to acquire 8% of the shares issued
in the conversion or between 530,971 shares, assuming 6,637,140 shares are
issued in the conversion, and 718,372 shares assuming 8,979,660 shares are
issued in the conversion. If the number of shares to be issued in the conversion
is increased to 10,326,609 shares, the employee stock ownership plan expects to
acquire 826,128 shares. It is anticipated that the employee stock ownership
plan will borrow funds from a subsidiary to be established in connection with
the conversion or from a third-party lender to purchase the stock. The loan will
equal 100% of the aggregate purchase price of the common stock. The loan to the
employee stock ownership plan will be repaid from Berkshire Bank's contributions
to the employee stock ownership plan and, to a lesser extent, from dividends
payable on Berkshire Hills common stock held by the employee stock ownership
plan over the anticipated 15-year term of the loan. The interest rate for the
employee stock ownership plan loan is expected to be the prime rate as published
in The Wall Street Journal on the closing date of the conversion. See "Pro Forma
Data." If the employee stock ownership plan is unable to acquire 8% of the
common stock issued in the conversion through the offering, it is anticipated
that these additional shares will be acquired following the conversion through
open market purchases.
In any plan year, Berkshire Bank may make additional discretionary
contributions to the employee stock ownership plan for the benefit of plan
participants in either cash or shares of Berkshire Hills common stock, which may
be acquired through the purchase of outstanding shares in the market or from
individual stockholders or which constitute authorized but unissued shares or
shares held in treasury by Berkshire Hills. The timing, amount, and manner of
discretionary contributions will be affected by several factors, including
applicable regulatory policies, the requirements of applicable laws and
regulations, and market conditions.
Shares purchased by the employee stock ownership plan with the proceeds of
the loan will be held in a suspense account and released on a pro rata basis as
the loan is repaid. Discretionary contributions to the employee stock ownership
plan and shares released from the suspense account will be allocated among
participants on the basis of each participant's proportional share of total
compensation. Any forfeitures will be reallocated among the remaining plan
participants.
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Participants will vest in their accrued benefits under the employee stock
ownership plan upon the completion of five years of service with credit given
for prior service with Berkshire Bank. A participant is fully vested at
retirement, upon death or disability or upon termination of the employee stock
ownership plan. Benefits are distributable upon a participant's retirement,
death, disability, or termination of employment. Berkshire Bank's contributions
to the employee stock ownership plan are not fixed, so benefits payable under
the employee stock ownership plan cannot be estimated.
The Board of Directors of Berkshire Bank expects to appoint an independent
trustee for the employee stock ownership plan. The trustee votes all allocated
shares held in the employee stock ownership plan as instructed by the plan
participants and unallocated shares and allocated shares for which no
instructions are received are generally voted by the trustee in the same ratio
on any matter as those shares for which instructions are given.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan must meet the requirements of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations of the
Internal Revenue Service and the Department of Labor. Berkshire Bank intends to
request a determination letter from the Internal Revenue Service regarding the
tax-qualified status of the employee stock ownership plan. Berkshire Bank
expects to receive a favorable determination letter, but cannot guarantee it.
Employee Severance Compensation Plan. Berkshire Bank's Board of Directors
intends to adopt the Berkshire Bank Employee Severance Compensation Plan to
provide benefits to eligible employees upon a change in control of Berkshire
Hills or Berkshire Bank. Eligible employees are those with a minimum of one year
of service with Berkshire Bank. Generally, all eligible employees, other than
officers who will enter into separate employment or change in control agreements
with Berkshire Hills and Berkshire Bank, will be eligible to participate in the
severance plan. Under the severance plan, if a change in control of Berkshire
Hills or Berkshire Bank occurs, eligible employees who are terminated or who
terminate employment, but only upon the occurrence of events specified in the
severance plan, within 24 months of the effective date of a change in control
will be entitled to a payment equal to one month's compensation for each year of
service with Berkshire Bank with a maximum payment equal to 24 months of
compensation. Assuming that a change in control had occurred at December 31,
1999, and all eligible employees were terminated, the maximum aggregate payment
due under the severance plan would be approximately $12.0 million.
Stock-Based Incentive Plan. Following the conversion, the Board of Directors
of Berkshire Hills intends to adopt a stock-based incentive plan which will
provide for the granting of options to purchase common stock and restricted
stock awards, to eligible officers, employees, and directors of Berkshire Hills
and Berkshire Bank. If the stock-based incentive plan is adopted within one
year after conversion, applicable regulations require such plan to be approved
by a majority of Berkshire Hills' stockholders at a meeting of stockholders to
be held no earlier than six months after the completion of the conversion.
Under the stock-based incentive plan, Berkshire Hills intends to grant stock
options in an amount equal to 10% of the shares of common stock issued in the
conversion. The amount granted would range from 663,714 shares, assuming
6,637,140 shares are issued in the conversion to 897,966 shares, assuming
8,979,660 shares are issued in the conversion. If the number of shares to be
issued in the conversion is increased to 10,326,609, shares, the amount of
options granted would equal 1,032,660 shares. Additionally, Berkshire Hills
intends to grant stock awards in an amount equal to 4% of the shares of common
stock issued in the conversion. The amount granted would range from 265,485
shares, assuming 6,637,140 shares are issued in the conversion to 359,186
shares, assuming 8,979,660 shares are issued in the conversion. If the number
of shares to be issued in the conversion is increased to 10,326,609 shares, the
amount of awards granted would equal 413,064 shares. Any common stock awarded
under the stock-based incentive plan will be awarded at no cost to the
recipients. The plan may be funded through the purchase of common stock by a
trust established in connection with the stock-based incentive plan or
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from authorized but unissued shares. Berkshire Hills intends to appoint an
independent fiduciary to serve as trustee of a trust to be established in
connection with the stock-based incentive plan. If additional authorized but
unissued shares are acquired by the stock-based incentive plan after the
conversion, the interests of existing shareholders would be diluted. See "Pro
Forma Data."
The grants of stock options and stock awards will be designed to attract and
retain qualified personnel in key positions, provide officers and key employees
with a proprietary interest in Berkshire Hills as an incentive to contribute to
the success of Berkshire Hills and reward key employees for outstanding
performance. All employees of Berkshire Hills and its subsidiaries, including
Berkshire Bank, will be eligible to participate in the stock-based incentive
plan. It is expected that the committee administering the plan will determine
the terms of awards granted to officers and employees. The committee will also
determine whether stock options will be incentive or non-statutory stock
options, as defined below, the number of shares available for each stock option
and stock award, the exercise price of each non-statutory stock option, whether
stock options may be exercised by delivering other shares of common stock, and
when stock options become exercisable or stock awards vest. Only employees may
receive grants of incentive stock options. Therefore, under the stock-based
incentive plan, directors may receive only grants of non-statutory stock
options. If such plan is adopted within one year after conversion, applicable
regulations provide that no individual officer or employee of Berkshire Bank may
receive more than 25% of the stock options available under the stock-based
incentive plan (or any separate plan for officers and employees) and non-
employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the stock options available under the stock-based incentive plan
(or any separate plan for directors). Federal regulations also provide that no
individual officer or employee of Berkshire Bank may receive more than 25% of
the restricted stock awards available under the stock-based incentive plan (or
any separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the restricted
stock awards available under the stock-based incentive plan (or any separate
plan for directors).
The stock-based incentive plan will provide for the grant of: (1) stock
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code ("Incentive Stock Options"); and (2) stock options that do
not so qualify ("Non-Statutory Stock Options"). It is anticipated that all
stock options granted contemporaneously with stockholder approval of the stock-
based incentive plan will qualify as Incentive Stock Options to the extent
permitted under Section 422 of the Internal Revenue Code. Unless sooner
terminated, the stock-based incentive plan will be in effect for a period of ten
years from the earlier of adoption by the Berkshire Hills Board of Directors or
approval by Berkshire Hills stockholders. If the stockholders approve the Plan,
Berkshire Hills intends to grant stock options under the plan at an exercise
price equal to at least the fair market value of the underlying common stock on
the date of grant.
An individual will not be deemed to have received taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such option are not disposed of by the employee
for at least one year after the date the stock is received in connection with
the stock option exercise and two years after the date of grant of the stock
option (a "disqualifying disposition"). No compensation deduction will be
available to Berkshire Hills as a result of the grant or exercise of Incentive
Stock Options unless there has been a disqualifying disposition. In the case of
a Non-Statutory Stock Option and in the case of a disqualifying disposition of
an Incentive Stock Option, an individual will realize ordinary income upon
exercise of the stock option (or upon the disqualifying disposition) in an
amount equal to the amount by which the fair market value on the date of
exercise exceeds the exercise price of the option. The amount of any ordinary
income realized by an optionee upon the exercise of a Non-Statutory Stock Option
or due to a disqualifying disposition of an Incentive Stock Option will be a
deductible expense to Berkshire Hills for income tax purposes.
The stock-based incentive plan will provide for the granting of stock awards.
Grants of stock awards to officers and employees may be made in the form of base
grants and/or performance grants (the vesting of which would be contingent upon
performance goals established by the committee administering the plan). In
establishing any performance goals, the committee may utilize the annual
financial results of Berkshire Bank, actual performance of Berkshire Bank as
compared to targeted goals such as the ratio of Berkshire Bank's net worth to
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total assets, Berkshire Bank's return on average assets, or such other
performance standards as determined by the committee with the approval of the
Berkshire Hills Board of Directors.
When a participant becomes vested with respect to stock awards, the
participant will realize ordinary income equal to the fair market value of the
common stock at the time of vesting (unless the participant made an election
under Section 83(b) of the Internal Revenue Code). The amount of income
recognized by the participants will be a deductible expense for tax purposes for
Berkshire Hills. When restricted stock awards become vested and shares of
common stock are actually distributed to participants, the participants would
receive amounts equal to any accrued dividends with respect thereto. Before
vesting, recipients of stock awards may direct the voting of the shares awarded
to them. Shares not subject to grants and shares allocated subject to the
achievement of performance goals will be voted by the trustee in proportion to
the directions provided with respect to shares subject to grants. Vested shares
will be distributed to recipients as soon as practicable following the day on
which they vest.
The vesting periods for awards under the stock-based incentive plan will be
determined by the committee administering the plan. If the stock-based
incentive plan is adopted within one year after conversion, awards would become
vested and exercisable within the limits of applicable regulations, which such
regulations require that any awards begin vesting no earlier than one year from
the date of shareholder approval of the plan and, thereafter, vest at a rate of
no more than 20% per year and may not be accelerated except in the case of death
or disability. Stock options could be exercisable for three months following
the date on which the employee or director ceases to perform services for
Berkshire Bank or Berkshire Hills, except that if an employee or director dies
or becomes disabled, stock options accelerate and become fully vested and could
be exercisable for up to one year thereafter or such longer period as determined
by Berkshire Hills. In the case of death or disability, stock options may be
exercised for a period of 12 months. However, any Incentive Stock Options
exercised more than three months following the date the employee ceases to
perform services as an employee would be treated as a Non-Statutory Stock
Option. If the optionee continues to perform services as a director or
consultant on behalf of Berkshire Bank, Berkshire Hills or an affiliate after
retirement, unvested stock options would continue to vest in accordance with
their original vesting schedule until the optionee ceases to serve as a
consultant or director. If a participant dies, is disabled or retires,
Berkshire Hills, if requested by the optionee, or the optionee's beneficiary,
could elect, in exchange for vested options, to pay the optionee, or the
optionee's beneficiary if the optionee dies, the amount by which the fair market
value of the common stock exceeds the exercise price of the stock options on the
date of the employee's termination of employment.
Within the limits of any applicable regulatory requirements, the stock-based
incentive plan may be amended after the first anniversary date of the conversion
to provide for accelerated vesting of previously granted stock options or stock
awards if a change in control of Berkshire Hills or Berkshire Bank occurs. A
change in control would generally be considered to occur when a person or group
of persons acting in concert acquires beneficial ownership of 20% or more of any
class of equity security of Berkshire Hills or Berkshire Bank or if a tender or
exchange offer, merger or other form of business combination, sale of all or
substantially all of the assets of Berkshire Hills or Berkshire Bank or similar
transaction occurs or a contested election of directors which resulted in the
replacement of a majority of the Berkshire Hills Board of Directors by persons
not nominated by the directors in office before the contested election occurs.
Transactions with Related Persons
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In
addition, Massachusetts law regulates the granting of loans to officers and
directors of Berkshire Bank. Loans made to a director or executive officer in
excess of the greater of $25,000 or 5% of Berkshire Bank's capital and surplus
(up to a maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors.
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Berkshire Bank offers full-time non-officer employees who have completed
three months of employment and who satisfy the general underwriting standards of
Berkshire Bank, personal loans with interest rates of 1% below the current
interest rates in effect. If the individual leaves the employ of Berkshire
Bank, the loan rate increases to Berkshire Bank's current rate then in effect.
All other loans and all loans made to Berkshire Bank's officers and directors
are made on the same terms and conditions offered to the general public.
Berkshire Bank's policy provides that all loans made by Berkshire Bank to its
executive officers and directors be made in the ordinary course of business, on
substantially the same terms, including collateral, as those prevailing at the
time for comparable transactions with other persons and may not involve more
than the normal risk of collectibility or present other unfavorable features. As
of December 31, 1999, Berkshire Bank's executive officers and directors had
loans with outstanding balances totalling $3.9 million in the aggregate. All
such loans were made by Berkshire Bank in the ordinary course of business, with
no favorable terms and such loans do not involve more than the normal risk of
collectibility or present unfavorable features.
Berkshire Hills intends that all transactions in the future between it and
its executive officers, directors, holders of 10% or more of the shares of any
class of its common stock and affiliates thereof, will contain terms no less
favorable to Berkshire Hills than could have been obtained by it in arm's length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of Berkshire Hills not having any interest in the
transactions.
REGULATION AND SUPERVISION
General
As a savings bank chartered by the Commonwealth of Massachusetts, Berkshire
Bank is extensively regulated under state law with respect to many aspects of
its banking activities; this state regulation is administered by the
Massachusetts Banking Commissioner. In addition, as a bank whose deposits are
insured by the Federal Deposit Insurance Corporation through the Bank Insurance
Fund, Berkshire Bank must pay deposit insurance assessments and is examined and
supervised by the Federal Deposit Insurance Corporation. These laws and
regulations have been established primarily for the protection of depositors,
customers and borrowers of Berkshire Bank, not bank stockholders.
Berkshire Hills will also be required to file reports with, and otherwise
comply with the rules and regulations of, the Office of Thrift Supervision, the
Massachusetts Banking Commissioner and the Securities and Exchange Commission
under the federal securities laws. The following discussion of the laws and
regulations material to the operations of Berkshire Hills and Berkshire Bank is
a summary and is qualified in its entirety by reference to such laws and
regulations.
Berkshire Bank is and Berkshire Hills, as a savings and loan holding company,
will be extensively regulated and supervised. Regulations, which affect
Berkshire Bank on a daily basis, may be changed at any time, and the
interpretation of the relevant law and regulations may also change because of
new interpretations by the authorities who interpret those laws and regulations.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the Massachusetts Banking Commissioner, the State of
Massachusetts, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation or the Congress, could have a material impact on Berkshire Hills,
Berkshire Bank, its operations or the conversion.
Massachusetts Banking Laws and Supervision
Massachusetts savings banks are regulated and supervised by the Massachusetts
Banking Commissioner. The Massachusetts Banking Commissioner is required to
regularly examine each state-chartered bank. The approval of the Massachusetts
Banking Commissioner is required to establish or close branches, to merge with
another bank, to form a holding company, to issue stock or to undertake many
other activities. Any Massachusetts bank that does not operate in accordance
with the regulations, policies and directives of the Massachusetts Banking
Commissioner
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may be sanctioned. The Massachusetts Banking Commissioner may suspend or remove
directors, trustees or officers of a bank who have violated the law, conducted
a bank's business in a manner which is unsafe, unsound or contrary to the
depositors' interests, or been negligent in the performance of their duties.
All Massachusetts-chartered savings banks are required to be members of the
Mutual Savings Central Fund, Inc. and as such must pay its assessments. The
Mutual Savings Central Fund, Inc. maintains the Deposit Insurance Fund, a
private deposit insurer, which insures all deposits in member banks in excess of
FDIC deposit insurance limits. In addition, the Mutual Savings Central Fund,
Inc. acts as a source of liquidity to its members in supplying them with low-
cost funds, and purchasing qualifying obligations from them.
The powers which Massachusetts-chartered savings banks can exercise under
these laws are summarized below.
Lending Activities. A Massachusetts-chartered savings bank may make a wide
variety of mortgage loans. Fixed-rate loans, adjustable-rate loans, variable-
rate loans, participation loans, graduated payment loans, construction and
development loans, condominium and co-operative loans, second mortgage loans and
other types of loans may be made in accordance with applicable regulations.
Commercial loans may be made to corporations and other commercial enterprises
with or without security. Consumer and personal loans may also be made with or
without security. Loans to individual borrowers generally must be limited to 20%
of the total of a bank's capital accounts and stockholders' equity.
Investments Authorized. Massachusetts-chartered savings banks have broad
investment powers under Massachusetts law, including so-called "leeway"
authority for investments that are not otherwise specifically authorized. The
investment powers authorized under Massachusetts law are restricted by federal
law to permit, in general, only investments of the kinds that would be permitted
for national banks. Berkshire Bank has authority to invest in all of the classes
of loans and investments that are permitted by its existing loan and investment
policies.
Payment of Dividends. A savings bank may only pay dividends on its capital
stock if such payment would not impair the bank's capital stock and surplus
account. No dividends may be paid to stockholders of a bank if such dividends
would reduce stockholders' equity of the bank below the amount of the
liquidation account required by Massachusetts conversion regulations.
Parity Regulation. The Massachusetts regulation on parity with national banks
establishes procedures allowing state-chartered banks to exercise additional or
more flexible parallel powers granted to national banks under federal law which
are not otherwise permitted under state law. The procedures and requirements for
engaging in such activities range from an application process, expedited review
and notice process to activities requiring no application or notice whatsoever.
The applicable procedures and requirements vary according to the nature of the
activity to be engaged in and the capitalization of the bank. As of the date of
this prospectus, Berkshire Bank was eligible to engage in certain of the above-
referenced activities, within the limits of the applicable procedure and
requirements of Massachusetts regulation.
Federal Regulations
Capital Requirements. Under Federal Deposit Insurance Corporation
regulations, federally insured state-chartered banks that are not members of the
Federal Reserve System ("state non-member banks"), such as Berkshire Bank, are
required to comply with minimum leverage capital requirements. For an
institution determined by the Federal Deposit Insurance Corporation to not be
anticipating or experiencing significant growth and to be in general a strong
banking organization, rated composite 1 under the Uniform Financial Institutions
Ranking System (the rating system) established by the Federal Financial
Institutions Examination Council, the minimum capital leverage requirement is a
ratio of Tier 1 capital to total assets of 3%. For all other institutions, the
minimum leverage capital ratio is not less than 4%. Tier 1 capital is the sum of
common stockholders' equity, noncumulative perpetual preferred stock (including
any related surplus) and minority investments in certain subsidiaries, less
intangible assets (except for certain servicing rights and credit card
relationships).
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Berkshire Bank must also comply with the Federal Deposit Insurance
Corporation risk-based capital guidelines. The Federal Deposit Insurance
Corporation guidelines require state non-member banks to maintain certain levels
of regulatory capital in relation to regulatory risk-weighted assets. The ratio
of regulatory capital to regulatory risk-weighted assets is referred to as
Berkshire Bank's "risk-based capital ratio." Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk. For
example, under the Federal Deposit Insurance Corporation's risk-weighting
system, cash and securities backed by the full faith and credit of the U.S.
Government are given a 0% risk weight, loans secured by one- to four-family
residential properties generally have a 50% risk weight and commercial loans
have a risk weighting of 100%.
State non-member banks must maintain a minimum ratio of total capital to
risk-weighted assets of at least 8%, of which at least one-half must be Tier 1
capital. Total capital consists of Tier 1 capital plus Tier 2 or supplementary
capital items, which include allowances for loan losses in an amount of up to
1.25% of risk-weighted assets, cumulative preferred stock, a portion of the net
unrealized gain on equity securities and other capital instruments. The
includable amount of Tier 2 capital cannot exceed the amount of the
institution's Tier 1 capital.
The Federal Deposit Insurance Corporation Improvement Act required each
federal banking agency to revise its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of interest-
rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as to reflect the actual performance and expected risk of
loss on multi-family residential loans. The Federal Deposit Insurance
Corporation, along with the other federal banking agencies, has adopted a
regulation providing that the agencies will take into account the exposure of a
bank's capital and economic value to changes in interest rate risk in assessing
a bank's capital adequacy. See "Historical and Pro Forma Regulatory Capital
Compliance."
As a savings and loan holding company regulated by the Office of Thrift
Supervision, Berkshire Hills will not, under current law, be subject to any
separate regulatory capital requirements.
Standards for Safety and Soundness. As required by statute, the federal
banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness to implement safety and
soundness standards. The guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
guidelines address internal controls and information systems, internal audit
system, credit underwriting, loan documentation, interest rate risk exposure,
asset growth, asset quality, earnings and compensation, and fees and benefits.
If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard.
Investment Activities
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act, all state-chartered Federal Deposit Insurance Corporation
insured banks, including savings banks, have generally been limited to
activities as principal and equity investments of the type and in the amount
authorized for national banks, notwithstanding state law. The Federal Deposit
Insurance Corporation Improvement Act and the Federal Deposit Insurance
Corporation permit exceptions to these limitations. For example, state
chartered banks, such as Berkshire Bank, may, with Federal Deposit Insurance
Corporation approval, continue to exercise state authority to invest in common
or preferred stocks listed on a national securities exchange or the Nasdaq
National Market and in the shares of an investment company registered under the
Investment Company Act of 1940, as amended. In addition, the Federal Deposit
Insurance Corporation is authorized to permit such institutions to engage in
state authorized activities or investments that do not meet this standard (other
than non-subsidiary equity investments) for institutions that meet all
applicable capital requirements if it is determined that such activities or
investments do not pose a significant risk to the Bank Insurance Fund. The
Federal Deposit Insurance Corporation has recently adopted revisions to its
regulations governing the procedures for institutions seeking approval to engage
in such activities or
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investments. These revisions, among other things, streamline the application
procedures for healthy banks and impose quantitative and qualitative
restrictions on a bank's dealings with its subsidiaries engaged in activities
not permitted for national bank subsidiaries. All non-subsidiary equity
investments, unless otherwise authorized or approved by the Federal Deposit
Insurance Corporation, must have been divested by December 19, 1996, under a
Federal Deposit Insurance Corporation-approved divestiture plan, unless such
investments were grandfathered by the Federal Deposit Insurance Corporation.
Berkshire Bank received grandfathered authority from the Federal Deposit
Insurance Corporation in February 1993 to invest in listed stocks and/or
registered shares. However, the maximum permissible investment is 100% of Tier 1
capital, as specified by the Federal Deposit Insurance Corporation's
regulations, or the maximum amount permitted by Massachusetts law, whichever is
less. The Federal Deposit Insurance Corporation also required that Berkshire
Bank provide prior notice to the agency if it increases the holdings of listed
stock and/or registered shares as a percentage of Tier 1 equity capital by 25%.
Such grandfathered authority may be terminated upon the Federal Deposit
Insurance Corporation's determination that such investments pose a safety and
soundness risk to Berkshire Bank or if Berkshire Bank converts its charter,
other than a mutual to stock conversion, or undergoes a change in control. As of
December 31, 1999, Berkshire Bank had securities with a market value of $44.3
million which were held under such grandfathering authority. See "Business of
Berkshire Bank--Investment Activities."
Interstate Branching
Until recently, branching across state lines was generally not available to
a state bank such as Berkshire Bank. Out-of-state branches of banking
institutions are authorized under the Massachusetts Banking Law, but similar
authority did not exist generally under the laws of most other states.
Beginning June 1, 1997, the Interstate Banking Act permitted the responsible
federal banking agencies to approve merger transactions between banks located in
different states, regardless of whether the merger would be prohibited under the
law of the two states. The Interstate Banking Act also permitted a state to
"opt in" to the provisions of the Interstate Banking Act before June 1, 1997,
and permitted a state to "opt out" of the provisions of the Interstate Banking
Act by adopting appropriate legislation before that date. Accordingly,
beginning June 1, 1997, the Interstate Banking Act permitted a bank, such as
Berkshire Bank, to acquire an institution by merger in a state other than
Massachusetts unless the other state had opted out of the Interstate Banking
Act. The Interstate Banking Act also authorizes de novo branching into another
state if the host state enacts a law expressly permitting out of state banks to
establish such branches within its borders.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The Federal Deposit Insurance Corporation has adopted regulations to
implement the prompt corrective action legislation. An institution is deemed to
be "well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio
of 5% or greater. An institution is "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is "undercapitalized" if it has a total risk-based capital ratio of less than
8%, a Tier 1 risk-based capital ratio of less than 4%, or generally a leverage
ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is considered to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%. As of December 31, 1999, Berkshire Bank was a
"well capitalized" institution and immediately upon completion of the Conversion
expects to remain a "well capitalized" institution.
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"Undercapitalized" banks must adhere to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institution in an
amount equal to the lesser of 5% of the institution's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" bank fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks must comply with one or more of a number of additional
restrictions, including but not limited to an order by the Federal Deposit
Insurance Corporation to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks or dismiss directors or officers, and restrictions on
interest rates paid on deposits, compensation of executive officers and capital
distributions by the parent holding company. "Critically undercapitalized"
institutions must comply with additional sanctions including, subject to a
narrow exception, the appointment of a receiver or conservator within 270 days
after it obtains such status.
Transactions with Affiliates
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. In a holding company context, at a minimum, the parent holding company of
a savings bank and any companies which are controlled by such parent holding
company are affiliates of the savings bank. Generally, Section 23A limits the
extent to which the savings bank or its subsidiaries may engage in "covered
transactions" with any one affiliate to 10% of such savings bank's capital stock
and surplus, and contains an aggregate limit on all such transactions with all
affiliates to 20% of capital stock and surplus. The term "covered transaction"
includes, among other things, the making of loans or other extensions of credit
to an affiliate and the purchase of assets from an affiliate. Section 23A also
establishes specific collateral requirements for loans or extensions of credit
to, or guarantees, acceptances on letters of credit issued on behalf of an
affiliate. Section 23B requires that covered transactions and a broad list of
other specified transactions be on terms substantially the same, or no less
favorable, to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts an institution
with respect to loans to directors, executive officers, and principal
stockholders ("insiders"). Under Section 22(h), loans to insiders and their
related interests may not exceed, together with all other outstanding loans to
such persons and affiliated entities, the institution's total capital and
surplus. Loans to insiders above specified amounts must receive the prior
approval of the board of directors. Further, under Section 22(h), loans to
directors, executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons,
except that such insiders may receive preferential loans made under a benefit or
compensation program that is widely available to Berkshire Bank's employees and
does not give preference to the insider over the employees. Section 22(g) of
the Federal Reserve Act places additional limitations on loans to executive
officers.
Enforcement
The Federal Deposit Insurance Corporation has extensive enforcement
authority over insured savings banks, including Berkshire 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 unsafe or unsound practices.
The Federal Deposit Insurance Corporation has authority under Federal law
to appoint a conservator or receiver for an insured bank under limited
circumstances. The Federal Deposit Insurance Corporation is required, with
certain exceptions, to appoint a receiver or conservator for an insured state
non-member bank if that bank was "critically undercapitalized" on average during
the calendar quarter beginning 270 days after the date on which the institution
became "critically undercapitalized." See "--Prompt Corrective Regulatory
Action." The Federal Deposit Insurance Corporation may also appoint itself as
conservator or receiver for an insured state non-member institution under
specific circumstances on the basis of the institution's financial condition or
upon the occurrence of other events, including: (1) insolvency; (2) substantial
dissipation of assets or earnings through violations of law or unsafe
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or unsound practices; (3) existence of an unsafe or unsound condition to
transact business; and (4) insufficient capital, or the incurring of losses that
will deplete substantially all of the institution's capital with no reasonable
prospect of replenishment without federal assistance.
Insurance of Deposit Accounts
The Federal Deposit Insurance Corporation has adopted a risk-based
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the Federal Deposit
Insurance Corporation by the institution's primary federal regulator and
information which the Federal Deposit Insurance Corporation determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Assessment
rates for insurance fund deposits currently range from 0 basis points for the
strongest institution to 27 basis points for the weakest. Bank Insurance Fund
members are also required to assist in the repayment of bonds issued by the
Financing Corporation in the late 1980's to recapitalize the Federal Savings and
Loan Insurance Corporation. Bank Insurance Fund members had been assessed about
1.2 basis points, which is generally 20% of the amount charged Savings
Association Insurance Fund members. Effective January 1, 2000, full pro rata
sharing of the payments between Bank Insurance Fund and Savings Association
Insurance Fund members commenced. The Federal Deposit Insurance Corporation is
authorized to raise the assessment rates. The Federal Deposit Insurance
Corporation has exercised this authority several times in the past and may raise
insurance premiums in the future. If such action is taken by the Federal
Deposit Insurance Corporation, it could have an adverse effect on the earnings
of Berkshire Bank.
The Federal Deposit Insurance Corporation may terminate insurance of
deposits if it finds that the institution is in an unsafe or unsound condition
to continue operations, has engaged in unsafe or unsound practices, or has
violated any applicable law, regulation, rule, order or condition imposed by the
Federal Deposit Insurance Corporation. The management of Berkshire Bank does
not know of any practice, condition or violation that might lead to termination
of deposit insurance.
Federal Reserve System
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations currently require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $44.3 million or less (which may be adjusted by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $44.3
million, the reserve requirement is $1.33 million plus 10% (which may be
adjusted by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $44.3 million. The first $5.0
million of otherwise reservable balances (which may be adjusted by the Federal
Reserve Board) are exempted from the reserve requirements. Berkshire Bank is in
compliance with these requirements.
Community Reinvestment Act
Under the Community Reinvestment Act, as implemented by Federal Deposit
Insurance Corporation regulations, a state non-member bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act neither establishes specific
lending requirements or programs for financial institutions nor limits an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community. The Community
Reinvestment Act requires the Federal Deposit Insurance Corporation, in
connection with its examination of an institution, to assess the institution's
record of meeting the credit needs of its community and to consider such record
when it evaluates applications made by such institution.
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The Community Reinvestment Act requires public disclosure of an institution's
Community Reinvestment Act rating. Berkshire Bank's latest Community
Reinvestment Act rating, received from the Federal Deposit Insurance Corporation
was "Outstanding."
Federal Home Loan Bank System
Berkshire Bank is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Berkshire
Bank, as a member of the Federal Home Loan Bank of Boston, is required to
acquire and hold shares of capital stock in the Federal Home Loan Bank of Boston
in an amount at least equal to 1% of the aggregate principal amount of its
unpaid residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank
of Boston, whichever is greater. Berkshire Bank was in compliance with this
requirement with an investment in Federal Home Loan Bank of Boston stock at
December 31, 1999 of $3.8 million. At December 31, 1999, Berkshire Bank had
$58.9 million in Federal Home Loan Bank of Boston advances.
The Federal Home Loan Banks are required to provide funds for certain
purposes including contributing funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal Home Loan
Banks pay to their members and result in the Federal Home Loan Banks imposing a
higher rate of interest on advances to their members. For the years ended 1999,
1998, 1997, 1996 and 1995, cash dividends from the Federal Home Loan Bank of
Boston to Berkshire Bank amounted to approximately $180,900, $163,600, $155,000,
$155,600 and $180,100, respectively. Further, there can be no assurance that
the impact of recent or future legislation on the Federal Home Loan Banks will
not also cause a decrease in the value of the Federal Home Loan Bank stock held
by Berkshire Bank.
Holding Company Regulation
Federal law allows a state savings bank that qualifies as a "Qualified
Thrift Lender," discussed below, to elect to be treated as a savings association
for purposes of the savings and loan holding company provisions of the Home
Owners' Loan Act. Such election allows its holding company to be regulated as a
savings and loan holding company by the Office of Thrift Supervision rather than
as a bank holding company by the Federal Reserve Board. Berkshire Bank has made
such election and expects Berkshire Hills to receive approval from the Office of
Thrift Supervision to become a savings and loan holding company. Berkshire
Hills will be regulated as a savings and loan holding company within the meaning
of the Home Owners' Loan Act. As such, Berkshire Hills will be required to
register with the Office of Thrift Supervision and will have to adhere to the
Office of Thrift Supervision's regulations and reporting requirements. In
addition, the Office of Thrift Supervision may examine and supervise Berkshire
Hills and the Office of Thrift Supervision has enforcement authority over
Berkshire Hills and its non-savings institution subsidiaries. Among other
things, this authority permits the Office of Thrift Supervision to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. Additionally, Berkshire Bank will be required to notify
the Office of Thrift Supervision at least 30 days before declaring any dividend
to Berkshire Hills. By regulation, the Office of Thrift Supervision may
restrict or prohibit Berkshire Bank from paying dividends.
Berkshire Hills will be a unitary savings and loan holding company under
federal law because Berkshire Bank will be its only insured subsidiary
immediately after the conversion. Formerly, a unitary savings and loan holding
company was not restricted as to the types of business activities in which it
could engage, provided that its subsidiary savings association continued to be a
qualified thrift lender. The Gramm-Leach-Bliley Act of 1999, however, restricts
unitary savings and loan holding companies not existing or applied for before
May 4, 1999 to activities permissible for a financial holding company as defined
under the legislation, including insurance and securities activities, and those
permitted for a multiple savings and loan holding company as described below.
Berkshire Hills will be subject to these activities restrictions. Upon any non-
supervisory acquisition by Berkshire Hills of another savings association as a
separate subsidiary, Berkshire Hills would become a multiple savings and loan
holding company. The Home Owners' Loan Act limits the activities of a multiple
savings and loan holding
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company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, provided the prior approval of the Office of Thrift Supervision is
obtained, and to other activities authorized by Office of Thrift Supervision
regulation. Multiple savings and loan holding companies are generally prohibited
from acquiring or retaining more than 5% of a non-subsidiary company engaged in
activities other than those permitted by the Home Owners' Loan Act. See "Risk
Factors--Banking reform legislation restricts the activities in which Berkshire
Hills may engage compared to existing unitary holding companies."
The Home Owners' Loan Act prohibits a savings and loan holding company
from, directly or indirectly, acquiring more than 5% of the voting stock of
another savings association or savings and loan holding company or from
acquiring such an institution or company by merger, consolidation or purchase of
its assets, without prior written approval of the Office of Thrift Supervision.
In evaluating applications by holding companies to acquire savings associations,
the Office of Thrift Supervision considers the financial and managerial
resources and future prospects of Berkshire Hills and the institution involved,
the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, except: (1) interstate
supervisory acquisitions by savings and loan holding companies; and (2) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions.
To be regulated as a savings and loan holding company by the Office of
Thrift Supervision (rather than as a bank holding company by the Federal Reserve
Board), Berkshire Bank must qualify as a Qualified Thrift Lender. To qualify as
a Qualified Thrift Lender, Berkshire Bank must maintain compliance with the test
for a "domestic building and loan association," as defined in the Internal
Revenue Code, or with a Qualified Thrift Lender Test. Under the Qualified
Thrift Lender Test, a savings institution is required to maintain at least 65%
of its "portfolio assets" (total assets less: (1) specified liquid assets up to
20% of total assets; (2) intangibles, including goodwill; and (3) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. As of December 31, 1999 Berkshire Bank maintained in excess of
75% of its portfolio assets in qualified thrift investments.
Massachusetts Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in Massachusetts must comply with any regulation under the Massachusetts law.
The term "bank holding company," for the purposes of Massachusetts law, is
defined generally to include any company which, directly or indirectly, owns,
controls or holds with power to vote more than 25% of the voting stock of each
of two or more banking institutions, including commercial banks and state co-
operative banks, savings banks and savings and loan associations and national
banks, federal savings banks and federal savings and loan associations. In
general, a holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
Massachusetts law. Under Massachusetts law, the prior approval of the Board of
Bank Incorporation is required before: any company may become a bank holding
company; any bank holding company acquires direct or indirect ownership or
control of more than 5% of the voting stock of, or all or substantially all of
the assets of, a banking institution; or any bank holding company merges with
another bank holding company. Although Berkshire Hills will not be a bank
holding company for purposes of Massachusetts law upon the Effective Date of the
Conversion, any future acquisition of ownership, control, or the power to vote
25% or more of the voting stock of another banking institution or bank holding
company would cause it to become such. Berkshire Hills has no current plan or
arrangement to acquire ownership or control, directly or indirectly, of 25% or
more of the voting stock of another banking institution.
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Federal Securities Laws
Berkshire Hills has filed with the Securities and Exchange Commission a
registration statement under the Securities Act for the registration of the
common stock to be issued in the conversion. Upon completion of the conversion,
Berkshire Hills' common stock will be registered with the Securities and
Exchange Commission under the Exchange Act. Berkshire Hills will then have to
observe the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the common stock to
be issued in the conversion does not cover the resale of such shares. Shares of
the common stock purchased by persons who are not affiliates of Berkshire Hills
may be resold without registration. The resale restrictions of Rule 144 under
the Securities Act govern shares purchased by an affiliate of Berkshire Hills.
If Berkshire Hills meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of Berkshire Hills who complies with
the other conditions of Rule 144 (including those that require the affiliate's
sale to be aggregated with those of other persons) would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (1) 1% of the outstanding shares of Berkshire
Hills or (2) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by Berkshire
Hills to permit affiliates to have their shares registered for sale under the
Securities Act under specific circumstances.
FEDERAL AND STATE TAXATION ON INCOME
Federal Income Taxation
General. Berkshire Hills and Berkshire Bank intend to report their income
on a calendar year basis using the accrual method of accounting. The federal
income tax laws apply to Berkshire Hills and Berkshire Bank in the same manner
as to other corporations with some exceptions, including particularly Berkshire
Bank's reserve for bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to Berkshire Bank or Berkshire Hills.
Berkshire Bank's federal income tax returns have been either audited or closed
under the statute of limitations through tax year 1995. For its 1998 tax year,
Berkshire Bank's maximum federal income tax rate was 35%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code of 1986, as amended, were permitted to
use certain favorable provisions to calculate their deductions from taxable
income for annual additions to their bad debt reserve. A reserve could be
established for bad debts on qualifying real property loans, generally secured
by interests in real property improved or to be improved, under the percentage
of taxable income method or the experience method. The reserve for
nonqualifying loans was computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $844,000 of Berkshire Bank accumulated bad debt reserves would not
be recaptured into taxable income unless Berkshire Bank makes a "non-dividend
distribution" to Berkshire Hills as described below.
Distributions. If Berkshire Bank makes "non-dividend distributions" to
Berkshire Hills, they will be considered to have been made from Berkshire Bank's
unrecaptured tax bad debt reserves, including the balance of its reserves as of
December 31, 1987, to the extent of the "non-dividend distributions," and then
from Berkshire Bank's supplemental reserve for losses on loans, to the extent of
those reserves, and an amount based on the amount distributed, but not more than
the amount of those reserves, will be included in Berkshire Bank's taxable
income. Non-dividend distributions include distributions in excess of Berkshire
Bank's current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, and distributions in
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partial or complete liquidation. Dividends paid out of Berkshire Bank's current
or accumulated earnings and profits will not be so included in Berkshire Bank's
taxable income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Berkshire Bank makes a non-dividend
distribution to Berkshire Hills, approximately one and one-half times the amount
of the distribution not in excess of the amount of the reserves would be
includable in income for federal income tax purposes, assuming a 35% federal
corporate income tax rate. Berkshire Bank does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
State Taxation
Massachusetts Taxation. Before July 1995, Massachusetts savings banks had
to pay an annual Massachusetts excise (income) tax equal to 12.54% of its pre-
tax income. In 1995, legislation was enacted to reduce the Massachusetts bank
excise (income) tax rate and to allow Massachusetts-based financial institutions
to apportion income earned in other states. Further, this legislation expands
the applicability of the tax to non-bank entities and out-of-state financial
institutions. The Massachusetts excise tax rate for savings banks is currently
10.5% of federal taxable income, adjusted for certain items. Taxable income
includes gross income as defined under the Internal Revenue Code, plus interest
from bonds, notes and evidences of indebtedness of any state, including
Massachusetts, less deductions, but not the credits, allowable under the
provisions of the Internal Revenue Code. Carryforwards and carrybacks of net
operating losses are not allowed.
A financial institution or business corporation is generally entitled to
special tax treatment as a "security corporation," provided that: (a) its
activities are limited to buying, selling, dealing in or holding securities on
its own behalf and not as a broker; and (b) it has applied for, and received,
classification as a "security corporation" by the Commissioner of the
Massachusetts Department of Revenue. A security corporation that is also a bank
holding company under the Code must pay a tax equal to 0.33% of its gross
income. A security corporation that is not a bank holding company under the
Code must pay a tax equal to 1.32% of its gross income. Berkshire Bank has
received an opinion from Wolf & Company, P.C. that Berkshire Hills' ownership of
100% of the stock the subsidiary established to lend funds to the employee stock
ownership plan by Berkshire Hills will not prevent Berkshire Hills from
qualifying as a security corporation, provided that Berkshire Hills: (a) applies
for, and receives, security corporation classification by the Massachusetts
Department of Revenue; and (b) does not conduct any activities deemed
impermissible under the governing statutes and the various regulations,
directives, letter rulings and administrative pronouncements issued by the
Massachusetts Department of Revenue.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, Berkshire Hills is exempted from Delaware Corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
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SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table presents certain information as to the approximate
purchases of common stock by each director and executive officer of Berkshire
Bank, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Directors and
executive officers and their associates may not purchase more than 30% of the
shares sold in the conversion. For purposes of the following table, sufficient
shares are assumed to be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Percent of Percent of
Anticipated Anticipated Shares at Shares at
Number of Dollar Minimum Maximum
Shares to be Amount to be of Estimated of Estimated
Name Purchased (1) Purchased (1) Valuation Range Valuation Range
- ---- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Thomas O. Andrews........................ 25,000 $ 250,000(2) 0.41% 0.30%
James A. Cunningham, Jr.................. 25,000 250,000(2) 0.41 0.30
Thomas R. Dawson......................... 6,500 65,000 0.11 0.08
Henry D. Granger......................... 5,000 50,000 0.08 0.06
A. Allen Gray............................ 15,000 150,000 0.24 0.18
John Kittredge........................... 2,000 20,000 0.03 0.02
Peter J. Lafayette....................... 6,000 60,000 0.10 0.07
Edward G. McCormick...................... 10,000 100,000 0.16 0.12
Catherine B. Miller...................... 10,000 100,000 0.16 0.12
Michael G. Miller........................ 25,000 250,000(2) 0.41 0.30
Raymond B. Murray, III................... 12,500 125,000 0.20 0.15
Louis J. Oggiani......................... 2,500 25,000 0.04 0.03
Robert S. Raser.......................... 1,500 15,000 0.02 0.02
Corydon L. Thurston...................... 5,000 50,000 0.08 0.06
Ann H. Trabulsi.......................... 10,000 100,000 0.16 0.12
Robert A. Wells.......................... 25,000 250,000(2) 0.41 0.30
William E. Williams...................... 7,000 70,000 0.11 0.08
Anne Everest Wojtkowski.................. 2,000 20,000 0.03 0.02
Michael P. Daly.......................... 10,000 100,000 0.16 0.12
Charles F. Plungis, Jr................... 2,000 20,000 0.03 0.02
Susan M. Santora......................... 1,500 15,000 0.02 0.02
------- ---------- ---- ----
All Directors and Executive Officers
as a group (21 persons) (3)........... 208,500 $2,085,000 3.37% 2.49%
======= ========== ==== ====
</TABLE>
_____________________________
(1) Includes proposed purchases with funds contained in the individual's 401(k)
plan account. Does not include shares to be awarded under the employee
stock ownership plan and stock-based incentive plan or options to acquire
shares under the stock-based incentive plan.
(2) Such amount represents the maximum allowable purchase for such individual.
(3) Including the effect of shares issued to Berkshire Hills Foundation, the
aggregate beneficial ownership of all directors and executive officers as a
group would be 3.14% and 2.32% at the minimum and maximum of the estimated
valuation range, respectively.
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THE CONVERSION
The Board of Trustees of Berkshire Bancorp, the Board of Directors of
Berkshire Bank, the Massachusetts Banking Commissioner and Berkshire Bancorp's
corporators have approved the Plan of Conversion subject to the satisfaction of
certain other conditions. However, any approvals by the Massachusetts Banking
Commissioner are not a recommendation or endorsement of the plan of conversion.
General
On October 22, 1999, the Board of Trustees of Berkshire Bancorp and the Board
of Directors of Berkshire Bank unanimously adopted the plan of conversion under
which Berkshire Bancorp will convert from the mutual holding company to the
stock holding company form. Following the conversion, Berkshire Bank will be
held as a wholly owned subsidiary of Berkshire Hills, a recently formed Delaware
corporation. The following discussion of the plan of conversion contains all
material terms about the conversion. Nevertheless, readers are urged to read
carefully the plan of conversion, which is available upon request. The plan of
conversion is also filed as an exhibit to the registration statement that
Berkshire Hills has filed with the Securities and Exchange Commission. See
"Where You Can Find More Information." The Massachusetts Banking Commissioner
has approved the plan of conversion, subject to certain conditions.
Additionally, Berkshire Hills' corporators approved the plan of conversion at a
special meeting called for that purpose on _________, 2000.
In connection with the conversion, Berkshire Bancorp will adopt Amended and
Restated Articles of Organization and Bylaws. As part of the conversion,
Berkshire Bank will issue all of its newly issued capital stock to Berkshire
Hills in exchange for 50% of the net proceeds from the sale of common stock by
Berkshire Hills in connection with the conversion. Berkshire Hills expects to
receive approval from the Office of Thrift Supervision to become a savings and
loan holding company and to acquire all of Berkshire Bank's capital stock issued
in the conversion.
The plan of conversion provides that the Board of Trustees of Berkshire
Bancorp and the Board of Directors of Berkshire Bank, at any time before the
completion of the conversion, may decide not to use the holding company form of
organization in implementing the conversion. This decision may be made to avoid
possible delays resulting from overlapping regulatory processing, or policies or
conditions, which could hurt the ability of Berkshire Bank's, Berkshire
Bancorp's or Berkshire Hills' ability to complete the conversion and transact
its business after the conversion as is contemplated and in accordance with
Berkshire Bank's operating policies. If such a decision is made, Berkshire
Hills will withdraw its registration statement from the Securities and Exchange
Commission and Berkshire Bank will take all steps necessary to complete the
conversion without Berkshire Hills, including filing any necessary documents.
In such event, if Berkshire Bank determines to complete the conversion, if
permitted by the Massachusetts Banking Commissioner, Berkshire Bank will issue
and sell its common stock and subscribers will be notified of the elimination of
Berkshire Hills and be permitted to affirm, modify or rescind their orders.
Subscribers will need to reconfirm their subscriptions before the end of the
resolicitation offering or their funds will be refunded with interest. The
following description of the plan of conversion assumes that a holding company
form of organization will be used in the conversion. If a holding company form
of organization is not used, all other pertinent terms of the plan of conversion
as described below will apply to the sale of Berkshire Bank's common stock.
The plan of conversion provides generally that: Berkshire Bancorp will
convert from a Massachusetts-chartered mutual holding company to an interim
stock bank and shall simultaneously combine or merge with and into Berkshire
Bank, with Berkshire Bank being the surviving entity. The shares of Berkshire
Bank's common stock currently held by Berkshire Bancorp will be extinguished.
Berkshire Hills has been organized for the purpose of acquiring all of the
outstanding shares of Berkshire Bank. The common stock of Berkshire Hills will
be offered in the subscription offering to persons having subscription rights;
if necessary, shares of common stock not subscribed for in the subscription
offering will be offered in a direct community offering to certain members of
the general public, with preference given to natural persons residing in
Berkshire County, Massachusetts, and then to certain members of the general
public in a syndicated community offering through a syndicate of registered
broker-
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dealers under selected dealer agreements. Berkshire Hills will purchase all of
the capital stock of Berkshire Bank to be issued in the conversion.
As part of the conversion, Berkshire Hills is offering its common stock in a
subscription offering to holders of subscription rights in the following order
of priority to: (1) holders of savings accounts with $50 or more on deposit as
of September 30, 1998; (2) holders of savings accounts of Berkshire Bank with
$50 or more on deposit as of September 30, 1999, except officers, directors,
trustees and corporators of Berkshire Bank and Berkshire Bancorp; (3) Berkshire
Bank's employee stock ownership plan; and (4) directors, trustees, officers and
employees of Berkshire Bank and Berkshire Bancorp without a higher subscription
priority.
Shares of common stock not subscribed for in the subscription offering are
expected to be offered for sale in a direct community offering. A direct
community offering, if one is held, may begin either at the same time as, during
or after the subscription offering. Shares of common stock not sold in the
subscription and direct community offerings may be offered in the syndicated
community offering which may occur either at the same time as, during or after
the subscription offering or direct community offering. Regulations require
that the direct community and syndicated community offerings be completed within
45 days after completion of the fully extended subscription offering unless
extended by Berkshire Bank or Berkshire Hills with the approval of all
applicable regulatory authorities. If the syndicated community offering is not
feasible, the Board of Directors of Berkshire Bank will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed shares of common stock, which may include a firm
commitment public offering. The plan of conversion provides that the conversion
must be completed within 24 months after the date of the approval of the plan of
conversion by the Board of Trustees of Berkshire Bancorp and the Board of
Directors of Berkshire Bank.
The completion of the offering, however, depends on market conditions and
other factors beyond Berkshire Bank's control. No assurance can be given as to
the length of time that will be required to complete the sale of the common
stock. If delays are experienced, significant changes may occur in the estimated
pro forma market value of Berkshire Hills and Berkshire Bank as converted,
together with corresponding changes in the net proceeds realized by Berkshire
Hills from the sale of the common stock. If the conversion is terminated,
Berkshire Bank would be required to charge all conversion expenses against
current income.
Orders for shares of common stock will not be filled until at least 6,145,500
shares of common stock have been subscribed for, the Massachusetts Banking
Commissioner and any other applicable bank regulatory authority approves the
final valuation and the conversion closes. Furthermore, the closing of the stock
offering and the completion of the conversion is subject to the receipt by
Berkshire Bank of approval from the Federal Deposit Insurance Corporation of its
merger with Berkshire Bancorp in its converted form as a Massachusetts-chartered
interim stock savings bank and to the receipt by Berkshire Hills of approval
from the Office of Thrift Supervision to acquire all of the stock of Berkshire
Bank. If the conversion is not completed within 45 days after the last day of
the fully extended subscription offering and the Massachusetts Banking
Commissioner and any other applicable bank regulatory authority consents to an
extension of time to complete the conversion, subscribers will be given the
right to increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they wish to continue
to subscribe for shares, the funds will be returned promptly, together with
accrued interest at Berkshire Bank's passbook rate from the date payment is
received until the funds are returned to the subscriber. If the period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at Berkshire Bank's passbook rate from the date
payment is received until the conversion is terminated.
Establishment of the Charitable Foundation
General. In furtherance of Berkshire Bank's commitment to its local
community, the plan of conversion provides for the establishment of a charitable
foundation in connection with the conversion. The plan of conversion provides
that Berkshire Bank and Berkshire Hills will establish Berkshire Hills
Foundation, and will fund it with Berkshire Hills common stock, as further
described below. Berkshire Hills and Berkshire Bank believe that the funding of
Berkshire Hills Foundation with Berkshire Hills common stock is a means of
establishing a common
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bond between Berkshire Bank and its community and thereby enables Berkshire
Bank's community to share in the potential growth and success of Berkshire Hills
over the long-term. By further enhancing Berkshire Bank's visibility and
reputation in its local community, Berkshire Bank believes that the foundation
will enhance the long-term value of Berkshire Bank's community banking
franchise.
Purpose of Berkshire Hills Foundation. Berkshire Bank emphasizes community
lending and community activities. In 1997, Berkshire Bank formed Greater
Berkshire Foundation, Inc., a foundation that provides grants to public
charities that are operated for charitable, scientific, literary or educational
purposes, within the communities in which Berkshire Bank serves. See "Business
of Berkshire Bank--Greater Berkshire Foundation, Inc."
Berkshire Hills Foundation is being formed to complement, not to replace
Berkshire Bank's existing community activities and its existing foundation's
activities. Berkshire Bank intends to continue to emphasize community lending
and community activities following the conversion. However, such activities are
not Berkshire Bank's sole corporate purpose. Berkshire Hills Foundation,
conversely, will be completely dedicated to community activities and the
promotion of charitable causes, and may be able to support such activities in
manners that are not presently available to Berkshire Bank. Berkshire Bank
believes that Berkshire Hills Foundation will enable Berkshire Hills and
Berkshire Bank to assist within the communities in which Berkshire Bank
maintains a banking office in areas beyond community development and lending and
will enhance its current activities under the CRA. Berkshire Bank received a
"Outstanding" CRA rating in its last CRA examination by the Federal Deposit
Insurance Corporation. and the Massachusetts Division of Banks.
The Board of Directors believes the establishment of Berkshire Hills
Foundation is consistent with Berkshire Bank's commitment to community service.
The Board further believes that the funding of Berkshire Hills Foundation with
Berkshire Hills common stock will allow Berkshire Bank's community to share in
the potential growth and success of Berkshire Hills long after the conversion.
Berkshire Hills Foundation will accomplish that goal by providing for continued
ties between it and Berkshire Bank, thereby forming a partnership within the
communities in which Berkshire Bank maintains a banking office.
Berkshire Bank, however, does not expect the contribution to Berkshire Hills
Foundation to take the place of Berkshire Bank's traditional community lending
and charitable activities. For the year ended 1999, Berkshire Bank and Greater
Berkshire Foundation, Inc. contributed $310,000 to community organizations.
Berkshire Bank and Greater Berkshire Foundation, Inc. expect to continue making
charitable contributions within its communities. Upon conversion, Berkshire
Hills intends to contribute to Berkshire Hills Foundation shares of its common
stock equal to 8% of the common stock sold in the conversion, or stock valued at
between approximately $4.9 million based on the purchase price of $10.00 per
share, if 6,145,500 shares are sold in the conversion and approximately $6.7
million, based on the purchase price of $10.00 per share if 8,314,500 shares are
sold in the conversion. If the number of shares sold in the conversion is
increased to 9,561,675 shares, the foundation would be funded with common stock
valued at $7.6 million. The conversion presents Berkshire Bank and Berkshire
Hills with a unique opportunity to provide a substantial and continuing benefit
to the communities in which Berkshire Bank maintains a banking office, and to
receive the associated tax benefits, without any significant cash outlay by
Berkshire Bank, and without any significant adverse impact to the depositors of
Berkshire Bank.
Structure of Berkshire Hills Foundation. Berkshire Hills Foundation will be
incorporated under Delaware law as a non-stock corporation. Under its Bylaws,
Berkshire Hills Foundation's Board of Directors will be comprised of individuals
that are existing or former directors or officers of Berkshire Hills or
Berkshire Bank. The Certificate of Incorporation of Berkshire Hills Foundation
will provide that the corporation is organized exclusively for charitable
purposes as set forth in Section 501(c)(3) of the Internal Revenue Code.
Berkshire Hills Foundation's Certificate of Incorporation will further provide
that no part of the net earnings of the foundation will inure to the benefit of,
or be distributable to, its directors, officers or members.
The Board of Directors of Berkshire Hills Foundation will be responsible for
establishing its grant and donation policies, consistent with the purposes for
which it was established. As directors of a nonprofit corporation, directors of
Berkshire Hills Foundation will at all times be bound by their fiduciary duty to
advance Berkshire Hills
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Foundation's charitable goals, to protect its assets and to act in a manner
consistent with the charitable purposes for which Berkshire Hills Foundation is
established. The directors of Berkshire Hills Foundation will also be
responsible for directing the activities of the foundation, including the
management and voting of the common stock of Berkshire Hills held by Berkshire
Hills Foundation. However, all shares of common stock held by Berkshire Hills
Foundation must be voted in the same ratio as all other shares of the common
stock on all proposals considered by stockholders of Berkshire Hills.
Berkshire Hills Foundation's place of business will be located at Berkshire
Hills' administrative offices. The Board of Directors of Berkshire Hills
Foundation will appoint such officers and employees as may be necessary to
manage its operations.
Berkshire Hills Foundation will receive working capital from: (1) any
dividends that may be paid on Berkshire Hills' common stock in the future; (2)
within the limits of applicable federal and state laws, loans collateralized by
the common stock; or (3) from the proceeds of the sale of any of the common
stock in the open market from time to time. As a private foundation under
Section 501(c)(3) of the Internal Revenue Code, Berkshire Hills Foundation will
be required to distribute annually in grants or donations, a minimum of 5% of
the average fair market value of its net investment assets. One of the
conditions imposed on the gift of common stock by Berkshire Hills is that the
amount of common stock that may be sold by Berkshire Hills Foundation in any one
year shall not exceed 5% of the average market value of the assets held by
Berkshire Hills Foundation, except where the Board of Directors of Berkshire
Hills Foundation determines that the failure to sell an amount of common stock
greater than such amount would result in a long-term reduction of the value of
its assets and/or would otherwise jeopardize its capacity to carry out its
charitable purposes. Upon completion of the conversion and the contribution of
shares to Berkshire Hills Foundation immediately following the conversion,
Berkshire Hills would have 6,637,140 and 8,979,660 shares issued and outstanding
at the minimum and maximum of the estimated valuation range. Because of the
gift of common stock to Berkshire Hills Foundation, Berkshire Hills will have an
increased number of shares outstanding and, therefore, the voting and ownership
interests of stockholders in Berkshire Hills will be diluted by 7.4%, compared
to their interests in Berkshire Hills if Berkshire Hills Foundation were not
established. For additional discussion of the dilutive effect, see "Pro Forma
Data."
Tax Considerations. Berkshire Hills and Berkshire Bank have been advised
by their independent tax advisors that an organization created for the above
purposes should qualify as a Section 501(c)(3) exempt organization under the
Internal Revenue Code and should be classified as a private foundation.
Berkshire Hills Foundation will submit a request to the Internal Revenue Service
to be recognized as an exempt organization. As long as Berkshire Hills
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the Internal Revenue Service approves the
application, its effective date as a Section 501(c)(3) organization will be the
date of its organization. Berkshire Hills' independent tax advisors, however,
have not rendered any advice on whether Berkshire Hills Foundation's tax exempt
status will be affected by the requirement of the regulatory authorities that
all shares of common stock of Berkshire Hills held by Berkshire Hills Foundation
must be voted in the same ratio as all other outstanding shares of common stock
of Berkshire Hills on all proposals considered by stockholders of Berkshire
Hills. See "--Regulatory Conditions Imposed on Berkshire Hills Foundation."
Under Delaware law, Berkshire Hills is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. Delaware case law provides that a
charitable gift must be within reasonable limits as to amount and purpose to be
valid. Berkshire Hills and Berkshire Bank believe that the conversion presents
a unique opportunity to establish and fund a charitable foundation given the
substantial amount of additional capital being raised. In making such a
determination, Berkshire Hills and Berkshire Bank considered the dilutive impact
of the contribution of common stock to Berkshire Hills Foundation on the amount
of common stock to be sold in the conversion. Berkshire Hills and Berkshire
Bank believe that the contribution to Berkshire Hills Foundation in excess of
the 10% annual limitation on charitable deductions described below is justified
given Berkshire Bank's capital position and its earnings, the substantial
additional capital being raised in the conversion and the potential benefits of
Berkshire Hills Foundation within the communities in which Berkshire Bank
maintains a banking office. See "Historical and Pro Forma Regulatory
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Capital Compliance," "Capitalization," and "Comparison of Independent Valuation
and Pro Forma Financial Information With and Without the Foundation." The amount
of the contribution will not adversely impact the financial condition of
Berkshire Hills and Berkshire Bank. Berkshire Hills and Berkshire Bank therefore
believe that the amount of the charitable contribution is reasonable given
Berkshire Hills' and Berkshire Bank's pro forma capital positions and does not
raise safety and soundness concerns.
Berkshire Hills and Berkshire Bank have received an opinion of their
independent tax advisors that Berkshire Hills' contribution of its stock to
Berkshire Hills Foundation should not constitute an act of self-dealing, and
that Berkshire Hills should be entitled to a deduction in the amount of the fair
market value of the stock at the time of the contribution less the nominal
amount that Berkshire Hills Foundation is required to pay Berkshire Hills for
such stock. Berkshire Hills is only permitted to deduct an amount equal to 10%
of its annual taxable income. Berkshire Hills is permitted under the Internal
Revenue Code to carry the excess contribution over the five year period
following the contribution to Berkshire Hills Foundation. Berkshire Hills
estimates that substantially all of the contribution should be deductible over
the six-year period. However, Berkshire Hills does not have any assurance that
the Internal Revenue Service will grant tax-exempt status to the foundation.
Furthermore, even if the contribution is deductible, Berkshire Hills may not
have sufficient earnings to be able to use the deduction in full. Neither
Berkshire Hills nor Berkshire Bank expect to make any further contributions to
Berkshire Hills Foundation or to Greater Berkshire Foundation, Inc. within the
first five years following the initial contribution, unless such contributions
would be deductible under the Internal Revenue Code. Any such decisions would
be based on an assessment of, among other factors, the financial condition of
Berkshire Hills and Berkshire Bank at that time, the interests of stockholders
and depositors of Berkshire Hills and Berkshire Bank, and the financial
condition and operations of Berkshire Hills Foundation.
Although Berkshire Hills and Berkshire Bank have received an opinion of
their independent tax advisors that Berkshire Hills should be entitled to a
deduction for the charitable contribution, there can be no assurances that the
Internal Revenue Service will recognize Berkshire Hills Foundation as a Section
501(c)(3) exempt organization or that the deduction will be permitted. In such
event, Berkshire Hills' contribution to Berkshire Hills Foundation would be
expensed without tax benefit, resulting in a reduction in earnings in the year
in which the Internal Revenue Service makes such a determination. See "Risk
Factors--Contribution to the Berkshire Hills Foundation may not be tax
deductible which could hurt Berkshire Hills' profits."
As a private foundation, earnings and gains, if any, from the sale of
common stock or other assets are exempt from federal and state income taxation.
However, investment income, such as interest, dividends and capital gains, is
generally taxed at a rate of 2.0%. Berkshire Hills Foundation will be required
to file an information return with the Internal Revenue Service within four and
one-half months after the close of its fiscal year. Berkshire Hills Foundation
will be required to make its annual information return available for public
inspection for a three-year period. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on Berkshire Hills Foundation. Establishment
of Berkshire Hills Foundation is expected to be subject to the following
conditions to be agreed to by Berkshire Hills Foundation as a condition to
receiving the Massachusetts Banking Commissioner's approval to the conversion:
1. the Massachusetts Division of Banks can examine the foundation;
2. the foundation must comply with all supervisory directives or
regulatory bulletins imposed by the Massachusetts Division of Banks;
3. the foundation will operate according to written policies adopted by
its board of directors, including a business plan and a conflict of
interest policy;
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4. the foundation will give a proposed operating plan to the
Massachusetts Division of Banks before the completion of the
conversion;
5. the foundation will provide annual reports to the Massachusetts
Division of Banks describing the grants made and the grant recipients;
6. the foundation shall not engage in self-dealing and shall comply with
all laws necessary to maintain its tax-exempt status under the
Internal Revenue Code; and
7. the foundation must vote its shares in the same ratio as all other
holders of shares.
Berkshire Hills Foundation will also need to comply with the requirement
that the establishment and funding of Berkshire Hills Foundation be approved by:
(1) a majority vote of Berkshire Bancorp's corporators present and voting at a
special meeting called for such purpose; and (2) the majority vote of all
"independent" corporators (who shall not constitute less than sixty percent
(60%) of all corporators eligible to vote) present and voting at a special
meeting called for such purpose.
Reasons for the Conversion
The Board of Directors and management believe that the conversion is in the
best interests of Berkshire Bank, its customers, employees and the communities
it serves. By converting to the stock holding company form of organization,
Berkshire Hills and Berkshire Bank will be structured in the form used by
holding companies of commercial banks, most business entities and by a growing
number of savings institutions. Management of Berkshire Bank believes that the
conversion offers a number of advantages which will be important to the future
growth and performance of Berkshire Bank. The capital raised in the conversion
is intended to support Berkshire Bank's future lending, operational growth and
to increase its ability to render services to the communities it serves. The
capital raised may also support possible future branching activities and the
acquisition of other financial institutions or financial service companies or
their assets. With the exception of the potential establishment of an insurance
agency, there are no current specific plans, arrangements or understandings,
written or oral, regarding these activities. The conversion is also expected to
afford Berkshire Bank's management, depositors and others the opportunity to
become stockholders of Berkshire Hills and participate more directly in, and
contribute to, any future growth of Berkshire Hills and Berkshire Bank. The
conversion will also enable Berkshire Hills and Berkshire Bank to raise
additional capital in the public equity or debt markets should the need arise,
although there are no current specific plans, arrangements or understandings,
written or oral, to do so.
Effects of Conversion to Stock Form
General. Each depositor in Berkshire Bank has both a deposit account in
the institution and a pro rata ownership interest in the net worth of the
institution through Berkshire Bancorp, based upon the balance in his or her
account, which interest may only be realized if the institution is liquidated.
However, this ownership interest is tied to the depositor's account and has no
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, Berkshire Bank's depositors would realize the value of their
ownership interest only in the unlikely event that the bank is liquidated. In
such event, the depositors of record at that time, as owners, would be able to
share in any residual surplus and reserves after the payment of creditors'
claims, including claims of depositors to the amounts of their deposits, are
paid.
When a mutual holding company converts to stock form, depositors lose all
rights to the net worth of the bank, except that eligible and supplemental
eligible account holders at the time of conversion obtain the right to
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claim a pro rata share of funds representing the liquidation account established
in connection with the conversion. Additionally, nonwithdrawable common stock is
created and offered to depositors which represents the ownership of the
institution's net worth. The common stock is separate and apart from deposit
accounts and cannot be and is not insured by the Federal Deposit Insurance
Corporation, the Mutual Savings Central Fund, Inc. or any other governmental
agency. Certificates are issued to evidence ownership of the common stock. The
stock certificates are transferable, and therefore the stock may be sold or
traded if a purchaser is available with no effect on any deposit account the
seller may hold in the institution.
No assets of Berkshire Hills or Berkshire Bank will be distributed in
connection with the conversion other than the payment of those expenses incurred
in connection with the conversion.
Continuity. While the conversion is being accomplished, the normal
business of Berkshire Bank will continue without interruption, including being
regulated by the Massachusetts Banking Commissioner and the Federal Deposit
Insurance Corporation. After conversion, Berkshire Bank will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.
The Directors of Berkshire Bank at the time of conversion will serve as
Directors of Berkshire Bank after the conversion. The Directors of Berkshire
Hills will be solely composed of individuals who served on the Board of
Directors of Berkshire Bank. All officers of Berkshire Bank at the time of
conversion will retain their positions after the conversion.
Savings Accounts and Loans. Berkshire Bank's savings accounts, account
balances and existing Federal Deposit Insurance Corporation and Mutual Savings
Central Fund, Inc. insurance coverage of savings accounts will not be affected
by the conversion. Furthermore, the conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with Berkshire Bank.
Effect on Voting Rights of Corporators. Berkshire Bancorp presently
maintains a governing board of 74 corporators. Generally, corporators consist
of depositors of Berkshire Bank who are residents of the communities served by
Berkshire Bank. Corporators are nominated by Berkshire Bancorp nominating
committee and elected by ballot at corporators' meetings. Generally,
corporators promote the goodwill of Berkshire Bank and, therefore, are
individuals who are successful in their occupations and respected in their
communities. Corporators also possess certain voting rights in Berkshire
Bancorp. Upon conversion, Berkshire Bancorp and its governing body of
corporators will no longer exist. Instead, Berkshire Hills, as the sole
stockholder of Berkshire Bank, will possess all voting rights in Berkshire Bank.
The holders of the common stock of Berkshire Hills will possess all voting
rights in Berkshire Hills.
Tax Effects. The conversion will be effected through a series of
contemporaneous transactions which result in Berkshire Bank becoming a wholly
owned subsidiary of Berkshire Hills. To facilitate the conversion, Berkshire
Bancorp will convert to an interim Massachusetts-chartered stock savings bank
and merge with and into Berkshire Bank. In connection with the merger, shares
of Berkshire Bank common stock previously held by Berkshire Bancorp will be
canceled. Berkshire Hills will then contribute 50% of the net offering proceeds
to Berkshire Bank in exchange for 100% of its common stock.
Berkshire Bank has received an opinion from Muldoon, Murphy & Faucette LLP,
Washington, D.C., that addresses the material federal income tax consequences of
the conversion. The opinion, which relies upon standard factual representations
given by Berkshire Bank, concludes, as follows:
1. The conversion of Berkshire Bancorp to a Massachusetts-chartered
interim savings bank will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code.
2. The merger of the interim savings bank and Berkshire Bank will
constitute a tax-free reorganization within the meaning of Section 368(a)(1)(A)
of the Internal Revenue Code.
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3. Berkshire Bancorp will not recognize any gain or loss on the transfer
of its assets to Berkshire Bank as a consequence of the merger of the interim
savings bank and Berkshire Bank in exchange for an interest in a liquidation
account established in Berkshire Bank for the benefit of eligible and
supplemental eligible account holders who hold a liquidation interest in
Berkshire Bancorp and who remain depositors of Berkshire Bank.
4. No gain or loss will be recognized by Berkshire Bank upon the receipt
of the assets of Berkshire Bancorp as a consequence of the merger of the interim
savings bank and Berkshire Bank in exchange for the transfer to the eligible and
supplemental eligible account holders who hold a liquidation interest in
Berkshire Bancorp of an interest in the liquidation account.
5. The basis of the assets of Berkshire Bancorp to be received by
Berkshire Bank as a consequence of the merger of the interim savings bank and
Berkshire Bank will be the same as the basis of such assets in the hands of
Berkshire Bancorp immediately prior to the transfer.
6. The holding period of the assets of Berkshire Bancorp to be received
by Berkshire Bank in connection with the merger of the interim savings bank and
Berkshire Bank will include the holding period of those assets in the hands of
Berkshire Bancorp.
7. An eligible or supplemental eligible account holder will recognize no
gain or loss upon the receipt of an interest in the liquidation account in
Berkshire Bank in exchange for the eligible and supplemental eligible account
holder's liquidation interest in Berkshire Bancorp.
8. Berkshire Hills will recognize no gain or loss upon the receipt of
cash in exchange for shares of common stock of Berkshire Hills issued in the
conversion offering.
9. Berkshire Hills will recognize no gain or loss upon the transfer of a
portion of the net offering proceeds to Berkshire Bank in exchange for common
stock of Berkshire Bank.
10. Berkshire Bank will recognize no gain or loss upon the receipt of a
portion of the net offering proceeds from Berkshire Hills in exchange for common
stock of Berkshire Bank.
11. Assuming that the subscription rights have no value, no gain or loss
will be recognized by Berkshire Hills or by eligible or supplemental eligible
account holders or other persons described in the plan of conversion who will
receive subscription rights as a result of the distribution of subscription
rights to purchase shares of common stock. Additionally, eligible or
supplemental eligible account holders or other persons shall not recognize gain
or loss upon the exercise of subscription rights to purchase shares of common
stock, provided that the amount to be paid for the common stock is equal to the
fair market value of the common stock on the date of purchase.
Unlike a private letter ruling issued by the Internal Revenue Service, an
opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
The opinions regarding the tax consequences of the receipt of subscription
rights are based upon past rulings of the Internal Revenue Service and the
conclusion of FinPro that such subscription rights have no fair market value.
FinPro, whose findings are not binding on the Internal Revenue Service, has
issued a letter indicating that the subscription rights do not have any value,
based on the fact that the rights are acquired by the recipients without cost,
are nontransferable and of short duration and afford the recipients the right
only to purchase shares of the common stock at a price equal to its estimated
fair market value, which will be the same price paid by purchasers in the direct
community offering for unsubscribed shares of common stock. If the subscription
rights are determined to have value, the receipt of the rights may only be
taxable to those persons who exercise their subscription rights. In such event,
Berkshire Hills or Berkshire Bank could also recognize a gain on the
distribution
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of subscription rights. Holders of subscription rights are encouraged to consult
with their own tax advisors as to the tax consequences if the subscription
rights are deemed to have any value.
Berkshire Bank has also received an opinion from Wolf & Company, P.C.,
Boston, Massachusetts, that, assuming the conversion does not result in any
federal income tax liability to Berkshire Bank, its account holders, Berkshire
Bancorp or Berkshire Hills, implementation of the plan of conversion will not
result in any Massachusetts income tax liability to those entities or persons.
The opinions of Muldoon, Murphy & Faucette LLP and Wolf & Company, P.C.,
and the opinion from FinPro relating to the value of the subscription rights,
are filed as exhibits to the registration statement that Berkshire Hills has
filed with the Securities and Exchange Commission. See "Where You Can Find More
Information."
Prospective investors are urged to consult with their own tax advisors
regarding the tax consequences of the conversion particular to them.
Liquidation Account. In the unlikely event of a complete liquidation of
Berkshire Bank before the conversion, each depositor in Berkshire Bank would
receive a pro rata share of any assets of Berkshire Bank remaining after payment
of claims of all creditors, including the claims of all depositors up to the
withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in Berkshire Bank at
the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in Berkshire Bank,
including certificates of deposit, will not be entitled to share in any residual
assets upon liquidation of Berkshire Bank. However, under the Massachusetts
conversion regulations, Berkshire Bank will, at the time of the conversion
establish a liquidation account in an amount equal to the amount of its net
worth as set forth in its latest statement of financial condition contained in
its final prospectus.
The liquidation account will be maintained by Berkshire Bank for the
benefit of eligible account holders and supplemental eligible account holders
who retain their deposit accounts in Berkshire Bank. Each eligible account
holder and supplemental eligible account holder will, with respect to each
deposit account held, have a related inchoate interest in a sub-account portion
of the liquidation account balance.
The initial subaccount balance for a deposit account held by an eligible
account holder or a supplemental eligible account holder will be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the holder's "qualifying deposit" in the
deposit account and the denominator is the total amount of the "qualifying
deposits" of all eligible or supplemental eligible account holders. The initial
subaccount balance shall not be increased, and it will be decreased as provided
below.
If the deposit balance in any deposit account of an eligible account holder
or supplemental eligible account holder at the close of business on any annual
closing day of Berkshire Bank after September 30, 1998 or September 30, 1999, is
less than the lesser of the deposit balance in such deposit account at the close
of business on any other annual fiscal year closing date after September 30,
1998 or September 30, 1999 or the amount of the "qualifying deposit" in such
deposit account on September 30, 1998 or September 30, 1999, then the subaccount
balance for such deposit account shall be adjusted by reducing the subaccount
balance in an amount proportionate to the reduction in the deposit balance. Once
reduced, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related deposit
account. If any deposit account is closed, the related subaccount balance shall
be reduced to zero.
Only upon a complete liquidation of Berkshire Bank, each eligible account
holder and supplemental eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for deposit account(s) held by the holder
before any
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liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of deposit account and other
liabilities or similar transactions in which Berkshire Bank is not the surviving
institution will be considered to be a complete liquidation. In any of these
transactions, the liquidation account will be assumed by the surviving
institution.
In the unlikely event Berkshire Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to Berkshire Hills as the sole stockholder of Berkshire Bank.
The liquidation account will be a memorandum account on the books of
Berkshire Bank and will not be reflected in the audited or unaudited
consolidated financial statements of Berkshire Hills or in Berkshire Bank's
regulatory reports.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. Under the plan of conversion, nontransferable
subscription rights to purchase the common stock in a subscription offering have
been issued to certain persons and entities. The amount of the common stock
which these parties may purchase will depend on the availability of the common
stock. Subscription priorities have been established for the allocation of stock
that may be available. These priorities are as follows:
Priority 1: Eligible Account Holders. Each depositor with a savings
account of $50 or more on deposit at Berkshire Bank as of September 30, 1998
will receive nontransferable subscription rights to subscribe for up to the
greater of: (1) $250,000 of common stock (such amount may be increased to 5.0%
of the common stock offered or decreased to 0.10% of the common stock offered
without the further approval of the corporators or resolicitation of
subscribers); (2) one-tenth of one percent (0.10%) of the total offering of
shares of common stock; or (3) fifteen times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of common
stock to be issued by a fraction of which the numerator is the amount of the
holder's "qualifying deposit" and the denominator is the total amount of
"qualifying deposits" of all eligible account holders. Nontransferable
subscription rights received by directors, trustees, corporators or officers of
Berkshire Bank and Berkshire Bancorp and their associates in this priority based
on any increased deposits in Berkshire Bank in the one-year period preceding
September 30, 1998 will be subordinated to all other subscription rights of
eligible account holders.
If the exercise of subscription rights in this priority results in an
oversubscription, shares of common stock will be allocated among subscribing
eligible account holders so as to permit each one, if possible, to purchase a
number of shares sufficient to make the person's total allocation equal 100
shares or the number of shares actually subscribed for, whichever is less.
After that, unallocated shares will be allocated proportionately, based on the
amount of the eligible account holder's qualifying deposits compared to total
qualifying deposits of all subscribing eligible account holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more eligible account holders, the excess shall be
reallocated, one or more times as necessary, among those eligible account
holders whose subscriptions are still not fully satisfied on the same principle
until all shares have been allocated or all subscriptions satisfied.
Priority 2: Supplemental Eligible Account Holders. To the extent there
are sufficient shares of common stock remaining after satisfying the
subscriptions of eligible account holders, each depositor with an account of $50
or more on deposit at Berkshire Bank as of September 30, 1999, will receive
nontransferable subscription rights to subscribe for up to the greater of: (1)
$250,000 of common stock (such amount may be increased to 5.0% of the common
stock offered or decreased to 0.10% of the common stock offered without the
further approval of the corporators or resolicitation of subscribers); (2) one
tenth of one percent (0.10%) of the total offering of shares of common stock; or
(3) fifteen times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of the holder's "qualifying
deposit" and the denominator is the total amount of "qualifying deposits" of all
supplemental eligible account holders.
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If the exercise of subscription rights in this priority results in an
oversubscription, shares of common stock will be allocated among subscribing
supplemental eligible account holders so as to permit each supplemental eligible
account holder, if possible, to purchase a number of shares sufficient to make
his or her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. After that, unallocated shares will be
allocated among subscribing supplemental eligible account holders
proportionately, based on the amount of their respective qualifying deposits
compared to total qualifying deposits of all subscribing 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 shares have been
allocated or all subscriptions satisfied.
Priority 3: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfying the subscriptions of eligible and
supplemental eligible account holders, the employee stock ownership plan will
receive nontransferable subscription rights to purchase up to 8% of common stock
issued in the conversion, or 530,971 and 718,372 shares at the minimum and
maximum of the estimated valuation range. If the plan's subscription is not
filled in its entirety, the employee stock ownership plan may purchase shares in
the open market or may purchase shares directly from Berkshire Hills. The
employee stock ownership plan shall not be deemed to be an associate or
affiliate of, or a person acting in concert with, any trustee, corporator,
director or officer of Berkshire Bancorp, Berkshire Bank or Berkshire Hills.
Subscriptions by the employee stock ownership plan will not be combined with any
other participants in the subscription and direct community offerings, including
purchases made by any of the trustees, directors, corporators, officers,
employees or associates of Berkshire Bancorp, Berkshire Bank or Berkshire Hills.
Priority 4: Directors, Trustees, Officers and Employees. To the extent
that shares are available after satisfying the subscriptions of eligible account
holders, supplemental eligible account holders and the employee stock ownership
plan, directors, trustees, officers and employees of Berkshire Bank and
Berkshire Bancorp shall be entitled to purchase up to 30% of the total offering
of shares of common stock. The shares shall be allocated among directors,
trustees, officers and employees on a fair basis such as by giving weight to the
period of service, compensation and position of the individual. Directors,
trustees, officers and employees of Berkshire Bank and Berkshire Bancorp shall
not be deemed to be associates or persons acting in concert solely as a result
of their board membership or employment.
Subscription rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for common stock in the subscription
offering or subscribing for common stock on behalf of another person may forfeit
those rights and may face possible further sanctions and penalties imposed by
the Massachusetts Division of Banks, the Federal Deposit Insurance Corporation
or another agency of the U.S. Government. Stock purchased in the subscription
offering must be registered in the name(s) of the registered account holder(s)
and failure to do so will result in the rejection of the order. Joint
registrations will be allowed only if the qualifying account is so registered.
Each person exercising subscription rights will be required to certify that he
or she is purchasing shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of the shares. Once tendered, subscription orders cannot be revoked without the
consent of Berkshire Bank and Berkshire Hills.
Berkshire Hills and Berkshire Bank will make reasonable attempts to provide
a prospectus and related offering materials to holders of subscription rights.
However, the subscription offering and all subscription rights under the plan of
conversion will expire at 12:00 Noon, Eastern time, on ___________, 2000,
whether or not Berkshire Bank has been able to locate each person entitled to
subscription rights. Orders for common stock in the subscription offering
received in hand by Berkshire Bank after that time will not be accepted. The
subscription offering may be extended by Berkshire Hills and Berkshire Bank up
to ________________, 2000 without regulatory approval. The Massachusetts
conversion regulations require that Berkshire Hills complete the sale of common
stock within 45 days after the close of the subscription offering, unless
extended by Berkshire Bank with the approval of the Massachusetts Commissioner
of Banks and any other applicable bank regulatory authority. If the direct
community offering and the syndicated community offerings are not completed
within that period all
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funds received will be promptly returned with interest at Berkshire Bank's
passbook rate and all withdrawal authorizations will be canceled. If regulatory
approval of an extension of the time period has been granted, all subscribers
will be notified of the extension and of the duration of any extension that has
been granted, and will be given the right to increase, decrease or rescind their
orders. If an affirmative response to any resolicitation is not received by
Berkshire Hills from a subscriber, the subscriber's order will be rescinded and
all funds received will be promptly returned with interest, or withdrawal
authorizations will be canceled. No extensions may be granted beyond October 22,
2001.
Direct Community Offering. Any shares of common stock which remain
unsubscribed for in the subscription offering will be offered by Berkshire Hills
to certain members of the general public in a direct community offering, with
preference given to natural persons residing in Berkshire County, Massachusetts.
Purchasers in the direct community offering are eligible to purchase up to
$250,000 of common stock, which equals 25,000 shares. This amount may be
increased up to 5% of the total offering of shares without further approval of
Berkshire Bancorp's corporators or a resolicitation of subscribers unless
required by the Massachusetts Banking Commissioner and any other applicable bank
regulatory authority. If the purchase limit is increased to 5% of the total
offering of shares, orders accepted in the direct community offering shall be
filled up to a maximum of 2% of the total offering and thereafter shall be
allocated on a pro rata basis per order until all orders have been filled or all
of the remaining shares have been allocated. The direct community offering, if
held, may commence concurrently with during or promptly after the subscription
offering. The direct community offering may terminate on or at any time after
12:00 Noon, Eastern time, on ______________, 2000, but no later than 45 days
after the close of the subscription offering, unless extended by Berkshire Hills
and Berkshire Bank, with the approval of the Massachusetts Banking Commissioner
and any other applicable bank regulatory authority. If regulatory approval of an
extension of the time period has been granted, all subscribers will be notified
of the extension and of the duration of any extension that has been granted, and
will be given the right to increase, decrease or rescind their orders. If an
affirmative response to any resolicitation is not received by Berkshire Hills
from a subscriber, the subscriber's order will be rescinded and all funds
received will be promptly returned with interest. Berkshire Hills and Berkshire
Bank have the absolute right to accept or reject in whole or in part any orders
to purchase shares in the direct community offering. If an order is rejected in
part, the purchaser does not have the right to cancel the remainder of the
order. Berkshire Hills presently intends to terminate the direct community
offering as soon as it has received orders for all shares available for purchase
in the conversion.
If all of the common stock offered in the subscription offering is
subscribed for, no common stock will be available for purchase in the direct
community offering.
Syndicated Community Offering. The plan of conversion provides that, if
necessary, all shares of common stock not purchased in the subscription offering
and direct community offering, if any, may be offered for sale to certain
members of the general public in a syndicated community offering through a
syndicate of registered broker-dealers to be formed and managed by Sandler
O'Neill acting as agent of Berkshire Hills. Berkshire Hills and Berkshire Bank
have the right to reject orders, in whole or part, in their sole discretion in
the syndicated community offering. Neither Sandler O'Neill nor any registered
broker-dealer have any obligation to take or purchase any shares of the common
stock in the syndicated community offering; however, Sandler O'Neill has agreed
to use its best efforts in the sale of shares in the syndicated community
offering.
Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "--Stock Pricing and Number of Shares to be Issued."
No person will be permitted to subscribe in the syndicated community offering
for more than $250,000 of common stock, which equals 25,000 shares. This amount
may be increased up to 5% of the total offering of shares without further
approval of Berkshire Bancorp's corporators or a resolicitation of subscribers
unless required by the Massachusetts Banking Commissioner and any other
applicable bank regulatory authority. If the purchase limit is increased to 5%
of the total offering of shares, orders accepted in the syndicated community
offering shall be filed up to a maximum of 2% of the total offering and
thereafter shall be allocated on a pro rata basis per order until all orders
have been filled or all of the remaining shares have been allocated. See "--
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings" for a description of the commission to be paid to the
selected dealers and to Sandler O'Neill.
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Sandler O'Neill may enter into agreements with selected dealers to assist
in the sale of shares in the syndicated community offering. During the
syndicated community offering, selected dealers may only solicit indications of
interest from their customers to place orders with Berkshire Hills as of a
certain date for the purchase of shares. When and if Sandler O'Neill and
Berkshire Hills believe that enough indications of interest and orders have been
received in the subscription offering, the direct community offering and the
syndicated community offering to consummate the conversion, Sandler O'Neill will
request, as of that certain date, selected dealers to submit orders to purchase
shares for which they have received indications of interest from their
customers. Selected dealers will send confirmations to customers on the next
business day after that certain date. Selected dealers may settle the trade by
debiting the accounts of their customers on a date which will be three business
days from that certain date. Customers who authorize selected dealers to debit
their brokerage accounts are required to have the funds for payment in their
account on but not before the settlement date. On the settlement date, selected
dealers will remit funds to the account that Berkshire Hills established for
each selected dealer. Each customer's funds so forwarded to Berkshire Hills,
along with all other accounts held in the same title, will be insured by the
Federal Deposit Insurance Corporation up to the applicable $100,000 legal limit.
After payment has been received by Berkshire Hills from selected dealers, funds
will earn interest at Berkshire Bank's passbook rate until the completion of the
offering. At the completion of the conversion, the funds received will be used
to purchase the shares of common stock ordered. The shares issued in the
conversion cannot and will not be insured by the Federal Deposit Insurance
Corporation, the Mutual Savings Central Fund, Inc. or any other government
agency. If the conversion is not completed, funds with interest will be returned
promptly to the selected dealers, who, in turn, will promptly credit their
customers' brokerage accounts.
The syndicated community offering may terminate no more than 45 days after
the expiration of the subscription offering, unless extended by Berkshire Hills
and Berkshire Bank, with approval of the Massachusetts Banking Commissioner and
any other applicable bank regulatory authority.
If Berkshire Bank is unable to find purchasers from the general public for
all unsubscribed shares, other purchase arrangements will be made by the Board
of Directors of Berkshire Bank, if feasible. Any other arrangements must be
approved by the Massachusetts Banking Commissioner and any other applicable bank
regulatory authority.
Persons in Non-Qualified States. Berkshire Hills and Berkshire Bank will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock under the plan of
conversion reside. However, Berkshire Hills and Berkshire Bank are not required
to offer stock in the subscription offering to any person who resides in a
foreign country or who resides in a state of the United States to which both of
the following apply: (a) less than 100 persons eligible to subscribe for shares
reside; and (b) the granting of subscription rights or the offer or sale of
shares to these persons would require Berkshire Hills or its employees under the
securities laws of the state to register as a broker, dealer or agent, or to
register or otherwise qualify the shares for sale in the state and registering
or qualifying would be impractical for reasons of cost or otherwise. Neither
Berkshire Hills nor Berkshire Bank will make any payments to persons residing in
these states in lieu of granting subscription rights to them.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
Berkshire Bank has retained Sandler O'Neill to consult with and advise
Berkshire Bank and to assist Berkshire Bank and Berkshire Hills, on a best
efforts basis, in the distribution of shares in the offering. Sandler O'Neill is
a broker-dealer registered with the Securities and Exchange Commission and a
member of the National Association of Securities Dealers, Inc. Sandler O'Neill
will: (1) consult as to the securities marketing implications of the
conversion; (2) review with the Board of Directors the independent appraisal of
the common stock; (3) review all offering documents; (4) assist in the design
and implementation of a marketing strategy; (5) assist in obtaining all
requisite regulatory approvals; (6) assist Berkshire Bank management in
scheduling and preparing for meetings with potential investors and broker-
dealers; and (7) provide such other general advice and assistance as may be
requested to promote the successful completion of the conversion.
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Based on negotiations between Sandler O'Neill and Berkshire Bank concerning
the fee structure, Sandler O'Neill will receive a fee equal to 1.50% of the
aggregate dollar amount of all common stock sold in the offerings. Such amount
does not include any shares sold to the employee stock ownership plan,
directors, officers and employees of Berkshire Bank or Berkshire Hills or
members of their immediate families or any shares contributed to Berkshire Hills
Foundation. Such fee will be paid upon completion of the conversion. Sandler
O'Neill shall be reimbursed for its reasonable out-of-pocket expenses, including
legal fees. In addition, Sandler O'Neill will perform conversion agent services
and records management services for Berkshire Bank in the conversion and will
receive a fee for these services of $45,000.
Sandler O'Neill has not prepared any report or opinion constituting a
recommendation or advice to Berkshire Hills or Berkshire Bank or to persons who
subscribe for stock, nor has it prepared an opinion as to the fairness to
Berkshire Hills or Berkshire Bank of the purchase price or the terms of the
common stock to be sold. Sandler O'Neill expresses no opinion as to the prices
at which the common stock to be issued may trade. Total marketing fees to
Sandler O'Neill are expected to be $811,000 to $1.1 million at the minimum and
maximum of the estimated valuation range, respectively. See "Pro Forma Data"
for the assumptions used to arrive at these estimates. Sandler O'Neill and
selected dealers participating in the syndicated community offering will receive
a commission for any common stock sold in the syndicated community offering in a
maximum amount to be agreed upon by Berkshire Hills and Berkshire Bank to
reflect market requirements at the time of the allocation of shares in the
syndicated community offering but in no event will such amount exceed 6% of the
aggregate dollar amount of any common stock sold in the syndicated community
offering. In addition, Sandler O'Neill will be paid a management fee of 1.50%
of the aggregate dollar amount of any common stock sold in the syndicated
community offering.
With certain limitations, Berkshire Bank has also agreed to indemnify
Sandler O'Neill against liabilities and expenses, including legal fees, incurred
in connection with certain claims or litigation arising out of or based upon
untrue statements or omissions contained in the offering material for the common
stock or with regard to allocations of shares if there is an oversubscription,
or determinations of eligibility to purchase shares.
Description of Sales Activities
The common stock will be offered in the subscription offering and direct
community offering principally by the distribution of this prospectus and
through activities conducted at Berkshire Bank's conversion center at its
administrative office. The conversion center is expected to operate during
normal business hours throughout the subscription offering and direct community
offering. It is expected that at any particular time one or more Sandler
O'Neill employees will be working at the conversion center. Employees of
Sandler O'Neill will be responsible for mailing materials relating to the
offering, responding to questions regarding the conversion and the offering and
processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Sandler O'Neill or by the selected dealers managed by Sandler O'Neill. The
management and employees of Berkshire Bank may participate in the offering in
clerical capacities, providing administrative support in effecting sales
transactions or, when permitted by state securities laws, answering questions of
a mechanical nature relating to the proper execution of the order form.
Management of Berkshire Bank may answer questions regarding the business of
Berkshire Bank when permitted by state securities laws. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. The management
and employees of Berkshire Hills and Berkshire Bank have been instructed not to
solicit offers to purchase common stock or provide advice regarding the purchase
of common stock.
No officer, director, trustee or employee of Berkshire Bancorp, Berkshire
Bank or Berkshire Hills will be compensated, directly or indirectly, for any
activities in connection with the offer or sale of securities issued in the
conversion.
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None of Berkshire Bank's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Berkshire Bank's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule 3a4-
1 promulgated under the Securities Exchange Act of 1934, as amended. Rule 3a4-1
generally provides that an "associated person of an issuer" of securities shall
not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that the person not be
associated with a broker or dealer and that the person observe certain
limitations on his or her participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is defined to include any
person who is a director, officer or employee of the issuer or a company that
controls, is controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Direct
Community Offerings
To purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with Berkshire Bank, must be
received by Berkshire Bank by 12:00 Noon, Eastern time, on _________ __, 2000.
Berkshire Bank and Berkshire Hills are not required to accept order forms that
are not received by that time or are executed defectively, or are received
without full payment or without appropriate withdrawal instructions. In
addition, Berkshire Bank and Berkshire Hills are not obligated to accept orders
submitted on photocopied or telecopied stock order forms and will not accept
stock order forms without an accompanying executed certification form.
Nevertheless, Berkshire Bank and Berkshire Hills shall have the right, each in
their sole discretion, to permit institutional investors to submit irrevocable
orders together with a legally binding commitment for payment and to pay for the
shares of common stock for which they subscribe at any time up to 48 hours
before the completion of the conversion. Berkshire Hills and Berkshire Bank
have the right to waive or permit a subscriber to correct an incomplete or
improperly executed order form, but do not represent that they will do so. Under
the plan of conversion, the interpretation of the terms and conditions of the
plan of conversion and of the order form by the Board of Trustees of Berkshire
Bancorp and the Board of Directors of Berkshire Bank will be final subject to
the authority of the Massachusetts Banking Commissioner and any other applicable
bank regulatory authority.
In order to purchase shares in the direct community offering, the order
form, accompanied by the required payment for each share subscribed for, must be
received by Berkshire Bank before the direct community offering terminates,
which may be concurrently with or after the end of the subscription offering.
Once received, an executed order form may not be modified, amended or rescinded
without the consent of Berkshire Bank, unless the conversion has not been
completed within 45 days after the end of the subscription offering.
In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities, all accounts must be listed on
the order form giving all names on each account and the account number. Failure
to list an account could result in no shares or fewer shares being allocated to
a subscribing member.
Full payment for subscriptions may be made by check, bank draft or money
order, or by authorization of withdrawal from deposit accounts maintained with
Berkshire Bank. Appropriate means by which withdrawals may be authorized are
provided on the order form. No wire transfers will be accepted. Interest will be
paid on payments made by cash, check, bank draft or money order at Berkshire
Bank's passbook rate from the date payment is received until the completion or
termination of the conversion. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the conversion, unless the certificate matures
after the date of receipt of the order form but before closing, in which case
funds will earn interest at the passbook rate from the date of maturity until
the conversion is completed or terminated, but a hold will be placed on the
funds, making them unavailable to the depositor until completion or termination
of the conversion. When the conversion is completed, the funds received in the
offering will be used to purchase the shares of common stock ordered. The shares
of common stock issued in the conversion cannot and will not be insured by the
Federal Deposit
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Insurance Corporation, the Mutual Savings Central Fund, Inc. or any other
government agency. If the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes Berkshire Bank to withdraw the amount of the
purchase price from his or her deposit account, Berkshire Bank will do so as of
the effective date of conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
Berkshire Bank will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time funds are
actually transferred under the authorization the certificate will be canceled at
the time of the withdrawal, without penalty, and the remaining balance will earn
interest at the rate provided for in the certificates in the event of
cancellation.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price upon the completion
of the subscription and direct community offerings, if all shares are sold, or
upon the completion of the syndicated community offering; provided that there is
in force from the time of its subscription until that time, a loan commitment
from an unrelated financial institution, Berkshire Hills or a subsidiary
established to lend to the employee stock ownership plan, at that time, the
aggregate purchase price of the shares for which it subscribed.
Individual retirement accounts maintained in Berkshire Bank do not permit
investment in the common stock. A depositor interested in using his or her
individual retirement account funds to purchase common stock must do so through
a self-directed individual retirement account. Depositors interested in using
funds in an individual retirement account at Berkshire Bank to purchase common
stock should contact the conversion center as soon as possible for assistance.
In addition, federal laws and regulations require that officers, directors and
10% shareholders who use self-directed individual retirement account funds to
purchase shares of common stock in the subscription offering, make purchases for
the exclusive benefit of individual retirement accounts.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at the address specified on the order form or
to the last address of the persons appearing on the records of Berkshire Bank as
soon as practicable following the sale of all shares of common stock. Any
certificates returned as undeliverable will be disposed of as required by
applicable law. Purchasers may not be able to sell the shares of common stock
which they purchased until certificates for the common stock are available and
delivered to them, even though trading of the common stock may have begun.
To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, as amended, no prospectus will be mailed any later than
five days before that date or hand delivered any later than two days before that
date. Execution of the order form will confirm receipt or delivery under
Rule 15c2-8. Order forms will only be distributed with a prospectus. By
executing and returning the regulatory mandated certification form, you will be
certifying that you received this prospectus and acknowledging that the common
stock is not a deposit account and is not insured or guaranteed by any federal
or state governmental agency. You will also be acknowledging that you received
disclosure concerning the risks involved in this stock offering. The
certification form could be used as support to show that you understand the
nature of your investment.
Stock Pricing and Number of Shares to be Issued
The plan of conversion requires that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Berkshire Hills and Berkshire Bank as converted, as determined by
an independent appraisal. Berkshire Bank and Berkshire Hills have retained
FinPro, which is experienced in the evaluation and appraisal of business
entities, to prepare an appraisal of the pro forma market value of Berkshire
Hills and Berkshire Bank as converted, as well as a business plan. FinPro will
receive a fee expected to total approximately $39,500 for its appraisal services
and assistance in the preparation of a business plan, plus reasonable out-of-
pocket expenses incurred in connection with the appraisal. Berkshire Bank has
agreed
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to indemnify FinPro, its directors, officers, agents and employees under certain
circumstances against liabilities and expenses, including legal fees, arising
out of, related to, or based upon the conversion, except where FinPro's
liability results from its own negligence or willful misconduct.
FinPro has prepared an appraisal of the estimated pro forma market value of
Berkshire Hills and Berkshire Bank as converted. For its analysis, FinPro
undertook substantial investigations to learn about Berkshire Bank's business
and operations. Management supplied financial information, including annual
financial statements and information on the composition of assets and
liabilities. In addition to this information, FinPro reviewed Berkshire Bank's
conversion application as filed with the Massachusetts Division of Banks and
Berkshire Hills' registration statement as filed with the Securities and
Exchange Commission. Furthermore, FinPro visited Berkshire Bank's facilities and
had discussions with Berkshire Bank's management and its special conversion
legal counsel, Muldoon, Murphy & Faucette LLP.
FinPro's analysis utilized three selected valuation procedures, the
Price/Book method, the Price/Earnings method, and Price/Assets method, all of
which are described in its report. FinPro placed the greatest emphasis on the
Price/Earnings and Price/Book methods in estimating pro forma market value. In
applying these procedures, FinPro reviewed, among other factors, the economic
make-up of Berkshire Bank's primary market area, Berkshire Bank's financial
performance and condition in relation to publicly traded institutions that
FinPro deemed comparable to Berkshire Bank, the specific terms of the offering
of Berkshire Hills' common stock, the pro forma impact of the additional capital
raised in the conversion, the conditions of securities markets in general and
for thrift institution common stock in particular. FinPro's analysis provides
an approximation of the pro forma market value of Berkshire Hills and Berkshire
Bank as converted based on the valuation methods applied and certain assumptions
as to the pro forma earnings of Berkshire Hills after the conversion, including
estimated expenses and an assumed after-tax rate of return on the net conversion
proceeds as described under "Pro Forma Data," purchases by the employee stock
ownership plan of an amount equal to 8% of the common stock issued in the
conversion and purchases in the open market by the stock-based incentive plan of
a number of shares equal to 4% of the common stock issued in the conversion at
the $10.00 purchase price. See "Pro Forma Data" for additional information
concerning these assumptions. The use of different assumptions may yield
different results.
On the basis of the foregoing, FinPro has advised Berkshire Hills and
Berkshire Bank that, in its opinion, as of March 2, 2000, the estimated pro
forma market value of the common stock to be sold in connection with the
conversion is within the valuation range of $61.5 million to $83.1 million with
a midpoint of $72.3 million. After reviewing the methodology and the
assumptions used by FinPro in the preparation of the appraisal, the Board of
Directors established an estimated valuation range of $61.5 million to $83.1
million with a midpoint of $72.3 million. Assuming that the shares are sold at
$10.00 per share in the conversion, the estimated number of shares sold would be
between 6,145,500 and 8,314,500 with a midpoint of 7,230,000. The purchase price
of $10.00 was determined after discussion among the Boards of Directors of
Berkshire Bank and Berkshire Hills and Sandler O'Neill, taking into account,
among other factors, the desire that the common stock be offered in a manner
that will achieve the widest distribution of the stock, and the desired
liquidity in the common stock after the conversion. Since the outcome of the
offering relates in large measure to market conditions at the time of sale, it
is not possible to determine the exact number of shares that will be issued by
Berkshire Hills at this time. The estimated valuation range may be amended, with
the approval of the Massachusetts Banking Commissioner and any other applicable
bank regulatory authority, if necessitated by developments following the date of
the appraisal, such as changes in market conditions, the financial condition or
operating results of Berkshire Bank, regulatory guidelines or national or local
economic conditions. FinPro's appraisal report was filed as an exhibit to the
registration statement that Berkshire Hills filed with the Securities and
Exchange Commission. See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, FinPro, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of Berkshire Hills and Berkshire Bank as converted,
as of the close of the subscription offering. No shares will be sold unless
FinPro confirms that, to the best of its knowledge and judgment, nothing of a
material nature has occurred that would cause it to conclude that the actual
total purchase price on an aggregate basis was materially incompatible with its
estimate of the total pro forma market value of Berkshire Hills and
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Berkshire Bank as converted at the time of the sale. If, however, the facts do
not justify that statement, the offering may be canceled, a new estimated
valuation range and price per share set and new subscription, direct community
and syndicated community offerings held. Under those circumstances, subscribers
would have the right to modify or rescind their subscriptions and to have their
subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market or financial conditions following the commencement of
the subscription and direct community offerings, the total number of shares to
be sold in the conversion may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the price per share is not below the minimum of the estimated valuation range or
more than 15% above the maximum of the estimated valuation range. Based on a
purchase price of $10.00 per share and FinPro's estimate of the pro forma market
value of the common stock ranging from a minimum of $61.5 million to a maximum,
as increased by 15%, of $95.6 million, the number of shares of common stock
expected to be sold is between a minimum of 6,145,500 shares and a maximum, as
adjusted by 15%, of 9,561,675 shares. The actual number of shares issued
between this range will depend on a number of factors and shall be determined by
Berkshire Bank and Berkshire Hills.
If market or financial conditions change so as to cause the aggregate
purchase price of the shares to be below the minimum of the estimated valuation
range or more than 15% above the maximum of the estimated valuation range, if
the plan of conversion is not terminated by Berkshire Hills and Berkshire Bank
after consultation with the Massachusetts Banking Commissioner and any other
applicable bank regulatory authority, purchasers will be resolicited, in which
case they will need to reconfirm, rescind, or modify their subscriptions. Any
change of more than 15% above the estimated valuation range must be approved by
the Massachusetts Banking Commissioner and any other applicable bank regulatory
authority. If the number of shares issued in the conversion is increased to 15%
above the maximum of the estimated valuation range to reflect changes in market
or financial conditions, persons who subscribed for the maximum number of shares
will not be given the opportunity to subscribe for an adjusted maximum number of
shares. See "--Limitations on Purchases of Shares."
An increase in the number of shares to be issued in the conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and Berkshire Hills' pro forma net
earnings and stockholders' equity on a per share basis while increasing pro
forma net earnings and stockholders' equity on an aggregate basis. A decrease
in the number of shares to be issued in the conversion would increase both a
subscriber's ownership interest and Berkshire Hills' pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the sale
of common stock in the conversion will be increased by the number of shares
contributed to Berkshire Hills Foundation, which is expected to be 8% of the
common stock sold in the conversion. Assuming the sale of shares at the maximum
of the estimated valuation range, Berkshire Hills will issue 665,160 shares of
its common stock from authorized but unissued shares to Berkshire Hills
Foundation immediately following the completion of the conversion. In that
event, Berkshire Hills will have total shares of common stock outstanding of
8,979,660 shares. Of that amount, Berkshire Hills Foundation will own 7.4%.
Funding Berkshire Hills Foundation with authorized but unissued shares will have
the effect of diluting the ownership and voting interests of persons purchasing
shares in the conversion by 7.4% since a greater number of shares will be
outstanding upon completion of the conversion than would be if Berkshire Hills
Foundation were not established. See "Pro Forma Data."
In formulating its appraisal, FinPro relied upon the truthfulness, accuracy
and completeness of all documents Berkshire Bank furnished to it. FinPro also
considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While FinPro
believes this information to be reliable, FinPro does not guarantee the accuracy
or completeness of the information and did not independently verify the
financial statements and other data provided by Berkshire Bank and Berkshire
Hills or independently value the assets or liabilities of Berkshire Hills and
Berkshire Bank. The appraisal is not intended to be, and must not be interpreted
as, a recommendation of any kind as to the advisability of purchasing shares of
common stock. Moreover, because the appraisal must be based on many factors
which change
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periodically, there is no assurance that purchasers of shares in the conversion
will be able to sell shares after the conversion at prices at or above the
purchase price.
Copies of the appraisal report of FinPro 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 Berkshire Bank and the other locations specified under "Where You Can Find
More Information."
Limitations on Purchases of Shares
The plan of conversion provides for certain limitations to be placed upon
the purchase of common stock in the conversion. Each subscriber must subscribe
for a minimum of 25 shares. The plan of conversion provides for the following
purchase limitations:
1. The maximum purchase in the subscription offering by any person or
group of persons through a single deposit account or similarly titled
deposit accounts is $250,000, which equals 25,000 shares;
2. No person, related persons or persons acting together may purchase
more than $250,000, which equals 25,000 shares, in the direct
community offering;
3. The employee stock ownership plan may purchase, in the aggregate, up
to 8% of the shares of common stock issued in the conversion;
4. Directors, trustees, corporators and employees of Berkshire Bank,
Berkshire Bancorp and Berkshire Hills and their associates may not
purchase more than 30% of the total number of shares offered in the
aggregate;
5. Persons purchasing shares of common stock in the syndicated community
offering, together with associates of and persons acting in concert
with such persons, may purchase up to $250,000 of common stock; and
6. The maximum number of shares of common stock which may be subscribed
for or purchased in all categories of the conversion by any person,
together with associates of and groups of persons acting in concert
with such persons, except for the employee stock ownership plan, shall
not exceed 1.0% of the shares of common stock offered for sale in the
conversion.
For purposes of the plan of conversion, directors, trustees, corporators,
officers and employees are not deemed to be associates or a group affiliated
with each other or acting in concert solely by reason of their being directors,
trustees, corporators, officers or employees of Berkshire Bank, Berkshire
Bancorp or Berkshire Hills. Pro rata reductions within each subscription rights
category will be made in accordance with the procedures outlined in the plan of
conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the corporators
or subscribers for common stock, unless required by the Massachusetts Banking
Commissioner or any applicable bank regulatory authority, both the individual
amount permitted to be subscribed for and the overall maximum purchase
limitation may be increased to up to a maximum of 5% of the common stock to be
issued at the sole discretion of Berkshire Hills and Berkshire Bank. If such
amount is increased, subscribers for the maximum amount will be, and certain
other large subscribers in the sole discretion of Berkshire Bank may be, given
the opportunity to increase their subscriptions up to the then applicable limit.
Berkshire Bank and Berkshire Hills do not intend to increase the maximum
purchase limitation unless market conditions warrant that an increase in the
maximum purchase limitation is necessary to sell a number of shares in excess of
the minimum of the estimated valuation range.
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If the amount of shares sold in the conversion exceeds the maximum of the
estimated price range, those shares in excess of the maximum of the estimated
price range will be allocated in the following order of priority:
1. to fill the employee stock ownership plan's subscription of 8% of the
common stock issued in the conversion;
2. in the event there is an oversubscription by eligible account holders,
to fill any unfulfilled subscriptions by eligible account holders, not
including any shares sold in excess of the maximum of the estimated
valuation range;
3. in the event there is an oversubscription by supplemental eligible
account holders, to fill any unfulfilled subscriptions by supplemental
eligible account holders, not including any shares sold in excess of
the maximum of the estimated valuation range;
4. in the event there is an oversubscription by directors, trustees,
officers and employees in the third priority of the subscription
offering, to fill any unfulfilled subscriptions by such individuals,
not including any shares sold in excess of the maximum of the
estimated valuation range; and
5. to fill any unfulfilled subscriptions in the direct community
offering, not including any shares sold in excess of the maximum of
the estimated valuation range, with a preference given to natural
persons residing in Berkshire County, Massachusetts.
The plan of conversion defines "acting in concert" to include: (1) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (2) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose under any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. In general, a
person who acts in concert with another party shall also be deemed to be acting
in concert with any person who is also acting in concert with that other party.
Berkshire Hills and Berkshire Bank may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and the
fact that persons have filed joint Schedules 13D with the Securities and
Exchange Commission with respect to other companies.
The plan of conversion defines "associate," when used to indicate a
relationship with any person, to mean: (1) any corporation or organization
(other than Berkshire Bancorp, Berkshire Hills, Berkshire Bank or a majority-
owned subsidiary of Berkshire Bancorp, Berkshire Hills or Berkshire Bank) of
which a person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (2) any trust
or other estate in which a person has a substantial beneficial interest or as to
which a person serves as trustee or in a similar fiduciary capacity; and (3) any
relative or spouse of a person, or any relative of a spouse, who either has the
same home as a person or who is a director, trustee or officer of Berkshire
Bancorp, Berkshire Hills or Berkshire Bank or any of its parents or
subsidiaries. The term "associate," however, does not include, for purposes of
the stock purchase limitations in the conversion, any stock benefit plan of
Berkshire Bank in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity, and, for purposes of
determining the total shares that may be held by officers and directors of
Berkshire Hills and Berkshire Bank, does not include any tax-qualified employee
stock benefit plan of Berkshire Bank. For example, a corporation of which a
person serves as an officer would be an associate of a person and, therefore,
all shares purchased by such corporation would be included with the number of
shares which such person could purchase individually under the above
limitations.
The plan of conversion defines "officer" to mean the Chairman of the Board,
President, any officer of the level of Vice President or above, Clerk, Treasurer
and any other person performing similar functions of Berkshire Bancorp,
Berkshire Bank or Berkshire Hills.
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Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors, trustees and officers of Berkshire
Bancorp, Berkshire Bank and Berkshire Hills and by NASD members. See
"--Restrictions on Transferability by Directors and Officers and NASD Members."
Restrictions on Transferability by Directors and Officers and NASD Members
Shares of common stock purchased by directors, trustees, corporators and
officers of Berkshire Bancorp, Berkshire Hills and Berkshire Bank, and their
associates, either directly from Berkshire Hills or from an underwriter, may not
be sold for a period of one year following the conversion, except upon the death
or substantial disability of the director, trustee, corporator or officer, or
unless approved by the Massachusetts Banking Commissioner. Any stock purchased
after the conversion is free of this restriction. Accordingly, shares of common
stock issued by Berkshire Hills to directors, trustees, corporators and officers
of Berkshire Bancorp, Berkshire Hills and Berkshire Bank, and their associates,
shall bear a legend giving appropriate notice of the restriction and, in
addition, Berkshire Hills will give appropriate instructions to the transfer
agent for Berkshire Hills' common stock with respect to the restriction on
transfers. Any shares issued to directors, trustees, corporators and officers of
Berkshire Bancorp, Berkshire Hills and Berkshire Bank, and their associates, as
a stock dividend, stock split or otherwise with respect to restricted common
stock shall also be restricted.
Purchases of outstanding shares of common stock of Berkshire Hills by
directors, trustees, corporators and officers of Berkshire Bancorp, Berkshire
Hills and Berkshire Bank, or any person who was an executive officer or director
of Berkshire Hills and Berkshire Bank after adoption of the plan of conversion,
and their associates during the three-year period following the conversion may
be made only through a broker or dealer registered with the Securities and
Exchange Commission, except with the prior written approval of the Massachusetts
Banking Commissioner. This restriction does not apply, however, to negotiated
transactions involving more than 1% of Berkshire Hills' outstanding common stock
or to the purchase of stock under the stock-based incentive plan.
Berkshire Hills has filed a registration statement with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, for the
registration of the common stock to be issued in the conversion. This
registration does not cover the resale of the shares. Shares of common stock
purchased by persons who are not affiliates of Berkshire Hills may be resold
without registration. Shares purchased by an affiliate of Berkshire Hills will
have resale restrictions under Rule 144 of the Securities Act, as amended. If
Berkshire Hills meets the current public information requirements of Rule 144,
each affiliate of Berkshire Hills who complies with the other conditions of
Rule 144, including those that require the affiliate's sale to be aggregated
with those of certain other persons, would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of 1% of the outstanding shares of Berkshire Hills or the
average weekly volume of trading in the shares during the preceding four
calendar weeks. Provisions may be made in the future by Berkshire Hills to
permit affiliates to have their shares registered for sale under the Securities
Act of 1933, as amended, under certain circumstances.
Under the guidelines of the National Association of Securities Dealers,
members of that organization and their associates face certain restrictions on
the transfer of securities purchased with subscription rights and to certain
reporting requirements upon purchase of the securities.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the plan of
conversion by Berkshire Bancorp and Berkshire Bank will be final; however, such
interpretations have no binding effect on the Massachusetts Banking Commissioner
and any other applicable bank regulatory authority. The plan of conversion
provides that, if deemed necessary or desirable by the Board of Trustees of
Berkshire Bancorp and the Board of Directors of Berkshire Bank, the plan of
conversion may be substantively amended by the Board of Trustees of Berkshire
Bancorp and the Board of Directors of Berkshire Bank as a result of comments
from regulatory authorities or otherwise, without the further approval of
Berkshire Bank's corporators unless required by the Massachusetts Banking
Commissioner.
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Completion of the conversion requires the sale of all shares of the common
stock within 24 months following approval of the plan of conversion by Berkshire
Bancorp's Board of Trustees and Berkshire Bank's Board of Directors. If this
condition is not satisfied, the plan of conversion will be terminated and
Berkshire Bank and Berkshire Bancorp will continue their business in their
current forms of organization. The plan of conversion may be terminated by the
Board of Trustees of Berkshire Bancorp and the Board of Directors of Berkshire
Bank at any time prior to the approval of the plan by the Massachusetts Banking
Commissioner and any time thereafter with the concurrence of the Commissioner.
RESTRICTIONS ON ACQUISITION OF BERKSHIRE HILLS
AND BERKSHIRE BANK
General
The plan of conversion provides for the conversion of Berkshire Bancorp's
legal form of organization from a mutual holding company to a stock holding
company and, in connection with the conversion, the adoption by Berkshire
Bancorp's corporators of Amended and Restated Articles of Organization and
Bylaws of Berkshire Bank. See "The Conversion--General." As described below
and elsewhere in this prospectus, certain provisions in Berkshire Hills'
Certificate of Incorporation and Bylaws and in its management compensation plans
adopted in connection with the conversion, together with provisions of Delaware
corporate law, may have anti-takeover effects. In addition, Berkshire Bank's
Amended and Restated Articles of Organization and Bylaws and management
compensation plans adopted in connection with the conversion may also have anti-
takeover effects. Finally, regulatory restrictions may make it difficult for
persons or companies to acquire control of Berkshire Hills and Berkshire Bank.
Restrictions in Berkshire Hills' Certificate of Incorporation and Bylaws
General. The following discussion is a general summary of the material
provisions of Berkshire Hills' Certificate of Incorporation and Bylaws and other
statutory and regulatory provisions relating to stock ownership and transfers,
the Board of Directors and business combinations, which might be deemed to have
a potential anti-takeover effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual stockholders may deem to be in their best
interests. As a result, stockholders who might desire to participate in such a
transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current Board of Directors or management of Berkshire
Hills more difficult. The following summary is general and reference should be
made to the Certificate of Incorporation and Bylaws. See "Where You Can Find
More Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of Berkshire
Hills provides that in no event shall any record owner of any outstanding common
stock which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of the then outstanding shares of common
stock be entitled or permitted to any vote in respect of the shares held in
excess of such limit. Beneficial ownership is determined by Rule 13d-3 of the
General Rules and Regulations of the Securities Exchange Act of 1934, as
amended, and includes shares beneficially owned by that person or any of his
affiliates, shares which that person or his affiliates have the right to acquire
under any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options or otherwise and shares
as to which that person and his affiliates have sole or shared voting or
investment power. Beneficial ownership does not include shares under a publicly
solicited revocable proxy or shares that are not otherwise deemed to be
beneficially owned by such person and his affiliates. No director or officer
(or any affiliate thereof) of Berkshire Hills shall, solely by reason of any or
all of such directors or officers acting in their capacities as such, be deemed
to beneficially own any shares beneficially owned by any other director or
officer (or affiliate thereof) nor will the employee stock ownership plan or any
similar plan of Berkshire Hills or Berkshire Bank or any director with respect
thereto (solely by reason of such director's capacity) be deemed to beneficially
own any shares held under any such plan. The Certificate of Incorporation of
Berkshire Hills further provides that the provisions limiting voting rights may
only be amended upon the vote of the
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holders of at least 80% of the voting power of all then outstanding shares of
capital stock entitled to vote thereon after giving effect to the provision
limiting voting rights.
Board of Directors. The Board of Directors of Berkshire Hills is divided
into three classes, each of which contains approximately one-third of the whole
number of the members of the Board. Each class serves a staggered term, with
approximately one-third of the total number of Directors being elected each
year. Berkshire Hills' Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the whole Board of
Directors. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board, including a vacancy created by an increase in
the number of Directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term only by a majority vote of the Directors then in
office. The classified Board is intended to provide for continuity of the Board
of Directors and to make it more difficult and time consuming for a stockholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of Berkshire Hills.
Directors may be removed by the stockholders only for cause by the affirmative
vote of the holders of at least 80% of the voting power of all then outstanding
shares of capital stock entitled to vote after giving effect to the voting
limitation applicable to stockholders owning more than 10% of the outstanding
shares.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove any director or the entire Board, with or without
cause and replace it with persons of such holders choice.
Director Qualifications. Berkshire Hills' Bylaws contain qualifications
for individuals to be eligible for election or appointment to the Board of
Directors. These qualifications include the requirement that an individual: (1)
not have been the subject of certain enumerated regulatory actions by a
financial regulatory agency within the last ten years; (2) not have been
convicted of or be currently charged in any crime involving dishonesty or breach
of trust which is punishable for a term exceeding one year; (3) be a resident
for at least one year of a county in which Berkshire Bank maintains a banking
office, or of a county contiguous to such county or have significant ties to
such communities; and (4) not be a director or officer of another state or
federally chartered financial institution that engages in business activities in
the same market area as Berkshire Hills or any of its subsidiaries.
Additionally, no person shall be eligible for election to the Board of Directors
if such person is the representative or nominee of a person or acting in concert
with a person who is ineligible for election to the Board of Directors. This
provision will limit the individuals that can be nominated for election or serve
on the Board of Directors.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of Berkshire Hills may be
called only by a resolution adopted by a majority of the whole Board of
Directors of Berkshire Hills. The Certificate of Incorporation also provides
that any action required or permitted to be taken by the stockholders of
Berkshire Hills may be taken only at an annual or special meeting and prohibits
stockholder action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 26,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide Berkshire
Hills' Board of Directors with as much flexibility as possible to effect, among
other transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of Berkshire Hills. The Board of Directors also
has sole authority to determine the terms of any one or more series of preferred
stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of preferred stock,
the Board has the power to the extent consistent with its fiduciary duty to
issue a series of preferred stock to persons friendly to management to attempt
to block a post-tender offer merger or other transaction by which a third party
seeks control, and thereby assist management to retain its position. Berkshire
Hills' Board currently has no plans for the issuance of additional shares, other
than the issuance of shares in the conversion, including shares contributed to
Berkshire Hills Foundation, and the potential issuance of additional shares upon
exercise of stock options.
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Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of Berkshire Hills' outstanding shares of voting stock
entitled to vote to approve certain "Business Combinations" with an "Interested
Stockholder," and related transactions (subject to the limitations on voting).
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must be approved by a majority of the outstanding shares of common
stock of Berkshire Hills and any other affected class of stock. Under Berkshire
Hills' Certificate of Incorporation, the approval of at least 80% of the shares
of capital stock entitled to vote is required for any business combination
involving an Interested Stockholder (as defined below) except: (1) in cases
where the proposed transaction has been approved by a majority of those members
of Berkshire Hills' Board of Directors who are unaffiliated with the Interested
Stockholder and were directors before the time when the Interested Stockholder
became an Interested Stockholder; or (2) if the proposed transaction meets
certain conditions which are designed to afford the stockholders a fair price in
consideration for their shares. Under each exception, the approval of only a
majority of the outstanding shares of voting stock is sufficient. The term
"Interested Stockholder" is defined to include, among others, any individual, a
group acting in concert, corporation, partnership, association or other entity
(other than Berkshire Hills or its subsidiary) who or which is the beneficial
owner, directly or indirectly, of 10% or more of the outstanding shares of
voting stock of Berkshire Hills.
This provision of the Certificate of Incorporation applies to any "Business
Combination," which is defined to include:
1. any merger or consolidation of Berkshire Hills or any of its
subsidiaries with any Interested Stockholder or affiliate of an
Interested Stockholder or any corporation which is, or after such
merger or consolidation would be, an affiliate of an Interested
Stockholder;
2. any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with any Interested Stockholder or affiliate of
assets of Berkshire Hills or its subsidiaries the value of which
equals or exceeds 25% of the combined assets of Berkshire Hills and
its subsidiaries;
3. the issuance or transfer to any Interested Stockholder or its
affiliate by Berkshire Hills (or any subsidiary) of any securities of
Berkshire Hills (or any subsidiary) in exchange for any cash,
securities or other property the value of which equals or exceeds 25%
of the fair market value of the common stock of Berkshire Hills;
4. the adoption of any plan for the liquidation or dissolution of
Berkshire Hills proposed by or on behalf of any Interested Stockholder
or affiliate thereof; and
5. any reclassification of securities, recapitalization, merger or
consolidation of Berkshire Hills with any of its subsidiaries which
has the effect of increasing the proportionate share of common stock
or any class of equity or convertible securities of Berkshire Hills or
subsidiary owned directly or indirectly, by an Interested Stockholder
or affiliate thereof.
The directors and executive officers of Berkshire Bank are purchasing
approximately 2.51% of the shares of the common stock to be sold in the
conversion based on the maximum of the estimated valuation range. In addition,
the employee stock ownership plan intends to purchase 8% of the common stock
issued in connection with the conversion, including shares issued to Berkshire
Hills Foundation. Additionally, if stockholders approve the proposed stock-
based incentive plan, Berkshire Hills expects to acquire 4% of the common stock
issued in connection with the conversion, including shares issued to Berkshire
Hills Foundation, and expects to issue options to purchase up to 10% of the
common stock issued in connection with the conversion, including shares issued
to Berkshire Hills Foundation, to directors and executive officers. As a
result, directors, executive officers and employees may control the voting of
approximately 21.3% of Berkshire Hills' common stock on a diluted basis at the
maximum of the estimated valuation range, thereby enabling them to prevent the
approval of the transactions requiring the approval of at least 80% of Berkshire
Hills' outstanding shares of voting stock described above.
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Furthermore, the ability of directors, executive officers and employees to
prevent the approval of transactions requiring the approval of at least 80% of
the outstanding shares of voting stock of Berkshire Hills will be enhanced by
the regulatory condition imposed on Berkshire Hills Foundation that any shares
held by it must be voted in the same ratio as all other shares of Berkshire
Hills common stock voted on each and every proposal considered by stockholders.
Evaluation of Offers. The Certificate of Incorporation of Berkshire Hills
further provides that the Board of Directors of Berkshire Hills, when evaluating
an offer, to (1) make a tender or exchange offer for any equity security of
Berkshire Hills, (2) merge or consolidate Berkshire Hills with another
corporation or entity or (3) purchase or otherwise acquire all or substantially
all of the properties and assets of Berkshire Hills, may, in connection with the
exercise of its judgment in determining what is in the best interest of
Berkshire Hills and its stockholders, give consideration to all relevant
factors, including those factors that directors of any subsidiary (including
Berkshire Bank) may consider in evaluating any action that may result in a
change or potential change of control of such subsidiary, and the social and
economic effects of acceptance of such offer on: Berkshire Hills' present and
future customers and employees and those of its subsidiaries (including
Berkshire Bank); the communities in which Berkshire Hills and Berkshire Bank
operate or are located; the ability of Berkshire Hills to fulfill its corporate
objectives as a savings and loan holding company; and the ability of Berkshire
Bank to fulfill the objectives of a stock savings bank under applicable statutes
and regulations. By having these standards in the Certificate of Incorporation
of Berkshire Hills, the Board of Directors may be in a stronger position to
oppose such a transaction if the Board concludes that the transaction would not
be in the best interest of Berkshire Hills, even if the price offered is
significantly greater than the then market price of any equity security of
Berkshire Hills.
Amendment of Certificate of Incorporation and Bylaws. Amendments to
Berkshire Hills' Certificate of Incorporation must be approved by a majority of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal specific
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by Berkshire Hills and the
provisions allowing for the amendment of Berkshire Hills' Bylaws and Certificate
of Incorporation.
Berkshire Hills' Bylaws may be amended by a majority of the whole Board of
Directors, or by a vote of the holders of at least 80% (after giving effect to
the provision limiting voting rights) of the total votes eligible to be voted at
a duly constituted meeting of stockholders.
Advance Notice Provisions. The Bylaws of Berkshire Hills also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of Berkshire Hills, provided
Berkshire Hills gives at least 100 days' notice of the meeting. The notice
provision requires a stockholder who desires to raise new business to provide
information to Berkshire Hills concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide Berkshire Hills with information concerning the nominee and the
proposing stockholder.
Anti-Takeover Effects of Berkshire Hills' Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce Berkshire Hills'
vulnerability to takeover attempts and other transactions which have not been
negotiated with and approved by members of its Board of Directors.
Additionally, provisions of the stock-based incentive plan may provide for
accelerated benefits to participants if a change in control of Berkshire Hills
or Berkshire Bank occurs or a tender or exchange offer for their stock is made.
See "Management of Berkshire Bank--Benefits--Stock-Based Incentive Plan."
Berkshire Hills and Berkshire Bank have also entered into agreements with key
officers and intends to establish the Employee Severance Compensation Plan which
will provide such officers and eligible employees with additional payments and
benefits on the officer's
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termination in connection with a change in control of Berkshire Hills or
Berkshire Bank. See "Management of Berkshire Bank--Executive Compensation--
Employment Agreements," and "--Benefits--Employee Severance Compensation Plan."
The foregoing provisions and limitations may make it more difficult for
companies or persons to acquire control of Berkshire Hills. Additionally, the
provisions could deter offers to acquire the outstanding shares of Berkshire
Hills which might be viewed by stockholders to be in their best interests.
Berkshire Hills' Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws are in the best interest of Berkshire
Hills and its stockholders. An unsolicited non-negotiated takeover proposal can
seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of Berkshire Hills and its stockholders to encourage potential
acquirors to negotiate directly with management and that these provisions will
encourage such negotiations and discourage non-negotiated takeover attempts.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The Delaware
takeover statute is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, the statute provides that a "Person" who owns 15% or more of
the outstanding voting stock of a Delaware corporation (an "Interested
Stockholder") may not consummate a merger or other business combination
transaction with such corporation at any time during the three-year period
following the date such "Person" became an Interested Stockholder. The term
"business combination" is defined broadly to cover a wide range of corporate
transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of the
statute:
1. any business combination if, before the date a person became an
Interested Stockholder, the board of directors approved either
the business combination or the transaction which resulted in the
stockholder becoming an Interested Stockholder;
2. any business combination involving a person who acquired at least
85% of the outstanding voting stock in the transaction in which
he became an Interested Stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the
corporation's directors who are also officers and specific
employee stock plans;
3. any business combination with an Interested Stockholder that is
approved by the board of directors and by a two-thirds vote of
the outstanding voting stock not owned by the Interested
Stockholder; and
4. certain business combinations that are proposed after the
corporation had received other acquisition proposals and which
are approved or not opposed by a majority of certain continuing
members of the board of directors.
A corporation may exempt itself from the requirements of the statute by
adopting an amendment to its certificate of incorporation or bylaws electing not
to be governed by Section 203. Berkshire Hills' Certificate of Incorporation
and Bylaws do not currently contain such provision and, at the present time, the
Board of Directors does not intend to propose any such amendment.
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<PAGE>
Restrictions in Berkshire Bank's Amended and Restated Articles of Organization
and Bylaws
Although the Board of Directors of Berkshire Bank is not aware of any
effort that might be made to obtain control of Berkshire Bank after the
conversion, the Board of Directors believes that it is appropriate to adopt
provisions permitted by Massachusetts law to protect the interests of the
converted bank and its stockholders from any hostile takeover. Such provisions
may, indirectly, inhibit a change in control of Berkshire Hills, as Berkshire
Bank's sole stockholder. See "Risk Factors--Anti-takeover provisions and
statutory provisions could make takeover attempts more difficult to achieve and
may decrease the market price of common stock."
Berkshire Bank's stock Articles of Organization will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of Berkshire Bank by
any person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of three years
following the date of completion of the conversion without the prior written
notice to Berkshire Bank and the prior written approval of the Massachusetts
Banking Commissioner. If shares are acquired in violation of this provision,
all shares beneficially owned by any person in excess of the 10% limit shall be
considered "excess shares" and shall not be counted as shares entitled to vote
and shall not be voted by any person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote. These limitations
shall not apply to any transaction in which Berkshire Bank forms a holding
company without a change in the respective beneficial ownership interests of its
stockholders other than by the exercise of any dissenter or appraisal rights.
If holders of revocable proxies for more than 10% of the shares of the common
stock of Berkshire Hills seek, among other things, to elect one-third or more of
Berkshire Hills' Board of Directors, to cause Berkshire Hills' stockholders to
approve the acquisition or corporate reorganization of Berkshire Hills or to
exert a continuing influence on a material aspect of the business operations of
Berkshire Hills, which actions could indirectly result in a change in control of
Berkshire Bank, the Board of Directors of Berkshire Bank will be able to assert
this provision of Berkshire Bank's stock Articles of Organization against such
holders. Although the Board of Directors of Berkshire Bank is not currently
able to determine when and if it would assert this provision, the Board, in
exercising its fiduciary duty, may assert this provision if it were deemed to be
in the best interests of Berkshire Bank, Berkshire Hills and its stockholders.
It is unclear, however, whether this provision, if asserted, would be successful
against such persons in a proxy contest which could result in a change in
control of Berkshire Bank indirectly through a change in control of Berkshire
Hills. In addition, stockholders are not be permitted to cumulate their votes
in the election of Directors.
Finally, the Amended and Restated Articles of Organization provides for the
issuance of shares of preferred stock on such terms, including conversion and
voting rights, as may be determined by Berkshire Bank's Board of Directors
without stockholder approval. Although Berkshire Bank has no arrangements,
understandings or plans at the present time for the issuance or use of
undesignated preferred stock, the Board believes that the availability of such
shares will provide Berkshire Bank with increased flexibility in structuring
possible future financings and acquisitions and in meeting other corporate needs
which may arise. If a proposed merger, tender offer or other attempt to gain
control of Berkshire Bank occurs of which management does not approve, the Board
can authorize the issuance of one or more series of preferred stock with rights
and preferences which could impede the completion of such a transaction. An
effect of the possible issuance of such preferred stock, therefore, may be to
deter a future takeover attempt. The Board does not intend to issue any
preferred stock except on terms which the Board deems to be in the best interest
of Berkshire Bank and its then existing stockholders.
Regulatory Restrictions
Massachusetts Conversion Regulations. Regulations issued by the
Massachusetts Banking Commissioner provide that for a period of three years
following the date of the completion of the conversion, no person, acting singly
or together with associates in a group of persons acting in concert, shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than ten percent (10%) of any class of any equity security of Berkshire
Hills without the prior written notice to Berkshire Hills and the prior written
approval of the Massachusetts Banking Commissioner. Where any person, directly
or indirectly, acquires beneficial ownership of more than ten percent
123
<PAGE>
(10%) of any class of any equity security of Berkshire Hills without the prior
written approval of the Massachusetts Banking Commissioner, the securities
beneficially owned by such person in excess of ten percent (10%) shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to the stockholders for a vote, and shall not be counted as
outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote. The Massachusetts
Banking Commissioner may take further action to enforce these regulatory
restrictions.
Change in Bank Control Act. The acquisition of ten percent (10%) or more
of the common stock outstanding may trigger the provisions of the Change in Bank
Control Act. The Federal Deposit Insurance Corporation has also adopted a
regulation under the Change in Bank Control Act which generally requires persons
who at any time intend to acquire control of a Federal Deposit Insurance
Corporation-insured state-chartered non-member bank, including a savings bank
such as Berkshire Bank, to provide at least 60 days' prior written notice and
certain financial and other information to the Federal Deposit Insurance
Corporation.
The 60-day notice period does not commence until the information is deemed
to be substantially complete. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least twenty-
five percent (25%) of any class of Berkshire Bank's voting stock or the power to
direct the management or policies of Berkshire Bank. However, under Federal
Deposit Insurance Corporation regulations, control is presumed to exist where
the acquiring party has voting control of at least ten percent (10%) of any
class of Berkshire Bank's voting securities if: (1) Berkshire Bank has a class
of voting securities which is registered under Section 12 of the Exchange Act,
or (2) the acquiring party would be the largest holder of a class of voting
shares of Berkshire Bank. The statute and underlying regulations authorize the
Federal Deposit Insurance Corporation to disapprove a proposed acquisition on
certain specified grounds. In some circumstances, similar findings with the
Massachusetts Banking Commissioner may be required under the Massachusetts
Change in Bank Control Act.
Federal Reserve Board Regulations. If Berkshire Bank does not maintain its
qualification as a qualified thrift lender, attempts to acquire control of
Berkshire Bank will trigger the regulations of the Federal Reserve Board under
the Change in Bank Control Act.
Massachusetts Banking Law. Massachusetts banking law also prohibits any
"company," defined to include banking institutions as well as corporations, from
directly or indirectly controlling the voting power of twenty-five percent (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
twenty-five percent (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 five percent (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 ten percent (10%) of any class of equity
security of a converting mutual savings bank without prior written approval of
the Massachusetts Banking Commissioner.
Prior approval of the Massachusetts Banking Commissioner is also required
before any action is taken that causes any stock banking institution to acquire
all of the capital stock of any other stock banking institution. The
Massachusetts Banking Commissioner will approve such a plan of acquisition,
following approval by a majority vote of the boards of directors of the acquiror
and the acquiree and a two-thirds approval of the stockholders of the acquiree,
provided the Massachusetts Banking Commissioner finds that competition among
banking institutions will not be unreasonably affected and that public
convenience and advantage will be promoted. Any such company shall engage
directly or indirectly only in such activities as are now or may hereafter be
proper activities for bank holding companies under the Bank Holding Company Act.
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<PAGE>
DESCRIPTION OF BERKSHIRE HILLS STOCK
General
Berkshire Hills is authorized to issue 26,000,000 shares of common stock
having a par value of $.01 per share and 1,000,000 shares of preferred stock
having a par value of $.01 per share. Berkshire Hills currently expects to issue
up to 10,326,609 shares of common stock at the maximum of the estimated
valuation range, as adjusted by 15% and including shares issued to Berkshire
Hills Foundation. Berkshire Hills will not issue any shares of preferred stock
in the conversion. Each share of Berkshire Hills' common stock will have the
same relative rights as, and will be identical in all respects with, each other
share of common stock. Upon payment of the purchase price for the common stock,
as required by the plan of conversion, all stock will be duly authorized, fully
paid and nonassessable.
The common stock of Berkshire Hills will represent nonwithdrawable capital,
will not be an account of any type, and will not be insured by the Federal
Deposit Insurance Corporation, the Mutual Savings Central Fund, Inc. or any
other government agency.
Common Stock
Dividends. Berkshire Hills can pay dividends out of statutory surplus or
from certain net profits if, and when declared by its Board of Directors. The
payment of dividends by Berkshire Hills is limited by law and applicable
regulation. See "Dividend Policy" and "Regulation and Supervision." The holders
of common stock of Berkshire Hills will be entitled to receive and share equally
in any dividends declared by the Board of Directors of Berkshire Hills. If
Berkshire Hills issues preferred stock, the holders of preferred stock may have
a priority over the holders of the common stock with respect to dividends.
Voting Rights. After the conversion, the holders of common stock of
Berkshire Hills will possess exclusive voting rights in Berkshire Hills. They
will elect Berkshire Hills' Board of Directors and act on other matters as are
required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"Restrictions on Acquisition of Berkshire Hills and Berkshire Bank," each holder
of common stock will be entitled to one vote per share and will not have any
right to cumulate votes in the election of directors. If Berkshire Hills issues
preferred stock, holders of Berkshire Hills preferred stock may also possess
voting rights. Certain matters require a vote of 80% of the outstanding shares
entitled to vote. See "Restrictions on Acquisition of Berkshire Hills and
Berkshire Bank."
As a subsidiary of a Massachusetts mutual holding company, corporate powers
and control of Berkshire Bank are indirectly vested in the corporators of
Berkshire Bancorp, who elect Berkshire Bancorp's trustees, and who, in turn,
elect the directors of Berkshire Bank. Berkshire Bank's directors then appoint
the officers of Berkshire Bank. After the conversion, voting rights will be
vested exclusively in Berkshire Hills, which will own all of the outstanding
capital stock of Berkshire Bank, and will be voted at the direction of Berkshire
Hills' Board of Directors. Consequently, the holders of the common stock of
Berkshire Hills will not have direct control of Berkshire Bank.
Liquidation. Upon liquidation, dissolution or winding up of Berkshire
Hills, the holders of its common stock would be entitled to receive all of the
assets of Berkshire Hills available for distribution after payment or provision
for payment of all its debts and liabilities. If Berkshire Hills issues
preferred stock, the preferred stock holders may have a priority over the
holders of the common stock upon liquidation or dissolution.
Indemnification and Limit on Liability. Berkshire Hills' Certificate of
Incorporation contains provisions which limit the liability of and indemnify its
directors, officers and employees. Such provisions provide that each person who
was or is made a party or is threatened to be made a party to or is otherwise
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director or officer of Berkshire Hills shall be indemnified and held harmless
by Berkshire Hills to the fullest extent authorized by the Delaware General
Corporation Law against all expense, liability and loss reasonably incurred.
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<PAGE>
Under certain circumstances, the right to indemnification shall include the
right to be paid by Berkshire Hills the expenses incurred in defending any such
proceeding in advance of its final disposition. In addition, a director of
Berkshire Hills shall not be personally liable to Berkshire Hills or its
stockholders for monetary damages except for liability for any breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, under Section 174 of the
Delaware General Corporation Law, or for any transaction from which the director
derived an improper personal benefit.
Preemptive Rights; Redemption. Holders of the common stock of Berkshire
Hills will not be entitled to preemptive rights with respect to any shares that
may be issued. The common stock cannot be redeemed.
Preferred Stock
Berkshire Hills will not issue any preferred stock in the conversion and it
has no current plans to issue any preferred stock after the conversion.
Preferred stock may be issued with designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of Berkshire Hills are restricted by provisions in its
Certificate of Incorporation and Bylaws and by rules and regulations of various
regulatory agencies. See ''Regulation and Supervision" and "Restrictions on
Acquisition of Berkshire Hills and Berkshire Bank."
DESCRIPTION OF BERKSHIRE BANK STOCK
General
If the stock holding company form of organization is not utilized in
connection with the conversion, Berkshire Bank may offer shares of its common
stock in connection with the conversion. The following is a discussion of its
stock.
The Amended and Restated Articles of Organization of Berkshire Bank, to be
effective upon the conversion, authorize the issuance of 10,000,000 shares of
common stock, having a par value of $1.00 per share, and 10,000,000 shares of
preferred stock, having a par value of $1.00 per share. The preferred stock may
be issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common
stock of Berkshire Bank will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. After the
conversion, the Board of Directors will be authorized to approve the issuance of
common stock up to the amount authorized by the Amended and Restated Articles of
Organization without the approval of Berkshire Bank's stockholders. Assuming
that the stock holding company form of organization is utilized, all of the
issued and outstanding common stock of Berkshire Bank will be held by Berkshire
Hills. Berkshire Bank stock will represent non-withdrawable capital, will not
be an account of an insurable type and will not be insured by the Federal
Deposit Insurance Corporation or the Mutual Savings Central Fund, Inc.
Common Stock
Dividends. The holders of Berkshire Bank's common stock will be entitled
to receive and to share equally in any dividends as may be declared by the Board
of Directors of Berkshire Bank. See "Dividend Policy" for certain restrictions
on the payment of dividends and "Federal and State Taxation of Income--Federal
Income Taxation" for a discussion of the consequences of the payment of cash
dividends from income appropriated to bad debt reserves.
126
<PAGE>
Voting Rights. Immediately after the conversion, the holders of Berkshire
Bank's common stock will possess exclusive voting rights in Berkshire Bank.
Each holder of shares of common stock will be entitled to one vote for each
share held. Stockholders are not be entitled to cumulate their votes for the
election of directors. See "Restrictions on Acquisition of Berkshire Hills and
Berkshire Bank--Anti-Takeover Effects of Berkshire Hills' Certificate of
Incorporation and Bylaws and Management Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up
of Berkshire Bank, the holders of common stock will be entitled to receive,
after payment of all Berkshire Bank's debts and liabilities (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to eligible and supplemental eligible account
holders, all assets of Berkshire Bank available for distribution in cash or in
kind. If additional preferred stock is issued after the conversion, the holders
thereof may also have priority over the holders of common stock in the event of
liquidation or dissolution.
Preemptive Rights; Redemption. Holders of Berkshire Bank's common stock
will not be entitled to preemptive rights with respect to any shares of
Berkshire Bank which may be issued. Upon receipt by Berkshire Bank of the full
specified purchase price therefor, the common stock will be fully paid and
nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ________________.
REGISTRATION REQUIREMENTS
Berkshire Hills has registered the common stock with the Securities and
Exchange Commission under Section 12(g) of the Securities Exchange Act of 1934,
as amended, and will not deregister its common stock for a period of at least
three years following the conversion. As a result of registration, the proxy and
tender offer rules, insider trading reporting and restrictions, annual and
periodic reporting and other requirements of that statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for Berkshire Hills
by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax consequences
of the conversion have been opined upon by Muldoon, Murphy & Faucette LLP and
the Commonwealth of Massachusetts tax consequences of the conversion have been
opined upon by Wolf & Company, P.C., Boston, Massachusetts. Muldoon, Murphy &
Faucette LLP and Wolf & Company, P.C. have consented to the references to their
opinions in this prospectus. Certain legal matters in connection with this
offering will be passed upon for Sandler O'Neill by Silver, Freedman &
Taff, L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements of Berkshire Bancorp as of
December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999 included in this prospectus and elsewhere in the
registration statement have been audited by Wolf & Company, P.C., independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
FinPro has consented to the summary in this prospectus of its report to
Berkshire Bank setting forth its opinion as to the estimated pro forma market
value of Berkshire Hills and Berkshire Bank, as converted, and its letter letter
with respect to subscription rights, and to the use of its name and statements
with respect to it appearing in this prospectus.
127
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Berkshire Hills has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (File No. 333-_____) under the Securities Act
of 1933, as amended, with respect to the common stock offered in the conversion.
This prospectus does not contain all the information contained in the
registration statement, certain parts of which are omitted as permitted by the
rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
NW, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The registration statement also is available through the
Securities and Exchange Commission's World Wide Web site on the Internet at
http://www.sec.gov.
Following the conversion, Berkshire Hills will file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission, all of which can be inspected and copied at the Securities
Exchange Commission's Public Reference Room. Copies of these materials can also
be obtained, upon payment of a copying fee, by writing to the Securities and
Exchange Commission.
Berkshire Bank has filed an application for approval of conversion with the
Massachusetts Banking Commissioner and has provided copies of the conversion
application to the Federal Deposit Insurance Corporation and the Federal Reserve
Bank of Boston. This prospectus omits certain information contained in that
application. The conversion application may be examined at the Office of the
Massachusetts Banking Commissioner, Office of the Commissioner of Banks, 1 South
Station, Boston, Massachusetts, 02110. Copies of the conversion application may
be examined at the Federal Deposit Insurance Corporation's offices at
15 Braintree Hill Office Park, Suite 100, Braintree, Massachusetts 02184 and at
the Federal Reserve Bank of Boston's offices at 600 Atlantic Avenue, Boston,
Massachusetts 02106.
Berkshire Hills has filed an application to become the holding company for
Berkshire Bank with the Office of Thrift Supervision. This prospectus omits
certain information contained in that application. The application may be
inspected, without charge, at the offices of the Office of Thrift Supervision,
1700 G Street, NW, Washington, D.C. 20552 and at the offices of the Regional
Director of the Office of Thrift Supervision at the Northeast Regional Office of
the Office of Thrift Supervision, 10 Exchange Place, 18th Floor, Jersey City,
New Jersey 07302.
A copy of the plan of conversion, Berkshire Hills' Certificate of
Incorporation and Bylaws and Berkshire Bank's Amended and Restated Articles of
Organization and Bylaws are available without charge from Berkshire Bank by
contacting the conversion center at (___) ___-____.
A copy of FinPro's appraisal report is available for inspection at
Berkshire Bank's administrative offices located at 24 North Street, Pittsfield,
Massachusetts.
128
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BERKSHIRE BANCORP
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.............. F-3
Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997.................................................. 30
Consolidated Statements of Changes in Retained Earnings for the Years
Ended December 31, 1999, 1998 and 1997............................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997..................................... F-5
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for Berkshire Hills have not been included in
this prospectus because Berkshire Hills, which has engaged only in
organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Audit Committee
Berkshire Bancorp
Pittsfield, Massachusetts
We have audited the accompanying consolidated balance sheets of Berkshire
Bancorp and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in retained earnings and cash flows
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Berkshire Bancorp
and subsidiary as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
WOLF & COMPANY, P.C.
/s/ Wolf & Company, P.C.
- ------------------------
Boston, Massachusetts
March 10, 2000
F-2
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Cash and due from banks $ 23,301 $ 19,554
Short-term investments 1,341 7,121
---------- ----------
Total cash and cash equivalents 24,642 26,675
Securities available for sale, at fair value 93,084 93,774
Securities held to maturity, at amortized cost 17,014 23,780
Federal Home Loan Bank stock, at cost 3,843 2,547
Loans, net of allowance for loan losses of $8,534
in 1999 and $7,589 in 1998 665,554 599,171
Foreclosed real estate 220 398
Banking premises and equipment, net 11,531 9,695
Accrued interest receivable 4,910 4,458
Savings Bank Life Insurance stock 2,043 2,043
Goodwill 6,809 7,358
Other assets 12,001 10,390
---------- ----------
$ 841,651 $ 780,289
========== ==========
LIABILITIES AND RETAINED EARNINGS
Deposits $ 679,985 $ 646,500
Federal Home Loan Bank advances 58,928 29,590
Securities sold under agreements to repurchase 1,120 7,000
Mortgagors' escrow accounts 782 622
Net deferred tax liability 6,073 7,252
Accrued expenses and other liabilities 6,411 5,124
---------- ----------
Total liabilities 753,299 696,088
---------- ----------
Commitments and contingencies
Retained earnings 70,679 65,056
Accumulated other comprehensive income 17,673 19,145
---------- ----------
Total retained earnings 88,352 84,201
---------- ----------
$ 841,651 $ 780,289
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other Total
Retained Comprehensive Retained
Earnings Income Earnings
--------------- ------------------- --------------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1996 $ 58,129 $ 10,584 $ 68,713
--------------
Comprehensive income:
Net income 2,503 - 2,503
Change in net unrealized gain on
securities available for sale, net
of reclassification adjustment and
tax effects - 4,101 4,101
--------------
Total comprehensive income 6,604
--------------- ---------------- --------------
Balance at December 31, 1997 60,632 14,685 75,317
--------------
Comprehensive income:
Net income 4,424 - 4,424
Change in net unrealized gain on
securities available for sale, net
of reclassification adjustment and
tax effects - 4,460 4,460
--------------
Total comprehensive income 8,884
--------------- ---------------- --------------
Balance at December 31, 1998 65,056 19,145 84,201
--------------
Comprehensive income:
Net income 5,623 - 5,623
Change in net unrealized gain on
securities available for sale, net
of reclassification adjustment and
tax effects - (1,472) (1,472)
--------------
Total comprehensive income 4,151
--------------- ---------------- --------------
Balance at December 31, 1999 $ 70,679 $ 17,673 $ 88,352
=============== ================ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,623 $ 4,424 $ 2,503
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,030 2,055 1,477
Net amortization of securities 400 158 11
Charitable contribution in the form of equity securities - - 2,457
Depreciation and amortization expense 1,860 1,735 1,737
Amortization of goodwill 549 259 286
Gain on sales and dispositions of securities, net (491) (425) (2,653)
Gain on sale of other real estate - (119) -
Losses (gains) on foreclosed real estate, net (18) (5) 477
Loss on sale of equipment 30 - -
Deferred tax provision (benefit) (319) (850) 320
Net change in loans held for sale (2,425) -- --
Changes in operating assets and liabilities:
Accrued interest receivable and other assets (2,063) (2,732) (1,575)
Accrued expenses and other liabilities 1,287 (283) 37
------------- ------------- -------------
Net cash provided by operating activities 7,463 4,217 5,077
------------- ------------- -------------
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales 1,191 5,319 12,279
Maturities 8,468 16,475 17,017
Principal payments 21,589 23,244 8,009
Purchases (32,749) (61,859) (18,163)
Activity in held-to-maturity securities:
Maturities 9,171 8,351 11,978
Principal payments 15,902 41,240 24,554
Purchases (18,357) (38,753) (38,102)
Purchase of Federal Home Loan Bank stock (1,296) - (38)
Loan originations, net of principal payments (67,139) (92,872) (34,718)
Additions to banking premises and equipment (3,744) (2,278) (2,827)
Proceeds from sales of foreclosed real estate 347 193 2,604
Proceeds from sale of other real estate - 119 -
Proceeds from sale of equipment 18 - -
Cash and cash equivalents received from acquisition
of three branch offices - 44,843 -
------------- ------------- -------------
Net cash used in investing activities (66,599) (55,978) (17,407)
------------- ------------- -------------
</TABLE>
(continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 33,485 38,226 3,750
Net increase (decrease) in securities sold under
agreements to repurchase (5,880) 1,930 (1,270)
Proceeds from Federal Home Loan Bank advances with
maturities in excess of three months 40,000 32,000 2,000
Repayments of Federal Home Loan Bank advances with
maturities in excess of three months (13,662) (9,290) (2,074)
Proceeds (repayments) of borrowings with maturities
of three months or less 3,000 - (778)
Net increase in mortgagors' escrow accounts 160 153 152
------------- ------------- -------------
Net cash provided by financing activities 57,103 63,019 1,780
------------- ------------- -------------
Net change in cash and cash equivalents (2,033) 11,258 (10,550)
Cash and cash equivalents at beginning of year 26,675 15,417 25,967
------------- ------------- -------------
Cash and cash equivalents at end of year $ 24,642 $ 26,675 $ 15,417
============= ============= =============
Supplemental cash flow information:
Interest paid on deposits $ 23,834 $ 22,553 $ 21,452
Interest paid on borrowed funds 2,797 1,581 720
Income taxes paid 2,080 2,929 1,680
Transfers from loans to foreclosed real estate 151 222 557
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
Berkshire Bancorp is a mutual holding company formed in 1996. On May 1,
1997, Berkshire Bancorp's wholly-owned subsidiary, Berkshire County Savings
Bank, merged with Great Barrington Savings Bank to form Berkshire Bank
under a transaction accounted for by the pooling-of-interests method of
accounting.
The consolidated financial statements includes the accounts of Berkshire
Bancorp ("Corporation" or "Bancorp"), and its wholly-owned subsidiary,
Berkshire Bank ("Bank") and the Bank's wholly-owned subsidiaries, North
Street Securities Corporation (formerly GBSB Leasing Corporation), GBSB,
Inc. and Woodland Realty, Inc. In addition, Greenland Development
Corporation and its wholly-owned subsidiary, Forward Development
Corporation held title to certain loans and were dissolved during 1999.
North Street Securities Corporation and GBSB, Inc. hold title to certain
investment securities. Woodland Realty, Inc. is presently inactive. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of estimates
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
as of the date of the consolidated balance sheet and reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, deferred taxes and the
pension liability.
Business and operating segments
The Corporation provides a variety of financial services to individuals and
businesses through its offices in Berkshire County. Its primary deposit
products are savings, checking accounts and term certificate accounts and
its primary lending products are residential and commercial mortgage loans.
In addition, trust services are offered to individuals and small businesses
in the Berkshire County area.
F-7
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Business and operating segments (concluded)
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual and interim financial statements. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. Generally, financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Management evaluates the Corporation's performance
and allocates resources based on a single segment concept. Accordingly,
there are no separately identified operating segments for which discrete
financial information is available. The Corporation does not derive
revenues from, or have assets located in, foreign countries, nor does it
derive revenues from any single customer that represents 10% or more of the
Corporation's total revenues.
Reclassifications
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
Cash and cash equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash, balances due from banks and short-term
investments, all of which mature within ninety days.
Short-term investments
Short-term investments mature within ninety days and are carried at cost,
which approximates fair value.
Securities
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and reflected at amortized
cost, less principal payments received. Securities classified as "available
for sale" are carried at fair value, with unrealized gains and losses
excluded from earnings and reported in other comprehensive income.
Federal Home Loan Bank of Boston ("FHLB") stock is reflected at cost.
Savings Bank Life Insurance Company of Massachusetts ("SBLI") stock was
recorded at fair value at acquisition as determined by an appraisal
performed by independent investment consultants retained by SBLI.
F-8
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Securities (concluded)
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair
value of securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses. Gains and losses on
the sale of securities are recorded on the trade date and are determined
using the specific identification method.
Loans
The Bank grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by mortgage loans
in Berkshire County. The ability of the Bank's debtors to honor their loans
is dependent upon the local economy and the local real estate market.
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are reported at
their outstanding unpaid principal balances adjusted for charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated
loans. Interest income is accrued on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, are deferred and
recognized as an adjustment of the related loan yield using the interest
method.
Interest on loans is generally not accrued on loans which are
ninety days or more past due and not well secured and in the process of
collection.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest
on these loans is accounted for on the cash-basis or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Loans originated and intended for sale in the secondary market are carried
at the lower of cost or estimated fair value in the aggregate. Fair value
is based on commitments on hand from investors or prevailing market prices.
Net unrealized losses, if any, are recognized through a valuation allowance
by charges to income.
F-9
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses
The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.
A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis by either the present value of expected
future cash flows discounted at the loan's effective interest rate, or the
fair value of the collateral if the loan is collateral dependent.
Substantially all of the Bank's loans which have been identified as
impaired have been measured by the fair value of existing collateral.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Corporation does not separately
identify individual consumer loans or residential mortgage loans for
impairment disclosures.
Foreclosed assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale
and are initially recorded at the lower of the investment in the loan or
fair value less estimated cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the
lower of carrying amount or fair value less cost to sell. Revenue and
expenses from operations and changes in the valuation allowance are
included in net expenses from foreclosed assets.
F-10
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Banking premises and equipment
Land is carried at cost. Buildings and improvements and equipment are
carried at cost, less accumulated depreciation and amortization computed on
the straight-line method over the estimated useful lives of the assets.
It is general practice to charge the cost of maintenance and repairs to
earnings when incurred; major expenditures for betterments are capitalized
and depreciated.
Goodwill
Goodwill is associated with the Corporation's purchase of two branches from
another financial institution in December 1985 and three branches in 1998.
These costs are currently amortized against income on a straight-line basis
over 15 years.
Transfers of financial assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated from the
Corporation, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Corporation does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
Income taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
accordingly through the provision for income taxes. The Bank's base amount
of its federal income tax reserve for loan losses is a permanent difference
for which there is no recognition of a deferred tax liability. However, the
loan loss allowance maintained for financial reporting purposes is a
temporary difference with allowable recognition of a related deferred tax
asset, if it is deemed realizable.
Pension plan
The compensation cost of an employee's pension benefit is recognized on the
net periodic pension cost method over the employee's approximate service
period. The aggregate cost method is utilized for funding purposes.
Advertising costs
Advertising costs are charged to earnings when incurred.
F-11
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Trust assets
Trust assets held in a fiduciary or agent capacity are not included in the
accompanying consolidated balance sheets because they are not assets of the
Corporation.
Comprehensive income
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available-
for-sale securities, are reported as a separate component of retained
earnings on the consolidated balance sheet, such items, along with net
income, are components of comprehensive income.
The components of other comprehensive income, relative to securities
available for sale, and related tax effects are as follows for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Change in net unrealized holding gains on
available-for-sale securities $ (1,841) $ 7,276 $ 8,919
Reclassification adjustment for gains
realized in income (491) (425) (2,653)
------------- ------------ ------------
Net change in unrealized gains (2,332) 6,851 6,266
Tax effect 860 (2,391) (2,165)
------------- ------------ ------------
Net-of-tax change $ (1,472) $ 4,460 $ 4,101
============= ============ ============
</TABLE>
F-12
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)
Recent accounting pronouncement
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. This Statement
establishes accounting and reporting standards for derivative instruments
and hedging activities, including certain derivative instruments embedded
in other contracts, and requires that an entity recognize all derivatives
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) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of
an unrecognized firm commitment, an available-for-sale security, a foreign
currency denominated forecasted transaction, or a net investment in a
foreign operation. The Statement generally provides for matching the timing
of the recognition of the gain or loss on derivatives designated as hedging
instruments 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 will be
recognized in net income in the period of change. Management is currently
evaluating the impact of adopting this Statement on the consolidated
financial statements, but does not anticipate that it will have a material
impact.
2. SHORT-TERM INVESTMENTS
Short-term investments consist of the following at December 31, 1999 and
1998:
[GRAPHIC OMITTED]
1999 1998
------------ -----------
(In thousands)
Federal funds sold $ 1,000 $ -
FHLB Overnight deposits 341 7,121
-------- ---------
$ 1,341 $ 7,121
======== =========
F-13
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. SECURITIES
The amortized cost and estimated fair value of securities, with gross
unrealized gains and losses, follows:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
-----------------------------
Debt securities:
U.S. Treasury obligations $ 3,049 $ - $ (26) $ 3,023
Federal agency obligations 7,937 - (249) 7,688
Other bonds and obligations 31,177 1 (544) 30,634
Mortgage-backed securities:
FHLMC/ FNMA/GNMA 547 2 (4) 545
REMIC's and CMO's 9,584 105 (101) 9,588
Asset-backed securities 3,253 2 (48) 3,207
------------ ------------- ------------- -------------
Total debt securities 55,547 110 (972) 54,685
Mutual funds 947 - (148) 799
Marketable equity securities 9,507 28,446 (353) 37,600
------------ ------------- ------------- -------------
Total securities
available for sale $ 66,001 $ 28,556 $ (1,473) $ 93,084
============ ============= ============= =============
Securities Held to Maturity
---------------------------
Debt securities:
Municipal bonds and obligations $ 6,720 $ - $ - $ 6,720
Mortgage-backed securities:
FHLMC/GNMA 1,140 2 (4) 1,138
REMIC's and CMO's 9,154 2 (92) 9,064
------------ ------------- ------------- -------------
Total securities
held to maturity $ 17,014 $ 4 $ (96) $ 16,922
============ ============= ============= =============
</TABLE>
F-14
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SECURITIES (continued)
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ----------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C>
Securities Available for Sale
-----------------------------
Debt securities:
U.S. Treasury obligations $ 3,098 $ 15 $ - $ 3,113
Federal agency obligations 9,145 29 (1) 9,173
Other bonds and obligations 18,054 107 (88) 18,073
Mortgage-backed securities:
FHLMC/ FNMA/GNMA 406 10 - 416
REMIC's and CMO's 20,479 163 (33) 20,609
Asset-backed securities 2,639 8 (43) 2,604
------------ ------------ ----------- ---------
Total debt securities 53,821 332 (165) 53,988
Mutual funds 947 - (94) 853
Marketable equity securities 9,591 29,540 (198) 38,933
------------ ------------ ----------- ---------
Total securities
available for sale $ 64,359 $ 29,872 $ (457) $ 93,774
============ ============ =========== =========
Securities Held to Maturity
---------------------------
Debt securities:
Municipal bonds and obligations $ 6,997 $ - $ - $ 6,997
Mortgage-backed securities:
FHLMC/GNMA 124 1 - 125
REMIC's and CMO's 16,659 40 (65) 16,634
------------ ------------ ----------- ---------
Total securities held
to maturity $ 23,780 $ 41 $ (65) $ 23,756
============ ============ =========== =========
</TABLE>
F-15
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SECURITIES (concluded)
The amortized cost and estimated fair value of debt securities by
contractual maturity at December 31, 1999 is as follows. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
----------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 9,761 $ 9,701 $ 5,888 $ 5,888
Over 1 year to 5 years 28,215 27,602 221 221
Over 5 years to 10 years 2,349 2,250 - -
Over 10 years 1,838 1,792 611 611
------------ ------------- ------------- -------------
Total bonds and obligations 42,163 41,345 6,720 6,720
Mortgage-backed and asset-backed
securities 13,384 13,340 10,294 10,202
------------ ------------- ------------- -------------
Total debt securities $ 55,547 $ 54,685 $ 17,014 $ 16,922
============ ============= ============= =============
</TABLE>
At December 31, 1999 and 1998, the Corporation has pledged investment
securities with an amortized cost of $5,396,000 and $11,505,000,
respectively, and a fair value of $5,283,000 and $11,523,000,
respectively, to a commercial bank, as collateral for repurchase
agreements, and for its treasury, tax and loan account.
For the years ended December 31, 1999, 1998 and 1997, proceeds from
the sale of securities available for sale amounted to $1,191,000,
$5,319,000 and $12,279,000, respectively. Gross realized gains
amounted to $685,000, $511,000 and $216,000, respectively. Gross
realized losses amounted to $194,000, $86,000 and $20,000,
respectively.
During 1997, the Corporation established a private charitable
foundation (the "Foundation") to provide grants to charitable
organizations in Berkshire County. The Foundation, which is not a
subsidiary of the Corporation, was funded on May 1, 1997 by a donation
from the Bank of marketable equity securities with a cost basis and a
fair value of $97,000 and $2,457,000, respectively, at the date of
transfer. Such securities had been classified as available for sale
and, accordingly, the transfer resulted in the Bank recognizing the
unrealized appreciation of the securities of $2,360,000 in the
consolidated statement of income.
F-16
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LOANS
A summary of the balances of loans follows at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(In thousands)
<S> <C> <C>
One- to four-family mortgage loans $ 245,240 $ 220,612
Commercial mortgage loans 46,419 51,598
Multi-family mortgage loans 14,793 15,393
Construction loans 12,534 12,821
Home equity loans 33,168 31,628
Consumer loans 175,568 140,549
Commercial loans 146,196 134,115
-------------- --------------
Total loans 673,918 606,716
Allowance for loan losses (8,534) (7,589)
Net deferred loan costs 170 44
-------------- --------------
Loans, net $ 665,554 $ 599,171
============== ==============
</TABLE>
At December 31, 1999, consumer loans include $2,425,000 of loans
which were held for sale and sold in January, 2000.
An analysis of the allowance for loan losses for the year ended
December 31, 1999, 1998 and 1997 follows:
1999 1998 1997
-------- -------- ---------
(In thousands)
Balance at beginning of year $ 7,589 $ 6,078 $ 6,303
Provision for loan losses 3,030 2,055 1,477
Loans charged-off (2,353) (812) (2,296)
Recoveries 268 268 594
--------- ---------- ---------
Balance at end of year $ 8,534 $ 7,589 $ 6,078
========= ========== =========
F-17
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
LOANS (concluded)
The following is a summary of information pertaining to impaired and
non-accrual loans at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
(In thousands)
<S> <S> <C>
Impaired loans with no valuation allowance $ 1,522 $ 938
Impaired loans with a valuation allowance 50 1,552
------------- --------------
Total impaired loans $ 1,572 $ 2,490
============= ==============
Valuation allowance allocated to impaired loans $ 14 $ 304
============= ==============
Non-accrual loans $ 2,841 $ 3,490
============= ==============
</TABLE>
No additional funds are committed to be advanced in connection with
impaired loans.
For the years ended December 31, 1999, 1998 and 1997, the average
recorded investment in impaired loans amounted to $2,496,000,
$3,015,000 and $3,840,000, respectively. The Corporation recognized
$23,000, $218,000 and $256,000, respectively, of interest income on
impaired loans, during the period that they were impaired, on the cash
basis.
The Bank has sold loans in the secondary market and has retained the
servicing responsibility and receives fees for the services provided.
Mortgage loans sold and serviced for others amounted to $24,963,000
and $23,124,000 at December 31, 1999 and 1998, respectively.
Consumer loans sold and serviced for others amounted to $38,359,000
and $10,239,000 at December 31, 1999 and 1998, respectively.
Substantially all loans serviced for others were sold without recourse
provisions and are not included in the accompanying consolidated
balance sheets.
F-18
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation and amortization of
banking premises and equipment and their estimated useful lives follows at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Lives
-------------- -------------- -------------------
(In thousands)
<S> <C> <C> <C>
Banking premises:
Land $ 1,558 $ 1,558
Buildings and improvements 15,138 12,996 5 - 50 years
Equipment 5,639 7,991 2 - 38 years
Construction in process 323 356
-------------- --------------
22,658 22,901
Accumulated depreciation and
amortization (11,127) (13,206)
-------------- --------------
$ 11,531 $ 9,695
============== ==============
</TABLE>
Construction in process in 1999 includes a renovation project at the Bank's
main office. Estimated costs to complete this project amount to
approximately $296,000 at December 31, 1999.
Construction in process in 1998 included renovation projects at one branch
office and the cost of land and buildings purchased for future use as
office space. Estimated costs to complete these projects amounted to
approximately $1,700,000 at December 31, 1998. During 1999 these projects
were completed and costs were transferred to applicable categories.
Depreciation and amortization expense for the years ended December 31,
1999, 1998 and 1997 amount to $1,860,000, $1,735,000 and $1,737,000,
respectively.
F-19
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DEPOSITS
A summary of deposit balances, by type, is as follows at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
(In thousands)
<S> <C> <C>
Demand $ 69,034 $ 69,796
NOW 78,223 78,202
Regular 144,704 138,088
Money market 92,721 69,757
-------- ---------
Total non-certificate accounts 384,682 355,843
-------- ---------
Term certificates less than $100,000 212,538 215,214
Term certificates $100,000 or more 82,765 75,443
-------- ---------
Total certificate accounts 295,303 290,657
-------- ---------
Total deposits $679,985 $ 646,500
======== =========
</TABLE>
A summary of certificate accounts by maturity is as follows at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------
Weighted
Average
Amount Rate Amount
--------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Within 1 year $ 206,556 5.13% $207,080
Over 1 year to 3 years 70,006 5.78 63,837
Over 3 years 18,741 5.99 19,740
--------- --------
$ 295,303 5.34% $290,657
========= ========
</TABLE>
F-20
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FEDERAL HOME LOAN BANK ADVANCES
A summary of outstanding advances from the Federal Home Loan Bank of
Boston, by maturity, is as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- --------
Maturity (In thousands)
--------
<S> <C> <C>
Within 1 year $ 26,352 $ 3,403
Over 1 to 2 years 2,310 2,253
Over 2 to 3 years 2,156 69
Over 3 to 5 years 1,482 5,153
Over 5 years 26,628 18,712
---------- ----------
$ 58,928 $ 29,590
========== ==========
</TABLE>
Interest rates on the above advances range from 4.18% to 6.50% as of both
December 31, 1999 and December 31, 1998.
The Bank maintains a line-of-credit with the Federal Home Loan Bank of
Boston which carries interest at a rate that adjusts daily. Borrowings
under the line are limited to 2% of the Bank's total assets. All borrowings
from the Federal Home Loan Bank of Boston are secured by a blanket lien on
certain qualified collateral, defined principally as 75% of the carrying
value of certain first mortgage loans on owner-occupied residential
property and 90% of the market value of U.S. Government and federal agency
obligations owned by the Bank.
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase ("repurchase agreements")
are funds borrowed from customers on an overnight basis that are secured by
the Bank's investment portfolio.
A summary of repurchase agreements is as follows at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Repurchase agreements with customers $ 1,120 $ 7,000
========= =========
Interest rate 5.20% 4.75%
========= =========
Fair value of securities underlying the
agreements $ 1,930 $ 8,199
========= =========
</TABLE>
F-21
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (concluded)
The Bank also has a repurchase agreement line of credit with the Depositors
Insurance Fund of up to $2,000,000 to be secured by securities or other
assets of the Bank. As of December 31, 1999 and 1998, there were no
outstanding borrowings against this agreement.
9. INCOME TAXES
Allocation of federal and state income taxes between current and deferred
portions is as follows for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ----------
(In thousands)
<S> <C> <C> <C>
Current tax provision: $ 2,230 $ 2,842 $ 791
Federal (487) - -
Federal tax credit 571 776 581
State -------- --------- ----------
2,314 3,618 1,372
-------- --------- ----------
Deferred tax provision (benefit): (75) (727) 355
Federal 104 171 (35)
State -------- --------- ----------
29 (556) 320
-------- --------- ----------
Change in valuation reserve (348) (294) -
-------- --------- ----------
$ 1,995 $ 2,768 $ 1,692
======== ========= ==========
</TABLE>
The reasons for the differences between the statutory federal income tax
rate and the effective tax rate is summarized as follows for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 5.2 6.8 8.6
Dividends received deduction (2.9) (3.4) (4.7)
Non-taxable appreciation of securities donated (3.6) (2.2) (2.9)
Rehabilitation tax credit (6.4) - -
Other, net (0.1) 3.3 5.3
----------- --------- ---------
Effective tax rate 26.2% 38.5% 40.3%
=========== ========= =========
</TABLE>
F-22
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INCOME TAXES (continued)
The components of the net deferred tax liability are as follows at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
Deferred tax liability:
Federal $ 10,246 $ 11,049
State 704 807
--------- ---------
10,950 11,856
--------- ---------
Deferred tax asset:
Federal (3,975) (3,895)
State (1,304) (1,459)
--------- ---------
(5,279) (5,354)
Valuation reserve 402 750
--------- ---------
(4,877) (4,604)
--------- ---------
Net deferred tax liability $ 6,073 $ 7,252
========= =========
</TABLE>
The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Investments:
Net unrealized gain on securities
available for sale $ 9,410 $ 10,270
Other 546 332
Depreciation 308 136
Allowance for loan losses (3,032) (2,447)
Employee benefit plans (1,380) (1,339)
Charitable contribution carryover (196) (468)
Other 15 18
--------- ----------
5,671 6,502
Valuation reserve 402 750
--------- ----------
Net deferred tax liability $ 6,073 $ 7,252
========= ==========
</TABLE>
F-23
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INCOME TAXES (concluded)
A summary of the change in the net deferred tax liability is as follows for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 7,252 $ 5,711 $ 3,226
Deferred tax benefit 29 (556) 320
Deferred tax effects of net unrealized gains
on securities available for sale (860) 2,391 2,165
Utilization of valuation reserve (348) (294) -
--------- --------- ---------
Balance at end of year $ 6,073 $ 7,252 $ 5,711
========= ========= =========
</TABLE>
A summary of the change in the valuation reserve application to the
deferred tax assets is as follows for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 750 $ 1,044 $ 418
Benefits utilized by current year operations (348) (497) -
Increase in charitable contribution carryover - - 626
Change in future income assumptions - 203 -
------------ --------- ---------
Balance at end of year $ 402 $ 750 $ 1,044
============ ========= =========
</TABLE>
The valuation reserve relates to a state net operating loss carryforward
and a charitable contribution carryover. The net operating loss
carryforward has been used in full at December 31, 1999. The charitable
contribution carryover remains and expires in 2002.
The federal income tax reserve for loan losses at the Bank's base year is
approximately $844,000. If any portion of the reserve is used for purposes
other than to absorb the losses for which established, approximately 150%
of the amount actually used (limited to the amount of the reserve) would be
subject to taxation in the fiscal year in which used. As the Bank intends
to use the reserve only to absorb loan losses, a deferred income tax
liability of approximately $346,000 has not been provided.
F-24
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies which are not reflected in the accompanying consolidated
financial statements.
Loan commitments
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Such commitments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the accompanying consolidated balance sheets.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument is represented by the
contractual amount of these commitments. The Corporation uses the same
credit policies in making commitments as it does for on-balance-sheet
instruments. A summary of financial instruments outstanding whose contract
amounts represent credit risk is as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
(In thousands)
<S> <C> <C>
Commitments to grant loans $ 25,153 $ 26,244
Unused funds on commercial lines-of-credit 49,103 43,668
Unadvanced funds on home equity and reddi-cash
lines of credit 36,429 35,070
Unadvanced funds on construction loans 4,732 5,826
Standby letters of credit 2,026 1,721
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The commitments for lines of
credit may expire without being drawn upon. Therefore, the total commitment
amounts do not necessarily represent future cash requirements. The
Corporation evaluates each customer's credit worthiness on a case-by-case
basis. Funds disbursed for loans and home equity lines of credit are
collateralized by real estate. Commercial lines of credit are generally
secured by business assets and securities. Reddi-cash lines of credit are
unsecured.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These letters of
credit are primarily issued to support borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
F-25
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
COMMITMENTS AND CONTINGENCIES (concluded)
Operating lease commitments
Pursuant to the terms of noncancelable lease agreements in effect at
December 31, 1999, pertaining to banking premises and equipment, future
minimum rent commitments are as follows:
Years Ending
December 31, (In thousands)
-----------------
2000 $ 461
2001 416
2002 399
2003 392
2004 392
Thereafter 1,467
-------
$ 3,527
=======
The leases contain options to extend for periods from ten to thirty years.
The cost of such rentals is not included above. Total rent expense for the
years ended December 31, 1999, 1998 and 1997 amounted to $448,000, $244,000
and $143,000, respectively.
Employment agreements
The Corporation has entered into employment agreements with certain senior
executives that generally provide for a specified minimum annual
compensation and the continuation of benefits currently received. The
original terms of the agreements are for three years and automatically
extend unless either party gives notice to the contrary. However, such
agreements may be terminated for cause, as defined, without incurring any
continuing obligations.
Other contingencies
Various legal claims also arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect
on the Corporation's consolidated financial statements.
F-26
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. MINIMUM REGULATORY CAPITAL REQUIREMENTS
The Corporation (on a consolidated basis) and the Bank are 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 Corporation's and
the Bank's consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Corporation and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors. Prompt corrective action provisions are not applicable
to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the following table) of total and Tier 1 capital (as defined
in the regulations) to risk-weighted assets (as defined) and of Tier 1
capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1999 and 1998, that the Corporation and the Bank meet
all capital adequacy requirements to which they are subject.
F-27
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MINIMUM REGULATORY CAPITAL REQUIREMENTS (continued)
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, an institution must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the following tables. There are no conditions or events since that
notification that management believes have changed the Bank's category. The
Corporation's and Bank's actual capital amounts and ratios as of December
31, 1999 and 1998 are also presented in the table.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------------
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
---------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----------- --------------- --------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk
weighted assets:
Corporation $ 84,652 12.90% $ 52,516 8.0% N/A N/A
Berkshire Bank 84,554 12.88 52,516 8.0 $ 64,645 10.0%
Tier 1 capital to risk
weighted assets:
Corporation 63,870 9.73 26,258 4.0 N/A N/A
Berkshire Bank 63,773 9.71 26,258 4.0 39,387 6.0
Tier 1 capital to average
assets:
Corporation 63,870 7.91 32,309 4.0 N/A N/A
Berkshire Bank 63,773 7.90 32,305 4.0 40,381 5.0
</TABLE>
F-28
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MINIMUM REGULATORY CAPITAL REQUIREMENTS (concluded)
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------------
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
---------------------------- ---------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------------ ---------------- ---------- ------------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk
weighted assets:
Corporation $ 78,449 13.04% $ 48,140 8.0% N/A N/A
Berkshire Bank 78,347 13.02 48,140 8.0 $ 60,175 10.0%
Tier 1 capital to risk
weighted assets:
Corporation 57,698 9.59 24,070 4.0 N/A N/A
Berkshire Bank 57,596 9.57 24,070 4.0 36,105 6.0
Tier 1 capital to average
assets:
Corporation 57,698 7.79 29,610 4.0 N/A N/A
Berkshire Bank 57,596 7.78 29,606 4.0 37,007 5.0
</TABLE>
12. EMPLOYEE BENEFIT PLANS
Defined benefit pension plan
The Corporation provides pension benefits for eligible employees through a
defined benefit pension plan. Each employee reaching the age of 21 and
having completed at least 1,000 hours of service in a twelve-month period,
beginning with such employee's date of employment, automatically becomes a
participant in the pension plan. Participants become fully vested when
credited with three years of service.
F-29
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EMPLOYEE BENEFIT PLANS (continued)
Defined benefit pension plan (continued)
Information pertaining to the activity in the plan is as follows:
<TABLE>
<CAPTION>
Plan Years Ended October 31,
----------------------------------------------------
1999 1998 1997
------------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year $ 9,151 $ 7,897 $ 6,825
Actual return on plan assets 1,753 654 1,201
Employer contribution 348 916 493
Benefits paid (205) (316) (622)
------------- ------------- ------------
Fair value of plan assets at end of year 11,047 9,151 7,897
------------- ------------- ------------
Change in benefit obligation:
Benefit obligation at beginning of year 9,518 9,807 8,576
Service cost 519 611 560
Interest cost 642 711 643
Actuarial loss (gain) (982) (1,295) 650
Benefits paid (205) (316) (622)
------------- ------------- ------------
Benefit obligation at end of year 9,492 9,518 9,807
------------- ------------- ------------
Funded status 1,555 (367) (1,910)
Unrecognized net actuarial gain (4,286) (2,386) (1,116)
Unrecognized prior service cost 183 194 205
------------- ------------- ------------
Accrued pension cost $ (2,548) $ (2,559) $ $(2,821)
============= ============= ============
</TABLE>
The components of net periodic pension cost are as follows for the plan
year ended October 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Service cost $ 519 $ 611 $ 560
Interest cost 642 711 643
Expected return on plan assets (732) (631) (545)
Amortization of prior service cost 11 11 11
Recognized net actuarial gain (104) (48) (52)
------ ------ ------
$ 336 $ 654 $ 617
====== ====== ======
</TABLE>
F-30
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EMPLOYEE BENEFIT PLANS (continued)
Defined benefit pension plan (concluded)
Actuarial assumptions used in accounting were:
1999 1998 1997
---- ---- ----
Discount rate on benefit obligations 6.75% 7.25% 7.50%
Rates of increase in compensation levels 4.50 5.00 5.00
Expected long-term rates of return on plan assets 8.00 8.00 8.00
Defined contribution pension plan
The Corporation has a qualified savings plan under Section 401(k) of the
Internal Revenue Code. Each employee reaching the age of 21 and having
completed at least 1,000 hours of service in a twelve-month period,
beginning with such employee's date of employment, automatically becomes a
participant in the 401(k) Plan. Employees may contribute up to 15% of their
compensation subject to certain limits based on federal tax laws. The
Corporation may choose to make matching contributions equal to 100% of the
first 3% of an employee's compensation contributed to the 401(k) Plan. The
Corporation made matching contributions which amounted to $209,000,
$201,000 and $141,000, respectively, for the years ended December 31, 1999,
1998 and 1997.
Supplemental employee retirement plan
The Corporation has nonqualified supplemental employee retirement plans for
the benefit of certain senior executives. Benefits generally commence no
earlier than age sixty and continue for the life of the senior executive.
As of December 31, 1999 and 1998, the Corporation has an accrued expense
payable in the amount of $817,000 and $665,000, respectively, representing
the present value of future payments under the supplemental retirement
plans. In some instances, the Corporation has entered into split-dollar
life insurance agreements with senior executives to provide supplemental
retirement benefits.
Incentive plan
The Corporation adopted an incentive plan ("the Plan") whereby all
management and staff members are eligible to receive a bonus, tied to
performance, of up to 10% of net operating income accrued for on a monthly
basis. The structure of the Plan is to be reviewed on an annual basis by
the Executive Committee. The Plan year end is October 31. Incentive
compensation expense for the years ended December 31, 1999, 1998 and 1997
amounted to $1,132,000, $1,007,000 and $411,000, respectively.
F-31
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EMPLOYEE BENEFIT PLANS (concluded)
Other benefits
The Corporation has in the past offered its retirees optional medical
insurance coverage. All participating retirees are required to contribute
in part to the cost of this coverage. The retiree medical plan was
terminated on December 31, 1996. Any retiree participating in the plan at
that time will continue to be covered for life, however, no new retirees
can participate in this plan. At December 31, 1999 and 1998, the
Corporation had an accrued liability in the amount of $626,000 and
$663,000, respectively, for payment of future premiums under this plan.
13. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to trustees
and officers and their affiliates. Such loans which aggregate more than
$60,000 on an individual basis, amounted to $3,909,000 and $3,956,000 at
December 31, 1999 and 1998, respectively.
14. BRANCH ACQUISITION
On May 1, 1998, the Bank entered into an agreement with another financial
institution in Berkshire County to acquire three branch offices including
loans receivable and deposit liabilities.
The Bank paid $7,463,000 as a premium in assuming the deposit liabilities
and acquiring the assets, and received $44,843,000 in cash from the other
financial institution. The premium paid is recorded as goodwill and is
being amortized over a 15 year period. The cost of the assets acquired and
value of liabilities assumed as of August 21, 1998 (the closing date) were
as follows:
(In thousands)
Assets
------
Cash $ 44,843
Loans, net 16,833
Goodwill 7,463
Accrued interest receivable and other assets 643
--------
Total $ 69,782
========
Liabilities
-----------
Deposits $ 69,682
Accrued expenses and other liabilities 100
--------
Total $ 69,782
========
F-32
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES
Federal and state banking regulations place certain restrictions on
dividends paid and loans or advances made by the Bank to the Corporation.
The total amount of dividends which may be paid at any date is generally
limited to the retained earnings of the Bank, and loans or advances are
limited to 10% of the Bank's capital stock and surplus on a secured basis.
At December 31, 1999 and 1998, the Bank's retained earnings available for
the payment of dividends was $47,393,000 and $41,765,000, respectively, and
funds available for loans or advances amounted to $2,319,000 for both
years.
In addition, dividends paid by the Bank to the Corporation would be
prohibited if the effect thereof would cause the Bank's capital to be
reduced below applicable minimum regulatory capital requirements.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of estimated fair values of all financial instruments
where it is practicable to estimate such values. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts of these instruments
-------------------------
approximate fair values.
Securities: Fair values for investment securities, excluding FHLB and
----------
SBLI stock, are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. The carrying value of
FHLB stock approximates fair value based on the redemption provisions
of the Federal Home Loan Bank and SBLI stock was recorded at fair
value at acquisition as determined by an appraisal performed by
independent investment consultants retained by SBLI.
F-33
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Loans: For variable-rate loans that reprice frequently and with no
-----
significant change in credit risk, fair values are based on carrying
values. Fair values for all other loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
Deposits: The fair values for non-certificate accounts are, by
--------
definition, equal to the amount payable on demand at the reporting
date which is their carrying amounts. Fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank advances: The fair values of Federal Home Loan
-------------------------------
Bank advances are estimated using discounted cash flow analyses based
on the Bank's current incremental borrowing rates for similar types of
borrowing arrangements.
Securities sold under agreements to repurchase: The carrying amount of
----------------------------------------------
repurchase agreements approximates fair value. Repurchase agreements
generally mature or "roll over" on a daily basis.
Accrued interest and mortgagors' escrow accounts: The carrying amounts
------------------------------------------------
of these instruments approximate fair value.
Off-balance-sheet instruments: Fair values for off-balance-sheet
-----------------------------
lending com-mitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. The fair values of
off-balance sheet instruments are immaterial.
F-34
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)
The carrying amounts and estimated fair values of the Corporation's
financial instruments are as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- -------------- -------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 24,642 $ 24,642 $ 26,675 $ 26,675
Securities available for sale 93,084 93,084 93,774 93,774
Securities held to maturity 17,014 16,922 23,780 23,756
Federal Home Loan Bank stock 3,843 3,843 2,547 2,547
Loans, net 665,554 644,276 599,171 611,297
Accrued interest receivable 4,910 4,910 4,458 4,458
Savings Bank Life Insurance stock 2,043 2,043 2,043 2,043
Financial liabilities:
Deposits 679,985 678,650 646,500 648,995
Federal Home Loan Bank advances 58,928 58,439 29,590 29,664
Securities sold under agreements
to repurchase 1,120 1,120 7,000 7,000
Mortgagors' escrow accounts 782 782 622 622
</TABLE>
17. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
Financial information pertaining only to Berkshire Bancorp is as follows:
CONDENSED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
-------------- --------------
(In thousands)
<S> <C> <C>
Assets
------
Cash and due from banks $ 16 $ 1
Securities available for sale, at fair value 80 100
Investment in Bank subsidiary 88,255 84,099
Other assets 1 2
-------------- --------------
Total assets $ 88,352 $ 84,202
============== ==============
Liabilities and Retained Earnings
---------------------------------
Accrued expenses $ - $ 1
Retained earnings 88,352 84,201
-------------- --------------
Total liabilities and retained earnings $ 88,352 $ 84,202
============== ==============
</TABLE>
F-35
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (concluded)
CONDENSED STATEMENTS OF INCOME
------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Income:
Interest on securities available for sale $ 3 $ 5 $ 5
------------- -------------- -------------
Operating expenses 9 11 -
------------- -------------- -------------
Income (loss) before income taxes and equity in
undistributed income of Berkshire Bank (6) (6) 5
Applicable income tax provision (benefit) (1) (1) 2
------------- -------------- -------------
(5) (5) 3
Equity in undistributed income of Berkshire Bank 5,628 4,429 2,500
------------- -------------- -------------
Net income $ 5,623 $ 4,424 $ 2,503
============= ============== =============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,623 $ 4,424 $ 2,503
Adjustments to reconcile net income
to net cash used by operating activities:
Equity in undistributed income of Berkshire Bank (5,628) (4,429) (2,500)
Other - (2) 2
------------- -------------- -------------
Net cash provided (used) by operating activities (5) (7) 5
------------- -------------- -------------
Cash flows from investing activities:
Maturities of securities available for sale 100 - -
Purchases of securities available for sale (80) - -
------------- -------------- -------------
Net cash provided by investing activities 20 - -
------------- -------------- -------------
Net change in cash and cash equivalents 15 (7) 5
Cash and cash equivalents at beginning of year 1 8 3
------------- -------------- -------------
Cash and cash equivalents at end of year $ 16 $ 1 $ 8
============= ============== =============
</TABLE>
F-36
<PAGE>
BERKSHIRE BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
18. PLAN OF CONVERSION (UNAUDITED)
On October 22, 1999, the Board of Trustees of the Corporation approved a
Plan of Conversion for Berkshire Bancorp (the "Plan"). The Plan provides
for the conversion of the Corporation from mutual to stock form. The
Plan is subject to the approval of the Corporation's corporators and
various regulatory agencies.
As part of the Conversion, the Corporation will establish a liquidation
account for the benefit of eligible and supplemental eligible account
holders. The liquidation account will be reduced annually to the extent
that such account holders have reduced their qualifying deposits as of each
anniversary date.
Subsequent increases will not restore an account holder's interest in the
liquidation account. In the event of a complete liquidation, each eligible
and supplemental eligible account holder will be entitled to receive
balances for accounts then held. Subsequent to the Conversion, the
Corporation and the Bank may not declare or pay dividends on and the
Corporation may not repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below
applicable regulatory capital maintenance requirements or if such
declaration, payment or repurchase would otherwise violate regulatory
requirements.
Conversion costs will be deferred and deducted from the proceeds of the
shares sold. If the Conversion is not completed, all costs will be
expensed. As of December 31, 1999, approximately $150,000 in offering costs
have been deferred and is included in other assets.
19. SUBSEQUENT EVENT (UNAUDITED)
The Bank intends to expand the offering of insurance products to its
customers through the establishment of an insurance agency. On February 24,
2000, Berkshire Bank entered into a Management and Service Agreement with
third party vendors for consulting and management services with respect to
insurance services. The agreement has an initial term of four years with a
management fee in the amount of $325,000 and servicing fees based upon a
percentage of gross commissions/revenue.
F-37
<PAGE>
You should rely only on the information contained in this prospectus. Neither
Berkshire Hills nor Berkshire Bank has authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered by this prospectus
to any person or in any jurisdiction in which an offer or solicitation is not
authorized or in which the person making an offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make an offer or
solicitation in those jurisdictions. Neither the delivery of this prospectus nor
any sale hereunder shall under any circumstances imply that there has been no
change in the affairs of Berkshire Hills or Berkshire Bank since any of the
dates as of which information is furnished in this prospectus or since the date
of this prospectus.
[Logo for Berkshire Hills]
(Proposed Holding Company for Berkshire Bank)
8,314,500 Shares of Common Stock
--------
Prospectus
--------
Sandler O'Neill & Partners, LP
________, 2000
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ___________, 2000, all dealers that buy, sell or trade these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC filing(1)................................................... $ 27,263
OTS filing fee.................................................. 2,000
Massachusetts filing fee........................................ 5,000
NASD filing fee(1).............................................. 10,827
Stock market listing fee(1)..................................... 42,500
Printing, postage and mailing................................... 500,000
Legal fees and expenses (including underwriter's
counsel).................................................... 500,000
Accounting fees and expenses.................................... 150,000
Appraisers' fees and expenses (including
business plan).............................................. 50,000
Marketing fees and selling commissions(1)....................... 1,279,000
Underwriter's expenses (excluding counsel's fees)............... 100,000
Conversion agent fees and expenses.............................. 45,000
Transfer agent fees and expenses................................ 20,000
Certificate printing............................................ 10,000
Telephone, temporary help and other equipment................... 25,000
Edgarization expenses........................................... 25,000
Miscellaneous................................................... 37,410
----------
TOTAL........................................................... $2,829,000
==========
</TABLE>
______________________
(1) Unless otherwise noted, based upon the registration and issuance of
10,326,609 shares at $10.00 per share.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof)
<PAGE>
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full
by the Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of expenses)
it shall be a defense that, and (ii) in any suit by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
None.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letters between Berkshire Bancorp, Berkshire Bank and Sandler
O'Neill & Partners, L.P.
1.2 Form of Agency Agreement between Berkshire Bank and Sandler O'Neill &
Partners, L.P.*
2.1 Plan of Conversion (including the Amended and Restated Articles of
Organization and Stock Bylaws of Berkshire Bank)
3.1 Certificate of Incorporation of Berkshire Hills Bancorp, Inc.
3.2 Bylaws of Berkshire Hills Bancorp, Inc.
3.3 Amended and Restated Articles of Organization and Stock Bylaws of
Berkshire Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Berkshire Hills Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.1 Draft Opinion of Wolf & Company, P.C. re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of Employment Agreement between Berkshire Bank and certain executive
officers
10.3 Form of Employment Agreement between Berkshire Hills Bancorp, Inc. and
certain executive officers
10.4 Form of Berkshire Bank Employee Severance Compensation Plan
10.5 Form of Berkshire Bank Supplemental Executive Retirement Plan
10.6 Form of Change in Control Agreement between Berkshire Bank and certain
executive officers
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Muldoon, Murphy & Faucette LLP
23.3 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of Berkshire Hills Foundation Gift Instrument
- ---------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsfield, Commonwealth
of Massachusetts, on March 10, 2000.
Berkshire Hills Bancorp, Inc.
By: /s/ James A. Cunningham, Jr.
----------------------------------------------
James A. Cunningham, Jr.
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ James A. Cunningham, Jr. President, Chief Executive Officer March 10, 2000
- ---------------------------- and Director
James A. Cunningham, Jr. (principal executive officer)
/s/ Charles F. Plungis, Jr. Senior Vice President, Treasurer March 10, 2000
- ---------------------------- and Chief Financial Officer
Charles F. Plungis, Jr. (principal accounting
and financial officer)
/s/ Robert A. Wells Chairman of the Board March 10, 2000
- ----------------------------
Robert A. Wells
/s/ Thomas O. Andrews Director March 10, 2000
- ----------------------------
Thomas O. Andrews
/s/ Thomas R. Dawson Director March 10, 2000
- ----------------------------
Thomas R. Dawson
/s/ Henry D. Granger Director March 10, 2000
- ----------------------------
Henry D. Granger
/s/ A. Allen Gray Director March 10, 2000
- ----------------------------
A. Allen Gray
/s/ John Kittredge Director March 10, 2000
- ----------------------------
John Kittredge
/s/ Peter J. Lafayette Director March 10, 2000
- ----------------------------
Peter J. Lafayette
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Edward G. McCormick Director March 10, 2000
- ----------------------------
Edward G. McCormick
/s/ Catherine B. Miller Director March 10, 2000
- ----------------------------
Catherine B. Miller
/s/ Michael G. Miller Director March 10, 2000
- ----------------------------
Michael G. Miller
/s/ Raymond B. Murray, III Director March 10, 2000
- ----------------------------
Raymond B. Murray, III
/s/ Louis J. Oggiani Director March 10, 2000
- ----------------------------
Louis J. Oggiani
/s/ Robert S. Raser Director March 10, 2000
- ----------------------------
Robert S. Raser
/s/ Corydon L. Thurston Director March 10, 2000
- ----------------------------
Corydon L. Thurston
/s/ Ann H. Trabulsi Director March 10, 2000
- -------------------------------
Ann H. Trabulsi
/s/ William E. Williams Director March 10, 2000
- -------------------------------
William E. Williams
/s/ Anne Everest Wojtkowski Director March 10, 2000
- ------------------------------
Anne Everest Wojtkowski
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO THE
FORM S-1
Registration Statement
Under
THE SECURITIES ACT OF 1933
----------------
Berkshire Hills Bancorp, Inc.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letters between Berkshire Bancorp, Berkshire Bank and Sandler
O'Neill & Partners, L.P.
1.2 Form of Agency Agreement between Berkshire Bank and Sandler O'Neill &
Partners, L.P.*
2.1 Plan of Conversion (including the Amended and Restated Articles of
Organization and Stock Bylaws of Berkshire Bank)
3.1 Certificate of Incorporation of Berkshire Hills Bancorp, Inc.
3.2 Bylaws of Berkshire Hills Bancorp, Inc.
3.3 Amended and Restated Articles of Organization and Stock Bylaws of
Berkshire Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Berkshire Hills Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.1 Draft Opinion of Wolf & Company, P.C. re: State Tax Matters
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.2 Form of Employment Agreement between Berkshire Bank and certain executive
officers
10.3 Form of Employment Agreement between Berkshire Hills Bancorp, Inc. and
certain executive officers
10.4 Form of Berkshire Bank Employee Severance Compensation Plan
10.5 Form of Berkshire Bank Supplemental Executive Retirement Plan
10.6 Form of Change in Control Agreement between Berkshire Bank and certain
executive officers
23.1 Consent of Wolf & Company, P.C.
23.2 Consent of Muldoon, Murphy & Faucette LLP
23.3 Consent and Subscription Rights Opinion of FinPro, Inc.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of FinPro, Inc. (P)
99.2 Draft of Berkshire Hills Foundation Gift Instrument
_________________
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
Exhibit 1.1
[LOGO OF SANDLER O'NEILL APPEARS HERE]
October 26, 1999
Mr. James A. Cunningham, Jr.
President and Chief Executive Officer
Berkshire Bank
24 North Street
Pittsfield, Massachusetts 01201
Dear Mr. Cunningham:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
conversion agent to Berkshire Bank (the "Bank") in connection with the proposed
reorganization of the Bank and its parent company, Berkshire Bancorp, Inc.,
M.H.C., from the mutual holding company form to stock holding company form (the
"Conversion"). This letter is to confirm the terms and conditions of our
engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Subscription Services
Each of these services is further described in Appendix A to this agreement.
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 2
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$45,000. This fee is based upon a total number of unconsolidated accounts of
approximately 80,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses, up to an aggregate maximum amount of
$200,000 (inclusive of those expenses reimbursed to Sandler O'Neill pursuant to
the terms of the separate engagement letter of even date between Sandler O'Neill
and the Bank regarding Sandler O'Neill's financial advisory services in
connection with the Conversion); provided, however, that Sandler O'Neill shall
-------- -------
document such expenses to the reasonable satisfaction of the Bank. The
provisions of this paragraph are not intended to apply to or in any way impair
the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 3
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan which
require changes in Sandler O'Neill's services. If a substantial expense results
from any such change, the parties shall negotiate an equitable adjustment in the
fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with this agreement and the performance
hereof unless caused by or arising out of its own bad faith or gross negligence;
(d) will not be obliged to take any legal action hereunder which might in its
judgment involve any expense or liability, unless it shall have been furnished
with reasonable indemnity satisfactory to it; and (e) may rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telex, telegram, or other document or security delivered to it
and in good faith believed by it to be genuine and to have been signed by the
proper party or parties.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 4
letter, and will reimburse any Indemnified Party for all expenses (including
reasonable counsel fees and expenses) as they are incurred, including expenses
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party. The Bank will not be liable
under the foregoing indemnification provision to the extent that any loss,
claim, damage, liability or expense is found in a final judgment by a court of
competent jurisdiction to have resulted primarily from Sandler O'Neill's bad
faith or gross negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: Berkshire Bank
24 North Street
Pittsfield, MA 01201
Attention: Mr. James A. Cunningham, Jr.
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws of
the State of New York.
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
________________________________
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
Berkshire Bank
By: /s/ James A. Cunningham, Jr.
____________________________________
Mr. James A. Cunningham, Jr.
President and Chief Executive Officer
cc: Lawrence M. F. Spaccasi, Esq.
Muldoon, Murphy & Faucette, L.L.P.
<PAGE>
APPENDIX A
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Subscription Rights calculation.
2. Any combination of request cards and stock order forms for ordering
stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgment letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10.Confirmation letter to confirm purchase of stock.
11.Notification of full/partial rejection of orders.
12.Production of 1099/Debit tape.
A-1
<PAGE>
[LOGO OF SANDLER O'NEILL APPEARS HERE]
October 26, 1999
Berkshire Bancorp, Inc.
24 North Street
Pittsfield, MA 01201
Berkshire Bank
24 North Street
Pittsfield, MA 01201
Attention: Mr. James A. Cunningham, Jr.
President and Chief Executive Officer
-------------------------------------
Dear Mr. Cunningham:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to Berkshire Bancorp, Inc., M.H.C. (the
"Company") and its subsidiary, Berkshire Bank (the "Bank"), in connection with
the Company's proposed reorganization from mutual holding company form to stock
form (the "Conversion"), including the offer and sale of certain shares of the
common stock of the proposed new stock holding company for the Bank (the
"Holding Company") to the Bank's eligible account holders in a Subscription
Offering, to members of the Bank's community in a Direct Community Offering and,
under certain circumstances, to the general public in a Syndicated Community
Offering (collectively, the "Offerings"). For purposes of this letter, the term
"Actual Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Company, the
Bank and the Holding Company and will work with the Bank's management, counsel,
accountants and other advisors in connection with the Conversion and the
Offerings. We anticipate that our services will include the following, each as
may be necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 2
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Company, the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 6% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 3
1. a fee of one and one-half percent (1.50%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
Offering, excluding in each case shares purchased by (i) any employee
benefit plan of the Holding Company or the Bank established for the
benefit of their respective directors, officers and employees, and
(ii) any Charitable Foundation formed by the Bank or the Holding
Company, and (iii) any director, officer or employee of the Holding
Company or the Bank or members of their immediate families; and
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm under any selected dealers agreement in the
Syndicated Community Offering, (a) the sales commission payable to the
selected dealer under such agreement, (b) any sponsoring dealer's
fees, and (c) a management fee to Sandler O'Neill of one and one-half
percent (1.50%).
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder, regardless of whether the Conversion is consummated,
including, without limitation, legal fees, advertising, promotional,
syndication, and travel expenses, up to an aggregate maximum amount of $200,000
(inclusive of those expenses reimbursed to Sandler O'Neill pursuant to the terms
of the separate engagement letter of even date between Sandler O'Neill and the
Bank regarding Sandler O'Neill's services as Conversion Agent for the Bank);
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 4
provided, however, that Sandler O'Neill shall document such expenses to the
- -------- -------
reasonable satisfaction of the Bank. The provisions of this paragraph are not
intended to apply to or in any way impair the indemnification provisions of this
letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Company, the Bank or the Holding Company, the Bank will reimburse Sandler
O'Neill for such fees and expenses whether or not the Conversion is consummated;
provided, however, that Sandler O'Neill shall not incur any substantial expenses
- -------- -------
on behalf of the Company, the Bank or the Holding Company pursuant to this
paragraph without the prior approval of the Bank.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Company, the Bank and the Holding Company, and their
respective directors, officers, agents and employees, as Sandler O'Neill and its
counsel in their sole discretion may deem appropriate under the circumstances.
In this regard, the Bank agrees that, at its expense, it will make available to
Sandler O'Neill all information which Sandler O'Neill requests, and will allow
Sandler O'Neill the opportunity to discuss with the Bank's and the Holding
Company's management the financial condition, business and operations of the
Bank and the Holding Company. The Bank and the Holding Company acknowledge that
Sandler O'Neill will rely upon the accuracy and completeness of all information
received from the Bank and the Holding Company and their directors, trustees,
officers, employees, agents, independent accountants and counsel.
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 5
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Company, the Bank and
the Holding Company in connection with the Conversion, the Company, the Holding
Company and the Bank agree to indemnify and hold Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons within the meaning of Section 15 of the Securities Act
of 1933 or Section 20 of the Securities Exchange Act (Sandler O'Neill and each
such person being an "Indemnified Party") harmless from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Conversion or the engagement of
Sandler O'Neill pursuant to, or the performance by Sandler O'Neill of the
services contemplated by, this letter, and will reimburse any Indemnified Party
for all expenses (including reasonable legal fees and expenses) as they are
incurred, including expenses incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party;
provided, however, that the Bank and the Holding Company will not be liable in
- -------- -------
any such case to the extent that any such loss, claim, damage, liability or
expense (i) arises out of or is based upon any untrue statement of a material
fact or the omission of a material fact required to be stated therein or
necessary to make not misleading any statements contained in any proxy statement
or prospectus (preliminary or final), or any amendment or supplement thereto, or
any of the applications, notices, filings or documents related thereto made in
reliance on and in conformity with written information furnished to the Bank by
Sandler O'Neill expressly for use therein, or (ii) is primarily attributable to
the gross negligence, willful misconduct or bad faith of Sandler O'Neill. If
the foregoing indemnification is unavailable for any reason, the Bank and the
Holding Company agree to
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 6
contribute to such losses, claims, damages, liabilities and expenses in the
proportion that its financial interest in the Conversion bears to that of
Sandler O'Neill.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Company and the Bank agree that (a) except as set
forth in clause (b), the foregoing represents the general intention of the
Company, the Bank and Sandler O'Neill with respect to the services to be
provided by Sandler O'Neill in connection with the Offerings, which will serve
as a basis for Sandler O'Neill commencing activities, and (b) the only legal and
binding obligations of the Company, the Bank, the Holding Company and Sandler
O'Neill with respect to the subject matter hereof shall be (1) the Company's and
the Bank's obligation to reimburse costs and expenses pursuant to the section
captioned "Costs and Expenses," (2) those set forth under the captions
"Confidentiality" and "Indemnification," and (3) as set forth in a duly
negotiated and executed definitive Agency Agreement to be entered into prior to
the commencement of the Subscription Offering relating to the services of
Sandler O'Neill in connection with the Offerings. Such Agency Agreement shall
be in form and content satisfactory to Sandler O'Neill, the Bank and the Holding
Company and their respective counsel and shall contain standard indemnification
provisions consistent herewith.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Company's
and the Bank's business, financial condition and results of operations, (ii)
preparation of offering materials that are satisfactory to Sandler O'Neill and
its counsel, (iii) compliance with all relevant legal and regulatory
requirements to the reasonable satisfaction of Sandler O'Neill's counsel, (iv)
agreement that the price established by the independent appraiser is reasonable
and (v) market conditions at the time of the proposed offering. Sandler O'Neill
may terminate this agreement if such Agency Agreement is not entered into prior
to December 31, 2000.
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Bank for the common stock
of the Holding Company, all of the provisions of this letter relating to the
common stock of the Holding Company will be deemed to pertain to the common
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
<PAGE>
Mr. James A. Cunningham, Jr.
October 26, 1999
Page 7
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
----------------------------------
Mark B. Cohen
Vice President
Accepted and agreed to as of
the date first above written:
Berkshire Bancorp, Inc.
By: /s/ James A. Cunningham, Jr.
-------------------------------------
Mr. James A. Cunningham, Jr.
President
Berkshire Bank
By: /s/ James A. Cunningham, Jr.
-------------------------------------
Mr. James A. Cunningham, Jr.
President and Chief Executive Officer
cc: Lawrence M. F. Spaccasi, Esq.
Muldoon, Murphy & Faucette L.L.P.
<PAGE>
EXHIBIT 2.1
PLAN OF CONVERSION
FOR
BERKSHIRE BANCORP
AND
BERKSHIRE BANK
1. INTRODUCTION.
Berkshire Bank (the "Bank"), headquartered in Pittsfield, Massachusetts, is
a Massachusetts-chartered stock savings bank which operates as a wholly-owned
subsidiary of Berkshire Bancorp (the "Mutual Holding Company"), a Massachusetts-
chartered mutual holding company. The Bank organized the Mutual Holding Company
in 1996.
This Plan of Conversion (the "Plan") provides for the combination, by
merger or otherwise, of the Mutual Holding Company with and into the Bank
(pursuant to which the Mutual Holding Company will cease to exist) and the
simultaneous organization of a stock holding company (the "Holding Company") to
issue Conversion Stock in the offerings, as provided herein, and the issuance by
the Bank of its Common Stock to the Holding Company in exchange for up to fifty
percent (50%) of the net proceeds received by the Holding Company from the sale
of Conversion Stock in the offerings. The Boards of Trustees of the Mutual
Holding Company and the Board of Directors of the Bank have carefully considered
the alternatives available with respect to their corporate structures and have
determined that a conversion of the Mutual Holding Company to stock form, as
described in this Plan (the "Conversion"), is in the best interests of the
Mutual Holding Company and the Bank, as well as in the best interests of the
Bank's depositors and the communities served by the Bank. The Conversion will
result in the Bank being wholly-owned by a stock holding company, which is a
more common ownership structure for financial institutions than the mutual
holding company structure. The Conversion also will enable the Bank to expand
its franchise, compete more effectively with commercial banks and other
financial institutions for new business opportunities and to increase its equity
capital base and access the capital markets when needed. The Conversion will
also provide the Bank with equity capital which will enable it to increase its
reserves and net worth to support future lending and operational growth,
including branching activities and acquisitions of other financial institutions
or financial services companies, and to increase its ability to render services
to the communities it serves.
The Boards of Trustees of the Mutual Holding Company and the Board of
Directors of the Bank currently contemplate that all of the stock of the Bank
shall be held by the Holding Company, which will be organized under the laws of
the State of Delaware, and that the Holding Company will issue and sell its
stock pursuant to this Plan. The use of the Holding Company, would provide
greater organizational and operating flexibility. Shares of common stock of the
Bank will be sold to the Holding Company and the Holding Company will offer the
Conversion Stock upon the terms and conditions set forth herein in a
Subscription Offering to the Eligible Account Holders, Supplemental Eligible
Account Holders, any Tax-Qualified Employee Stock Benefit Plan established by
the Bank or Holding Company and Directors, Trustees, Officers and employees of
<PAGE>
the Mutual Holding Company and the Bank, in the respective priorities set forth
in this Plan. Any shares of conversion stock not subscribed for by the
foregoing classes of persons will be offered for sale to certain members of the
public either directly by the Bank or the Holding Company through a Direct
Community Offering or a Syndicated Community Offering or through an underwritten
firm commitment public offering or through a combination thereof. In addition
to the foregoing, the Bank and the Holding Company intend to provide employment
or severance agreements to certain management employees and certain other
benefits to the Directors, Officers and employees of the Bank as will be
described in the Prospectus for the Conversion Stock.
In furtherance of the Bank's commitment to its community, this Plan
provides for the establishment of a charitable foundation as part of the
Conversion. The charitable foundation is intended to complement the Bank's
existing community reinvestment activities in a manner that will allow the
Bank's local communities to share in the growth and profitability of the Holding
Company and the Bank over the long term. Consistent with the Bank's goal, the
Holding Company intends to donate to the charitable foundation immediately
following the Conversion a number of shares of its authorized but unissued
common stock in an amount up to 8% of the common stock sold in the Conversion.
For these reasons, the Trustees of the Mutual Holding Company and the Board
of Directors of the Bank, on October 22, 1999, unanimously adopted this Plan.
The terms of deposit accounts of the Bank's depositors will not be affected
by the Conversion provided for in this Plan. Each deposit account holder in the
Bank, prior to the Conversion, shall receive, after the Conversion, without
payment, a withdrawable account or accounts in the Bank equal in withdrawable
amount to the withdrawable value of such account holder's account or accounts in
the Bank prior to conversion. All deposit accounts in the Bank following the
Conversion will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC") and the Depositors Insurance Fund of the Mutual Savings
Central Fund, Inc. (the "DIF"). The stock to be issued in the Conversion,
however, will not be insured by the FDIC, the DIF or any other insurer. The
Bank, upon combination with the Mutual Holding Company, will succeed to all of
the presently existing rights, interests, duties and obligations of the Mutual
Holding Company to the extent provided by law, including, but not limited to,
all of its rights to and interests in its assets and properties, both real and
personal.
This Plan, which has been adopted by the unanimous vote of the Board of
Trustees of the Mutual Holding Company and the Board of Directors of the Bank,
must also be approved at a special meeting of the corporators of the Mutual
Holding Company called to consider the Plan by the affirmative vote of (1) a
majority of the total votes of the corporators, and (2) a majority of
Independent Corporators who shall constitute not less than sixty percent (60%)
of all Corporators eligible to vote. Subsequent to the submission of this Plan
to the Corporators for their consideration, the Plan must be approved by the
Massachusetts Commissioner of Banks (the "Commissioner") and any other banking
or bank regulatory authority, if required.
2
<PAGE>
2. DEFINITIONS.
As used in this Plan, the following terms have the meanings indicated
below:
Acting in Concert. The term "Acting in Concert" means: (a) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (b) a
combination or pooling of voting or other interest in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(c) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also in concert with that other party, except that any Tax-
Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan will not be deemed to be acting in concert with any other Tax-
Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan or with its director or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the director and
stock held by the plan will be aggregated. The Mutual Holding Company, the
Holding Company and the Bank may presume that certain Persons are Acting In
Concert based upon, among other things, joint account relationships and the fact
that such Persons have filed joint Schedules 13D with the Securities and
Exchange Commission with respect to other companies. When Persons act together
for such a common purpose, their group is deemed to have acquired their stock.
Affiliate. An "Affiliate" of, or a person "affiliated" with a specified
---------
person, means a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
person specified. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether through ownership of voting securities, by contract, or
otherwise.
Aggregate Purchase Price. The term "Aggregate Purchase Price" means the
------------------------
total sum paid for all shares of Conversion Stock.
Associate. The term "Associate" when used to indicate a relationship with
---------
any person means: (1) any corporation or organization (other than the Mutual
Holding Company, the Holding Company, the Bank or a majority-owned subsidiary of
the Mutual Holding Company, Holding Company or the Bank) of which such person is
an officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (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, except that
for the purposes of Sections 5 and 6 hereof, the term "Associate" does not
include any Non Tax-Qualified Employee Stock Benefit Plan or any Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and that for
purposes of aggregating total shares that may be held by Officers and Directors
the term "Associate" does not include any Tax-Qualified Employee Stock Benefit
Plan; and (3) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director, trustee or
officer
3
<PAGE>
of the Mutual Holding Company, the Holding Company, the Bank, or any of its
parents or subsidiaries.
Bank. The term "Bank" means Berkshire Bank.
----
Broker-Dealer. The term "Broker-Dealer" means any person who engages
-------------
either for all or part of such person's time, directly or indirectly, as agent,
broker or principal, in the business of offering, buying, selling or otherwise
dealing or trading in securities issued by another person.
Commissioner. The term "Commissioner" means the Massachusetts Commissioner
------------
of Banks.
Common Stock. The term "Common Stock" means any and all authorized common
------------
stock of the Holding Company outstanding subsequent to the Conversion.
Conversion. The term "Conversion" means (i) the combination of the Mutual
----------
Holding Company with and into the Bank pursuant to the MHC Combination, pursuant
to which the Mutual Holding Company will cease to exist and each share of the
Bank's common stock outstanding immediately prior to the effective time thereof
shall automatically be canceled; (ii) the issuance of Conversion Stock by the
Holding Company in the offerings as provided herein; and (iii) the issuance to
the Holding Company of the Bank's common stock to be outstanding upon
consummation of the Conversion in exchange for a portion of the net proceeds
received by the Holding Company from the sale of the Conversion Stock. All of
these transactions shall be in accordance with the Conversion Regulations and
shall otherwise conform to the requirements of a Massachusetts stock savings
bank and the issuance of the Bank's common stock in accordance with this Plan.
Conversion Regulations. The term "Conversion Regulations" means 209 CMR
----------------------
33.00, Subpart D of the Code of Massachusetts Regulations and, if applicable,
the federal mutual-to-stock conversion regulations issued by the Office of
Thrift Supervision and the FDIC, but only to the extent such regulations do not
conflict with Section 209 CMR 33.00, Subpart D of the Code of Massachusetts
Regulations.
Conversion Stock or Shares. The terms "Conversion Stock" or "Shares" mean
--------------------------
the common stock sold by the Holding Company.
Corporators. The term "Corporators" means the corporators of the Mutual
-----------
Holding Company as determined by the Bylaws of the Mutual Holding Company.
Direct Community Offering. The term "Direct Community Offering" means the
-------------------------
offering of Conversion Stock to the Local Community with preference given to
natural persons residing in the Local Community.
Directors. The term "Directors" refers to the directors of the Bank or the
---------
Holding Company, as indicated by the context.
4
<PAGE>
Eligibility Record Date. The term "Eligibility Record Date" means
-----------------------
September 30, 1998, the record date set by the MHC and the Bank for determining
Eligible Account Holders.
Eligible Account Holder. The term "Eligible Account Holder" means any
-----------------------
person holding a Qualifying Deposit in the Bank as of the Eligibility Record
Date.
Estimated Price Range. The term "Estimated Price Range" means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Trustees of the
Mutual Holding Company and the Board of Directors of the Bank within which the
aggregate amount of Conversion Stock sold in the Conversion will fall. The
Estimated Price Range will be within the estimated pro forma market value of the
Conversion Stock as determined by the Independent Appraiser prior to the
Subscription Offering and as it may be amended from time to time thereafter.
FDIC. The term "FDIC" means the Federal Deposit Insurance Corporation.
----
Foundation. The term "Foundation" means a charitable foundation that will
----------
qualify as an exempt organization under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, the establishment and funding of which is
contemplated by Section 3A herein.
Holding Company. The term "Holding Company" means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of stock of the Bank to be
issued in the Conversion.
Independent Corporators. The term "Independent Corporators" means
-----------------------
Corporators who are not employees, Officers, Trustees, Directors or significant
borrowers of the Mutual Holding Company or the Bank.
Independent Appraiser. The term "Independent Appraiser" means the firm
---------------------
employed by the Bank to prepare an appraisal of the pro forma market value of
the Bank which will be used as the basis for determining the price of the
Conversion Stock.
Local Community. The term "Local Community" means all counties in which
---------------
the Bank has offices.
MHC Combination. The term "MHC Combination" means the combination, by
---------------
merger or otherwise, of the Mutual Holding Company with the Bank, resulting in
the Bank as the surviving entity.
Mutual Holding Company. The term "Mutual Holding Company" means Berkshire
----------------------
Bancorp.
Officer. The term "Officer" means the chairman of the board, the
-------
president, any officer of the level of vice president or above, the clerk and
the treasurer, and any other person performing similar functions of the Mutual
Holding Company, the Bank or the Holding Company.
5
<PAGE>
Order Form. The term "Order Form" means any form together with an attached
----------
cover letter, sent by the Holding Company to any Person containing among other
things a description of the alternatives available to such Person under the Plan
and by which any such Person may make elections regarding subscriptions for
Conversion Stock in the Subscription and Direct Community Offerings.
Person. The term "Person" means an individual, a corporation, a
------
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts ("IRA") and KEOGH Accounts), any unincorporated
organization or similar association, a government or political subdivision, a
syndicate or a group acting in concert.
Plan. The term "Plan" means this Plan of Conversion as adopted by the
----
Board of Trustees of the Mutual Holding Company and the Board of Directors of
the Bank and approved by the Commissioner, and any amendments thereto.
Prospectus. The term "Prospectus" means the offering circular or
----------
prospectus by which the Conversion Stock is being offered for sale.
Purchase Price. The term "Purchase Price" means the price per share of the
--------------
Conversion Stock, as offered for sale in the Conversion.
Qualifying Deposit. The term "Qualifying Deposit" means the balance of a
------------------
deposit account of any type offered by the Bank (including, but not limited to,
savings accounts, NOW account deposits, certificates of deposit, demand
deposits, money market deposits and deposits made pursuant to IRA/Keogh Plans)
of $50 or more in the Bank at the close of business as of the Eligibility Record
Date or the Supplemental Eligibility Record Date, whichever may be the case.
Deposit accounts with total deposit balances of less than $50 shall not
constitute a Qualifying Deposit.
Residence, Reside, or Residing. The terms "residence," "reside," or
------------------------------
"residing" as used herein with respect to any Person shall mean any Person who
occupies a dwelling within the Bank's Local Community, has an intent to remain
with the Local Community for a period of time, and manifests the genuineness of
that intent by establishing an ongoing physical presence within the Local
Community together with an indication that such presence within the Local
Community is not merely transitory in nature. To the extent the Person is a
corporation or other business entity, the principal place of business or
headquarters must be in the Local Community. The Bank may use deposit or loan
records or such other evidence provided to it to determine whether a Person is a
resident. In all cases, however, such a determination shall be in the sole
discretion of the Mutual Holding Company.
SEC. The term "SEC" means the Securities and Exchange Commission.
---
6
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Special Meeting. The term "Special Meeting" means the meeting of the
---------------
Corporators, and any adjournments thereof, called for the specific purpose of
submitting the Plan to such Corporators for vote and approval.
Subscription Offering. The term "Subscription Offering" refers to the
---------------------
offering of Conversion Stock, through non-transferable subscription rights
issued to Eligible Account Holders, Supplemental Eligible Account Holders, the
Tax-Qualified Employee Stock Benefit Plan and Directors, Trustees, Officers and
employees of the Mutual Holding Company and the Bank.
Supplemental Eligible Account Holder. The term "Supplemental Eligible
------------------------------------
Account Holder" means any person holding a Qualifying Deposit in the Bank as of
the Supplemental Eligibility Record Date, except Officers, Directors, Trustees,
Corporators of the Mutual Holding Company and the Bank and their Associates.
Supplemental Eligibility Record Date. The term "Supplemental Eligibility
------------------------------------
Record Date" means September 30, 1999, the record date set for determining
Supplemental Eligible Account Holders of the Bank.
Syndicated Community Offering. The term "Syndicated Offering" means the
-----------------------------
offering of Conversion Stock not subscribed for in the Subscription and the
Direct Community Offerings, if any, to certain members of the general public
through a syndicate of registered broker-dealers.
Tax-Qualified Employee Stock Benefit Plan. The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank, such as an employee stock ownership plan, stock
bonus plan, profit-sharing plan or other plan, which, with any related trust,
meets the requirements to be "qualified" under section 401 of the Internal
Revenue Code of 1986, as amended.
Trustee. The term "Trustee" refers to the trustees of the Mutual Holding
-------
Company.
3. PROCEDURE FOR CONVERSION.
After adoption of the Plan by the Board of Trustees of the Mutual Holding
Company and the Board of Directors of the Bank, the Plan will be submitted,
together with all other requisite material in an application for conversion (the
"Application") to the Commissioner for approval. A copy of the Application will
also be submitted to the Federal Reserve Board and the FDIC, if required. The
Mutual Holding Company must also apply to the Internal Revenue Service for a tax
ruling or receive an opinion from counsel which provides that the Conversion
would not result in a taxable reorganization of the Mutual Holding Company under
the Internal Revenue Code of 1986, as amended, and with respect to the federal
tax consequences of the Conversion.
Following a determination by the Commissioner that the Application is
complete, the Mutual Holding Company will publish a public announcement of its
Application in newspapers having general circulation in each community in which
an office of the Mutual Holding Company or Bank
7
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is located, or in such other locations as may be satisfactory to the
Commissioner. Three such announcements shall be published, the first being as
close to the date of the determination of the completion of the application as
may be practical, the second during the next week, and the final notice during
the third week. Such notice shall also be posted in each office of the Mutual
Holding Company and the Bank for at least 21 days.
The Commissioner will review the Application. If the Commissioner finds
that the (1) formation of a stock holding company will be fair and not
prejudicial to the depositors of the Bank; (2) that the public interest will be
served by the proposed conversion of the Mutual Holding Company to stock form;
(3) that the approval will not result in any unsafe or unsound business
practices; (4) that the financial and management resources of the converting
Mutual Holding Company are satisfactory; and (5) that the competence, character
and banking experience of the converting Mutual Holding Company and the Bank,
including their record of compliance with applicable laws and regulations, are
satisfactory, he shall approve the Plan.
After approval of the Conversion by the Commissioner, the Plan and the
establishment of the Foundation will be submitted to the Corporators at the
Special Meeting called to consider each such matter. Notice to all Corporators
of the Special Meeting must be in a form previously approved by the Commissioner
and include other requisite material and must be given not less than seven (7)
days prior to the date of the meeting. The Plan must be approved by: (1) a
majority of the total votes of the Corporators and (2) a majority of the
Independent Corporators who shall constitute not less than sixty percent (60%)
of all Corporators entitled to vote. The establishment of the Foundation is
subject to the same approval requirements, unless a lesser amount is permitted
by the Commissioner. If the establishment of the Foundation is not approved as
provided herein, the Bank and the Mutual Holding Company may proceed with the
consummation of the Conversion without the Foundation subject to applicable
regulatory approval.
The Bank shall approve the Plan in accordance with its Bylaws.
If the Corporators approve the Plan, and the Commissioner authorizes the
sale of Conversion Stock pursuant to this Plan, Conversion Stock will be sold as
provided herein. The Conversion Stock to be issued pursuant to this Plan will be
offered in a Subscription Offering to Eligible Account Holders, Supplemental
Eligible Account Holders and any Tax-Qualified Employee Stock Benefit Plan and
as set forth in Section 5 of this Plan after such Corporator approval or, if
permitted by the Commissioner, after approval of the Application, provided that
any such offer and sale of Conversion Stock shall be conditioned upon the
approval of the Plan by Corporators at the Special Meeting. If feasible, any
Conversion Stock remaining after purchases of Conversion Stock in the
Subscription Offering will then be offered to the general public through a
Direct Community Offering as provided in Section 6 of this Plan. The sale of all
Conversion Stock ordered in the Subscription Offering may be consummated
simultaneously on the date the Direct Community Offering is completed, or, if
there is no Direct Community Offering, as soon as practicable following
expiration of the Subscription Offering. If feasible, any shares of Conversion
Stock remaining unsold after completion of the Subscription Offering and the
Direct Community Offering will be sold in a Syndicated Community Offering as set
forth in Section 6 (which may commence following
8
<PAGE>
or simultaneously with the Direct Community Offering). If for any reason a
Syndicated Community Offering of all unsubscribed Conversion Stock cannot be
effected, the Mutual Holding Company will use its best efforts to obtain other
purchasers, subject to the approval of the Commissioner.
The Mutual Holding Company shall convert into a stock institution and shall
simultaneously combine or merge with and into the Bank, with the Bank being the
surviving entity, pursuant to the MHC Combination. As a result of the MHC
Combination, the shares of the Bank's common stock currently held by the Mutual
Holding Company shall be extinguished and Eligible Account Holders and
Supplemental Eligible Account Holders will be granted interests in the
liquidation account to be established by the Bank pursuant to Section 13 hereof.
The Boards of Trustees of the Mutual Holding Company and the Board of
Directors of the Bank intend to take all necessary steps to form the Holding
Company, including the filing of any necessary applications to the appropriate
regulatory authorities which will govern the activities of the Holding Company.
The Bank will be a wholly-owned subsidiary of the Holding Company. The initial
Directors of the Holding Company shall also be Directors of the Bank. The
Holding Company will make timely applications for any requisite regulatory
approvals, including an application to register as a bank or savings and loan
holding company, and the filing of a registration statement to register the sale
of the Conversion Stock with the SEC .
The Board of Trustees of the Mutual Holding Company and the Board of
Directors of the Bank also intend to take all necessary steps to establish the
charitable foundation and to fund such charitable foundation in the manner set
forth in Section 3A hereof.
Upon the issuance of the Conversion Stock, the Holding Company will
purchase from the Bank all of the stock of the Bank to be issued by the Bank in
the Conversion in exchange for up to fifty percent (50%) of the Conversion
proceeds.
The Board of Trustees of the Mutual Holding Company and the Board of
Directors of the Bank may determine for any reason at any time prior to the
issuance of the Conversion Stock not to utilize a holding company form of
organization in the Conversion. If the Board of Trustees of the Mutual Holding
Company and the Board of Directors of the Bank determine not to complete the
Conversion utilizing a holding company form of organization, the stock of the
Bank will be issued and sold in accordance with the Plan. In such case, the
Holding Company's registration statement will be withdrawn from the SEC and the
Bank will take steps necessary to complete the Conversion, including filing any
necessary documents with the Commissioner and any other required bank regulatory
authority. In such event, any subscriptions or orders received for Conversion
Stock of the Holding Company shall be deemed to be subscriptions or orders for
Conversion Stock of the Bank, and the Bank shall take such steps as permitted or
required by the Commissioner or any other banking or regulatory authority.
9
<PAGE>
3A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.
As part of the Conversion, the Mutual Holding Company, the Holding Company
and the Bank intend to establish a charitable foundation that will qualify as an
exempt organization under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Foundation"), and to donate to the Foundation from
authorized but unissued shares of Common Stock, an amount up to 8% of the number
of shares of Conversion Stock sold in the Conversion. The Foundation is being
formed in connection with the Conversion in order to complement the Bank's
existing community reinvestment activities and to share with the Bank's local
community a part of the Bank's financial success as a locally headquartered,
community minded, financial services institution. The funding of the Foundation
with Common Stock accomplishes this goal as it enables the community to share in
the growth and profitability of the Holding Company and the Bank over the long-
term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year,
less certain expenses. In order to serve the purposes for which it was formed
and maintain its Section 501(c)(3) qualification, the Foundation may sell, on an
annual basis, a limited portion of the Common Stock contributed to it by the
Holding Company.
The board of directors of the Foundation will be comprised of individuals
who are Officers and/or Directors of the Holding Company or the Bank. The board
of directors of the Foundation will be responsible for establishing the polices
of the Foundation with respect to grants or donations, consistent with the
stated purposes of the Foundation.
4. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.
The total number of shares of Conversion Stock which will be offered for
sale in the Conversion will be determined by the Board of Trustees of the Mutual
Holding Company and the Boards of Directors of the Bank and the Holding Company
immediately prior to the commencement of the Subscription Offering; provided,
that such Boards may elect to increase or decrease the number of shares of
Conversion Stock to be offered for sale in the Conversion depending upon market
and financial conditions, with the approval of the Commissioner and, if
required, any other applicable bank regulatory authority. In particular, the
total number of shares may be increased by up to 15% of the number of shares
offered in the Conversion if the Estimated Price Range is increased subsequent
to the commencement of the Subscription and Direct Community Offerings to
reflect changes in market and financial conditions and the Aggregate Purchase
Price is not more than 15% above the maximum of the Estimated Price Range.
An Independent Appraiser shall be engaged by the Mutual Holding Company and
the Bank to provide them with an independent valuation of the estimated pro
forma market value of the Conversion Stock as required by the Conversion
Regulations. The valuation will be made by a
10
<PAGE>
written report to the Mutual Holding Company and the Bank, contain the factors
upon which the valuation was made and conform to procedures adopted by the
Commissioner and any other applicable bank regulatory authority. The Board of
Trustees of the Mutual Holding Company and the Board of Directors of the Bank
shall thoroughly review and analyze the methodology and fairness of the
independent appraisal. The valuation shall establish an Estimated Price Range
for the Conversion Stock. The maximum of the Estimated Price Range shall be no
more than 15% above the estimated pro forma market value of the Conversion Stock
and the minimum of the Estimated Price Range shall be no more than 15% below the
estimated pro forma market value of the Conversion Stock. The number of shares
of Conversion Stock to be issued and the Purchase Price may be increased or
decreased by the Bank and the Mutual Holding Company. In the event that the
Aggregate Purchase Price of the Conversion Stock is below the minimum of the
Estimated Price Range, or materially above the maximum of the Estimated Price
Range, resolicitation of purchasers may be required, provided that up to a 15%
increase above the maximum of the Estimated Price Range will not be deemed
material so as to require a resolicitation and will not require the approval of
the Commissioner or any other bank regulatory agency. Any such resolicitation
shall be effected in such manner and within such time as the Mutual Holding
Company and the Bank shall establish, and with, if required, the approval of the
Commissioner and any other bank regulatory authority.
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 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 to be sold by the Holding
Company shall be adjusted to reflect any required changes in the pro forma
market value of the Bank and the Mutual Holding Company. If, as a result of
such adjustment, the Aggregate Purchase Price is more than 15% above the maximum
of the Estimated Price Range, the Mutual Holding Company and the Bank shall
obtain an amendment to the Commissioner's approval. If appropriate, the
Commissioner will condition his approval by requiring a resolicitation of
subscribers.
The price per share for each share of Conversion Stock when multiplied by
the number of shares of Conversion Stock shall be equivalent to the pro forma
market value of the Conversion Stock to be offered for sale in the Conversion in
accordance with the valuation furnished by the Independent Appraiser.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Mutual Holding Company, the Bank 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 is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Conversion Stock. If such
confirmation is not received, the Mutual Holding Company and the Bank may cancel
the Subscription and Direct Community Offerings and/or the Syndicated Community
Offering, extend the Conversion, establish a new Estimated Price Range, extend,
reopen
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<PAGE>
or hold new Subscription and Direct Community Offerings and/or Syndicated
Community Offering or take such other action as the Commission may permit.
The Conversion Stock shall be fully paid and nonassessable.
5. SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS,
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS, TAX-QUALIFIED EMPLOYEE STOCK BENEFIT
PLAN AND DIRECTORS, TRUSTEES, CORPORATORS, OFFICERS AND EMPLOYEES.
A. CATEGORY NO. 1: ELIGIBLE ACCOUNT HOLDERS
(a) Each Eligible Account Holder shall receive, as first priority and
without payment, non-transferable Subscription Rights to purchase shares of
Conversion Stock in the amount equal to the greater of: (1) $250,000 worth of
Conversion Stock offered in the Conversion, but which may be increased to 5% of
the Conversion Stock offered or decreased to 0.10% of the Conversion Stock
offered; (2) one-tenth of one percent (0.10%) of the total offering of
Conversion Stock; or (3) fifteen times the product (rounded down to the next
whole number) obtained by multiplying the total number of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Eligible Account Holder, and the denominator is the total amount
of Qualifying Deposits of all Eligible Account Holders.
(b) In the event that subscriptions for Conversion Stock are received from
Eligible Account Holders upon exercise of subscription rights pursuant to
paragraph (a) in excess of the number of Shares offered for sale in the
Conversion, the Conversion Stock available for purchase will be allocated among
the subscribing Eligible Account Holders so as to permit each subscribing
Eligible Account Holder, to the extent possible, to purchase a number of Shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 Shares or the number of Shares subscribed for by such Eligible Account
Holder. Any Shares remaining after such allocation will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each Eligible Account Holder's Qualifying
Deposit bears to the total amount of the Qualifying Deposits of all Eligible
Account Holders whose subscriptions remain unsatisfied. If the amount so
allocated exceeds the amount subscribed for by any one or more Eligible Account
Holders, the excess shall be reallocated on the same principle (one or more
times as necessary) among those Eligible Account Holders whose subscriptions are
still not fully satisfied until all available Shares have been allocated or all
subscriptions are satisfied.
(c) Non-transferable subscription rights held by Eligible Account Holders
who are also Directors, Trustees, Corporators or Officers of the Mutual Holding
Company or the Bank and their Associates, will be subordinated to those of other
Eligible Account Holders to the extent they are attributable to increased
deposits during the one-year period preceding the Eligibility Record Date.
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<PAGE>
B. CATEGORY NO. 2: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(a) Each Supplemental Eligible Account Holder shall receive, as second
priority and without payment, nontransferable Subscription Rights to purchase
shares of Conversion Stock equal to the amount equal to the greater of: (1)
$250,000 worth of Conversion Stock offered in the Conversion, but which may be
increased to 5% of the Conversion Stock offered or decreased to 0.10% of the
Conversion Stock offered; (2) one-tenth of one percent (0.10%) of the total
offering of Conversion Stock; or (3) fifteen times the product (rounded down to
the next whole number) obtained by multiplying the total number of Conversion
Stock to be issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder, and the
denominator is the total amount of Qualifying Deposits of all Supplemental
Eligible Account Holders.
(b) In the event that subscriptions for Conversion Stock are received from
Supplemental Eligible Account Holders upon exercise of subscription rights
pursuant to paragraph (a) in excess of the number of Shares offered for sale in
the Conversion, 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 proportion which the amount of each Supplemental Eligible Account Holder's
Qualified Deposit bears to the total of the Qualifying Deposits of all
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by any one or more
Supplemental Eligible Account Holders, the excess shall be reallocated (one or
more times as necessary) among those Supplemental Eligible Account Holders whose
subscriptions are still not fully satisfied on the same principle until all
available Shares have been allocated or all subscriptions satisfied.
(c) Subscription rights received pursuant to Section 5B shall be
subordinated to all rights received by Eligible Account Holders to purchase
Conversion Stock.
(d) Subscription rights received by an Eligible Account Holder pursuant to
Section 5A shall be applied in partial satisfaction of the subscription rights
to be received as a Supplemental Eligible Account Holder pursuant to this
Section 5B.
C. CATEGORY NO. 3: TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN
The Tax-Qualified Employee Stock Benefit Plan shall receive, without
payment, as a third priority, after the satisfaction of the subscriptions of
Eligible Account Holders, non-transferable subscription rights to purchase up to
8% of the shares of Common Stock issued in the Conversion. If, after the
satisfaction of subscriptions of Eligible Account Holders and Supplemental
Eligible Account Holders, a sufficient number of shares are not available to
fill the subscriptions by such
13
<PAGE>
plan, the subscription by such plan shall be filled to the maximum extent
possible; provided, however, that in the event of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%, the additional Shares may be sold to the Tax-Qualified Employee Stock
Benefit Plan subject to the provisions of Section 7. If all the Conversion Stock
offered for sale in the Conversion is purchased by Eligible Account Holders and
Supplemental Eligible Account Holders, then the Tax-Qualified Employee Stock
Benefit Plan may purchase shares in the open market following consummation of
the Conversion or directly from the Holding Company through authorized but
unissued shares with Commissioner approval.
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,
Trustee or Officer of the Mutual Holding Company, the Holding Company or the
Bank. Notwithstanding any provision contained herein to the contrary, the Bank
may make scheduled discretionary contributions to a Tax-Qualified Employee Stock
Benefit Plan; provided, that such contributions do not cause the Bank to fail to
meet its regulatory capital requirements.
D. CATEGORY NO. 4: DIRECTORS, TRUSTEES, OFFICERS AND EMPLOYEES
Directors, Trustees, Officers and employees of the Mutual Holding Company
and the Bank shall be entitled to purchase up to thirty percent (30%) of the
total offering of shares of stock, but only to the extent that shares are
available after satisfying the subscriptions of Eligible Account Holders,
Supplemental Eligible Account Holders and the Tax-Qualified Employee Stock
Benefit Plan. The shares shall be allocated among Directors, Trustees, Officers
and employees on an equitable basis such as by giving weight to the period of
service, compensation and position of the individual, subject to the five
percent (5%) limitation on the amount of shares which may be purchased by any
Person, together with any Associate or group of persons Acting in Concert.
However, Directors, Trustees and Officers of Mutual Holding Company and the Bank
shall not be deemed to be Associates or Persons Acting in Concert solely as a
result of their board membership, status or employment.
6. DIRECT COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND PUBLIC
OFFERING.
Conversion Stock which remains unsubscribed after the exercise of
subscription rights in the Subscription Offering pursuant to Section 5 shall be
offered for sale to the general public through a Direct Community Offering, with
preference given to natural persons residing in the Bank's Local Community. The
Direct Community Offering, if any, may commence simultaneously with the
Subscription Offering, subject to the approval of the Commissioner, or may
commence during or after the commencement of the Subscription Offering, as the
Boards of Trustees of the Mutual Holding Company and the Boards of Directors of
the Bank and the Holding Company so determine. The right to subscribe for shares
of Conversion Stock in the Direct Community Offering is subject to the right of
the Mutual Holding Company, the Bank and Holding Company to accept or reject
such subscriptions in whole or in part. Conversion Stock being sold in the
Direct Community Offering will be offered and sold in a manner that will achieve
the widest distribution of the
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<PAGE>
Conversion Stock. Purchases by Persons and their Associates in this phase of the
offering are limited to $250,000 of Conversion Stock subject to the maximum
purchase limitation specified in Section 7(a) and the minimum purchase
limitation specified in Section 7(b) and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%; provided, however, that the amount permitted to be purchased in the Direct
Community Offering may be increased to 5% of the total offering of shares or
decreased to less than $250,000 without the further approval of the Corporators
or resolicitation of subscribers, unless required by the Commissioner and/or any
other banking or regulatory agency. If the maximum purchase limit is so
increased, orders accepted in the Direct Community Offering shall be filled up
to a maximum of 2% of the total offering and thereafter remaining shares shall
be allocated on an equal number of shares basis per order until all orders have
been filled.
If any Conversion Stock remains unsold after the close of the Subscription
and Direct Community Offerings, the Mutual Holding Company, the Holding Company
and the Bank may use the services of a syndicate of registered broker-dealers to
sell such unsold shares on a best efforts basis in a Syndicated Community
Offering. The syndicate of registered broker-dealers may be managed by one of
the syndicate members who will act as agent of the Mutual Holding Company, the
Holding Company and the Bank to assist the Mutual Holding Company, the Holding
Company and the Bank in the sale of the Conversion Stock. Neither the syndicate
manager nor any other syndicate member shall have any obligation to take or
purchase any of the shares of Conversion Stock in the Syndicated Community
Offering. Purchases by Persons and their Associates in this phase of the
offering are limited to $250,000 of Conversion Stock subject to the maximum
purchase limitation specified in Section 7(a) and the minimum purchase
limitation specified in Section 7(b) and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%; provided, however, that the amount permitted to be purchased in the
Syndicated Community Offering may be increased to 5% of the total offering of
shares or decreased to less than $250,000 without the further approval of the
Corporators or resolicitation of subscribers, unless required by the
Commissioner and/or any other banking or regulatory agency. If the maximum
purchase limit is so increased, orders accepted in the Syndicated Community
Offering shall be filled up to a maximum of 2% of the total offering and
thereafter remaining shares shall be allocated on an equal number of shares
basis per order until all orders have been filled.
Any shares of Conversion Stock not sold in the Subscription Offering, the
Direct Community Offering or the Syndicated Community Offering may be offered
for sale through an underwritten firm commitment public offering. Any such
public offering shall be conducted in accordance with applicable law and
regulations.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Direct Community Offerings can not be effected, or in the event
that any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Direct Community Offerings or in the Syndicated Community
Offering or an underwritten firm commitment public offering, other purchase
arrangements will be made for the sale of unsubscribed shares, if possible.
Such other purchase arrangements will be subject to the approval of the
Commissioner.
15
<PAGE>
7. LIMITATIONS ON PURCHASES.
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Section 5, the following limitations shall apply
to all purchases of shares of Conversion Stock:
(a) The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person,
together with any Associate or group of Persons Acting in Concert, shall not
exceed 1% of the Conversion Stock offered (the "Maximum Overall Purchase
Limitation"), except for the Tax-Qualified Employee Stock Benefit Plan which may
subscribe for up to 8% of the Common Stock issued in the Conversion. The
Maximum Overall Purchase Limitation may be increased consistent with the
Conversion Regulations in the sole discretion of the Holding Company, the Mutual
Holding Company and the Bank subject to any required regulatory approval.
(b) A minimum of 25 Shares must be purchased by each person purchasing
Conversion Stock to the extent Shares are available, provided, however, that
such minimum number of Shares will be reduced if the price per Share times such
minimum number of Shares exceeds $500.
(c) The maximum number of Shares which may be purchased, in their
individual capacity, in the Conversion by Directors, Trustees, Corporators,
Officers, employees and their Associates, of the Mutual Holding Company, the
Bank and the Holding Company, in the aggregate shall not exceed thirty percent
(30%) of the total number of Shares. Each Director, Trustee, Corporator,
Officer and employee will be subject to the same purchase limitations as other
Eligible Account Holders and Supplemental Eligible Account Holders.
(d) For purposes of this Section 7, the Directors, Trustees, Corporators,
Officers and employees of the Mutual Holding Company, the Bank and the Holding
Company shall not be deemed to be Associates or a group affiliated with each
other or otherwise Acting in Concert solely as a result of their being
Directors, Trustees, Corporators, Officers and employees of the Mutual Holding
Company, the Bank or the Holding Company.
(e) Depending upon market or financial conditions, the Board of Trustees of
the Mutual Holding Company and the Boards of Directors of the Bank and the
Holding Company, with the approval of the Commissioner and, if required, any
other applicable bank regulatory authority, and without further approval of the
Corporators, unless such further approval is required by the Commissioner and/or
any other applicable bank regulatory authority, may increase or decrease the
purchase limitations in this Plan, provided that the maximum purchase
limitations may not be increased in the Conversion to a percentage in excess of
5% of the Conversion Stock offered for sale. Notwithstanding the foregoing, the
Maximum Overall Purchase Limitation may be increased up to 9.99% provided that
orders for Conversion Stock exceeding 5% of the shares being offered shall not
exceed, in the aggregate, 10% of the total offering. If the Bank, the Mutual
Holding Company or the Holding Company, as the case may be, increases the
maximum purchase limitations, the Bank, the Mutual Holding Company or the
Holding Company, as the case may be, is only required to
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resolicit Persons who subscribed for the maximum purchase amount and may, in the
sole discretion of the Bank, the Mutual Holding Company or the Holding Company,
as the case may be, resolicit certain other large subscribers. Requests to
purchase additional shares of the Conversion Stock in the event that the
purchase limitation is so increased will be granted by the Boards of Trustees of
the Mutual Holding Company and the Boards of Directors of the Bank and the
Holding Company in their sole discretion.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 5 and 6, to any Person or that Person's Associates would be in excess
of the maximum number of shares permitted as set forth above, the number of
shares of Conversion Stock allocated to each such Person shall be reduced to the
lowest limitation applicable to that Person, and then the number of shares
allocated to each group consisting of a Person and that Person's Associates
shall be reduced so that the aggregate allocation to that Person and his or her
Associates complies with the above maximums, and such maximum number of shares
shall be reallocated among that Person and his or her Associates as they may
agree, or in the absence of an aggregate, in proportion to the shares subscribed
by each (after first applying the maximums applicable to each Person,
separately).
In the event the Conversion Stock sold is in excess of the maximum of the
Estimated Price Range, (the "Adjusted Maximum") such shares will be allocated in
the following order of priority: (i) to fill the Tax-Qualified Employee Stock
Benefit Plan subscription to the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 5A; (iii) in the event there is an oversubscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 5B; (iv) in the event that there is an
oversubscription at the Directors, Trustees, Corporators, Officers and Employees
level, to fill unfulfilled subscriptions of Other Members exclusive of the
Adjusted Maximum in accordance with Section 5D; and (v) to fill unfulfilled
Subscriptions in the Direct Community Offering exclusive of the Adjusted Maximum
in accordance with Section 6.
Each Person purchasing Conversion Stock shall be deemed to confirm that
such purchase does not conflict with the above purchase limitations contained in
this Plan.
8. MANNER OF EXERCISING SUBSCRIPTION RIGHTS; ORDER FORMS.
(a) Promptly after the Commissioner has declared the Prospectus referred to
in paragraph (b) of this Section 8 effective, Order Forms approved by the
Commissioner for the exercise of the subscription rights provided for in this
Plan will be sent to all Eligible Account Holders, Supplemental Eligible Account
Holders, the Tax-Qualified Employee Benefit Plans and Directors, Trustees,
Corporators, Officers and employees of the Mutual Holding Company and the Bank,
and Corporators at their last known address appearing in the records of the
Mutual Holding Company and the Bank.
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(b) Each Order Form will be preceded or accompanied by a Prospectus
which must be approved by the Commissioner. Such Prospectus shall describe the
Mutual Holding Company, the Bank, the Holding Company and the Conversion Stock
being offered and will contain all the information required by the Commissioner
and all applicable laws and regulations as necessary to enable the recipients of
the Order Forms to make informed investment decisions regarding the purchase of
Conversion Stock.
(c) The Order Forms will contain or will be accompanied by, among other
things, the following:
(i) An explanation of the rights and privileges granted under this Plan
to each class of persons granted subscription rights pursuant to Section 5 of
this Plan with respect to the purchase of Conversion Stock including the maximum
and minimum number of Shares that may be purchased;
(ii) A specified time by which Order Forms must be received by the Bank
for purposes of exercising the subscription rights of Eligible Account Holders,
Supplemental Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Directors, Trustees, Corporators, Officers and employees of the Mutual
Holding Company and the Bank, and Corporators under this Plan, as provided in
Section 10 of this Plan;
(iii) A statement that the Aggregate Purchase Price at which the
Conversion Stock will ultimately be purchased in the Conversion has not been
determined as of the date of mailing of the Order Form, but that such price will
be within the range of prices which will be stated in the Order Form;
(iv) The amount which must be returned with the Order Form to subscribe
for Conversion Stock. Such amount will be equal to the Purchase Price multiplied
by the number of Shares subscribed for in accordance with the terms of this
Plan;
(v) Instructions concerning how to indicate on such Order Form the
extent to which the recipient elects to exercise subscription rights under this
Plan, the name or names in which the Shares subscribed for are to be registered,
the address to which certificates representing such Shares are to be sent and
the alternative methods of payment for Conversion Stock which will be permitted;
(vi) Specifically designated blank spaces for indicating the number of
Shares of Conversion Stock which each person wishes to purchase and for dating
and signing the Order Form;
(vii) An acknowledgment that the recipient of the Order Form has received,
prior to signing the Order Form, the Prospectus referred to in paragraph (b) of
this Section 8;
(viii) A statement that the subscription rights provided for in this Plan
are non-transferable, will be void after the specified time referred to in
paragraph (c)(ii) above and can be exercised only by delivery of the Order Form,
properly completed and executed, to the Bank, together with the full
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required payment (in the manner specified in Section 9 of this Plan) for the
number of Shares subscribed for prior to such specified time;
(ix) A certification to be executed by the recipient of the Order Form to
the effect that, as to any Shares which the recipient elects to purchase, such
recipient is purchasing such Shares for his own account only and has no present
agreement or understanding regarding any subsequent sale or transfer of such
Shares;
(x) A statement to the effect that the executed Order Form, once received
by the Bank, may not be modified or amended by the subscriber without the
consent of the Bank; and
(xi) An explanation of the manner of required payment and a statement that
payment may be made by withdrawal from a certificate of deposit without penalty.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied Order Forms.
9. PAYMENT FOR CONVERSION STOCK.
(a) Full payment for all Shares subscribed for must be received by the
Bank, together with properly completed and executed Order Forms therefor, prior
to the expiration time, which will be specified on the Order Forms, unless such
date is extended by the Mutual Holding Company and the Bank; provided, however,
that if the Tax-Qualified Employee Stock Benefit Plan subscribes for Conversion
Stock during the Subscription Offering, such plan will not be required to pay
for shares at the time they subscribe but may pay for such Shares of Conversion
Stock subscribed for by such plan at the Actual Purchase Price upon consummation
of the Conversion, provided that there is in force from time of its subscription
until the consummation of the Conversion, a loan commitment to lend to the Tax-
Qualified Employee Stock Benefit Plan, at such time, the aggregated purchase
price of the Shares for which it subscribed.
(b) If it is determined that the Aggregate Purchase Price should be
greater than the amount stated in the Order Forms, upon compliance with such
requirements as may be imposed by the Commissioner (which may include
resolicitation of votes for approval of the Plan by Corporators) each Person who
subscribed for Shares will be permitted to withdraw their subscription and have
their payment for Shares returned to them in whole or in part, with interest, or
to make payment to the Bank of the additional amount necessary to pay for the
Shares subscribed for by him at the Purchase Price in the manner and within the
time prescribed by the Mutual Holding Company and the Bank.
(c) If the Aggregate Purchase Price is outside the range of prices
established by the Independent Appraiser referred to in Section 4 of this Plan
and set forth in the Prospectus referred to in Section 8 of this Plan, the
Mutual Holding Company and the Bank will apply for an amendment to the
Commissioner's approval of this Plan and comply with such requirements as the
Commissioner may then establish.
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(d) Payment for Shares ordered for purchase by Eligible Account Holders
and Supplemental Eligible Account Holders will be permitted to be made in any of
the following manners:
(i) In cash, if delivered in person;
(ii) By check, bank draft or money order, provided that checks will only
be accepted subject to collection; and
(iii) By appropriate authorization of withdrawal from the subscriber's
deposit account at the Bank. The Order Forms will contain appropriate means by
which authorization of such withdrawals may be made. For purposes of determining
the withdrawable balance of such accounts, such withdrawals will be deemed to
have been made upon receipt of appropriate authorization therefor, but interest
at the rates applicable to the accounts from which the withdrawals have been
deemed to have been made will be paid by the Bank on the amounts deemed to have
been withdrawn until the date on which the Conversion is consummated, at which
date the authorized withdrawal will actually be made. Interest will be paid by
the Bank on payments for Conversion Stock received in the Subscription Offering
in cash or by check, bank draft, money order or negotiable order of withdrawal,
at not less than the rate per annum being paid by the Bank on its passbook
accounts at the time the Subscription Offering commences, 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.
(e) Wire transfers as payment for Shares ordered for purchase will not be
permitted or accepted as proper payment.
(f) Orders for Conversion Stock submitted by subscribers which aggregate
$50,000 or more must be paid by official bank or certified check, a check issued
by a NASD-registered Broker-Dealer or by withdrawal authorization from a deposit
account of the Bank.
(g) Payments for the purchase of Conversion Stock in the Subscription
Offering will be permitted through authorization of withdrawals from certificate
accounts at the Bank without early withdrawal penalties. If the remaining
balances of the certificate accounts after such withdrawals are less than the
minimum qualifying balances under applicable regulations, the certificates
evidencing the accounts will be canceled upon consummation of the Conversion,
and the remaining balances will thereafter earn interest at the rate provided
for in the certificates in the event of cancellation.
(h) Notwithstanding the foregoing, the Bank and the Mutual Holding
Company shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Direct Community
Offering and to thereafter submit payment for the Conversion Stock for which
they are subscribing in the Direct Community Offering at any time prior
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to 48 hours before the completion of the Conversion, unless such 48 hour period
is waived by the Bank and the Mutual Holding Company, in their sole discretion.
10. EXPIRATION OF SUBSCRIPTION RIGHTS; UNDELIVERED, DEFECTIVE OR LATE ORDER
FORMS; INSUFFICIENT PAYMENT.
(a) All subscription rights provided for in this Plan, including, without
limitation the subscription rights of all Persons whose Order Forms are returned
by the United States Post Office as undeliverable, will expire on a specified
date as described in the Prospectus which shall be not less than twenty (20)
days nor more than forty-five (45) days following the date on which Order Forms
are first mailed to Eligible Account Holders, provided that the Mutual Holding
Company and the Bank shall have the power to extend such expiration time subject
to the approval of the Commissioner.
(b) In those cases in which the Bank is unable to locate particular
persons granted subscription rights under this Plan, and cases in which Order
Forms: (1) are returned as undeliverable by the United States Post Office; (2)
are not received back by the Bank or are received by the Bank after the
expiration date specified thereon; (3) are defectively filled out or executed;
or (4) are not accompanied by the full required payment for the Conversion Stock
subscribed for (including cases in which Deposit Accounts from which withdrawals
are authorized are insufficient to cover the amount of the required payment),
the subscription rights of the person to whom such subscription rights have been
granted will lapse as though such person failed to return the completed Order
Form within the time period specified thereon.
(c) The Mutual Holding Company and the Bank may, but will not be obligated
to, waive any irregularity on any Order Form or require the submission of
corrected Order Forms or the remittance of full payment for Shares subscribed
for by such date as it may specify, and all interpretations by the Mutual
Holding Company and the Bank of terms and conditions of this Plan and of the
Order Forms will be final.
11. PERSONS IN NONQUALIFIED STATES OR IN FOREIGN COUNTRIES.
Subject to the following sentence, the Holding Company will make reasonable
efforts to comply with the securities laws of all states of the United States in
which Eligible Account Holders and Supplemental Eligible Account Holders
entitled to subscribe for Conversion Stock pursuant to this Plan reside.
However, no such Person will be offered any subscription rights or sold any
Conversion Stock under this Plan who resides in a foreign country or who resides
in a state of the United States with respect to which both of the following
apply: (a) less than 100 persons eligible to subscribe for Shares under the Plan
reside in such state, and (b) the granting of subscription rights or the offer
or sale of Common Stock to such persons would require the Holding Company or its
employees under the securities laws of such state to register as a broker,
dealer or agent or to register or otherwise qualify the Common Stock for sale in
such state and such registration or qualification 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.
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12. VOTING RIGHTS AFTER CONVERSION.
Following Conversion, voting rights with respect to the Bank will be held
and exercised exclusively by the holders of the stock of the Bank; the Holding
Company shall own all of the issued and outstanding stock of the Bank.
13. ESTABLISHMENT OF A LIQUIDATION ACCOUNT.
(a) The Bank will, at the time of Conversion, establish a "Liquidation
Account" in an amount equal to the net worth of the Bank set forth in its latest
statement of financial condition contained in its final Prospectus. The function
of the Liquidation Account is to establish a priority on liquidation and, except
as provided for in this Section 13, shall not operate to restrict the use or
application of any of the net worth accounts of the Bank.
(b) The Liquidation Account shall be maintained by the Bank for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
who continue to maintain deposit accounts at the Bank. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a separate inchoate
interest in the Liquidation Account in relation to each deposit account making
up a Qualifying Deposit. Such inchoate interests are referred to herein as
"Subaccount Balances." For deposit accounts in existence on the Eligibility
Record Date and the Supplemental Eligibility Record Date, separate Subaccount
Balances shall be determined on the basis of the Qualifying Deposits in such
deposit accounts on each such date.
(c) Each initial Subaccount Balance in the Liquidation Account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be an
amount determined by multiplying the amount in the Liquidation Account by a
fraction the numerator of which is the amount of Qualifying Deposits in such
deposit account on the Eligibility Record Date and/or Supplemental Eligibility
Record Date and the denominator of which is the total amount of all Qualifying
Deposits of Eligible Account Holders and Supplemental Account Holders on the
corresponding record date. For deposit accounts in existence at both dates,
separate Subaccounts shall be determined on the basis of the Qualifying Deposits
in such deposit accounts on such record dates.
(d) Each initial Subaccount Balance in the Liquidation Account shall never
be increased, but will be subject to downward adjustment as follows. If the
balance in the deposit account to which a Subaccount Balance relates, at the
close of business on any annual fiscal year closing date of the Bank subsequent
to the corresponding record date, is less than either (a) the lesser of the
deposit balance in such account at the close of business on any other annual
fiscal year closing date subsequent to the Eligibility Record Date or
Supplemental Eligibility Record Date, or (b) the amount of the Qualifying
Deposit as of the Eligibility Record Date or Supplemental Eligible Record Date,
then the Subaccount Balance for such deposit account shall be adjusted by
reducing such Subaccount Balance in an amount proportionate to the reduction in
such account balance. In the event of such downward adjustment, the Subaccount
Balance shall not be subsequently increased, notwithstanding
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any increase in the deposit balance of the related deposit account. If any
account is closed, its related Subaccount Balance shall be reduced to zero upon
such closing.
(e) In event of a complete liquidation of the converted Bank (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall receive from the Liquidation Account a liquidation distribution in
the amount of the then current adjusted Subaccount Balances for deposit accounts
then held, before any liquidation distribution may be made to any holders of the
conversion stock of the converted Bank. No merger, consolidation, purchase of
bulk assets with assumption of deposit accounts and other liabilities, or
similar transactions, in deposit accounts and other liabilities, which the
converted Bank is not the surviving institution, will be deemed to be a complete
liquidation for this purpose, and, in any such transaction, the Liquidation
Account shall be assumed by the surviving institution.
14. TRANSFER OF DEPOSIT ACCOUNT.
Each deposit account in the Bank at the time of the Conversion will
constitute, without payment or further action by the account holder, a
withdrawable deposit account in the Bank after the Conversion equivalent in
withdrawable amount to the withdrawable value, and subject to the same terms and
conditions (except as to voting and liquidation rights) as such deposit account
in the Bank at the time of the Conversion.
15. RESTRICTION ON TRANSFER OF CONVERSION STOCK OF OFFICERS, DIRECTORS,
TRUSTEES AND CORPORATORS.
(a) All Conversion Stock purchased by Officers, Directors, Trustees and
Corporators and their Associates of the Mutual Holding Company, the Holding
Company and the Bank either directly from the Holding Company (by subscription
or otherwise) or from an underwriter of such Shares will be subject to the
restriction that no such Shares shall be sold for a period of one year following
the date of purchase of such Shares, except in the event of death or substantial
disability (as determined by the Commissioner) or upon the written approval of
the Commissioner.
(b) With respect to all Conversion Stock subject to restriction on
subsequent disposition pursuant to the above paragraph, each of the following
provisions shall apply:
(i) Each certificate representing such Shares shall bear the following
legend prominently stamped on its face giving notice of such restriction on
transfer;
The shares represented by this certificate may not be sold by the
registered holder hereof for a period of not less than one year from the date of
issuance hereof, except in the event of the death of the registered holder or
substantial disability (as determined by the Commissioner) of the Officer,
Director, Trustee, or Corporator to whom such Shares were initially sold under
the terms of this Plan or upon the written approval of the Commissioner.
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(ii) Instructions will be given to the transfer agent for the Holding
Company, not to recognize or effect any transfer of any certificates
representing such Shares, or any change of record ownership thereof in violation
of such restriction on transfer; and
(iii) Any stock of the Holding Company issued in respect of a stock
dividend, stock split or otherwise in respect of ownership of outstanding Shares
subject to restrictions on transfer hereunder will be subject to the same
restrictions as are applicable to such Conversion Stock.
16. RESTRICTION ON STOCK PURCHASES BY OFFICERS, DIRECTORS, TRUSTEES AND
CORPORATORS.
For a three-year period following the Conversion, no purchases may be made
by Officers, Directors, Trustees and Corporators and their Associates of the
Mutual Holding Company, the Holding Company and the Bank without the prior
approval of the Commission, except through a broker-dealer registered with the
SEC. This restriction does not apply, however, to (a) negotiated transactions
involving more than one percent (1%) of the outstanding Common Stock or (b) the
purchase of Common Stock pursuant to a tax-qualified or non-tax-qualified
employee stock benefit plan even if the stock attributable to individual
Officers, Directors, Trustees and Corporators of the Mutual Holding Company, the
Holding Company or of the Bank.
17. AMENDMENT AND TERMINATION OF THE PLAN.
This Plan may be substantively amended by the Board of Trustees of the
Mutual Holding Company and the Board of Directors of the Bank in their sole
discretion as a result of comments from regulatory authorities or otherwise at
any time prior to approval of the Plan by the Commissioner, and at any time
thereafter with the concurrence of the Commissioner and, if required, any other
applicable bank regulatory authority. Any amendments made subsequent to the
approval of the Corporators may be made without their further approval unless
required by the Commissioner and/or any other applicable bank regulatory
authority. This Plan may be terminated by the Board of Trustees of the Mutual
Holding Company and the Board of Directors of the Bank at any time prior to the
approval of the Plan by the Commissioner and any time thereafter with the
concurrence of the Commissioner.
By adoption of this Plan, the Corporators authorize the Boards of Trustees
of the Mutual Holding Company and the Board of Directors of the Bank to amend or
terminate the Plan under the circumstances set forth in this Section.
18. TIME PERIOD FOR COMPLETION OF CONVERSION.
The Conversion shall be completed within 24 months from the date this Plan
is approved by the Boards of Trustees of the Mutual Holding Company and the
Board of Directors of the Bank.
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19. EXPENSES OF CONVERSION.
The expenses incurred in connection with the Conversion shall be
reasonable.
20. REGISTRATION UNDER SECURITIES EXCHANGE ACT OF 1934.
The Holding Company shall register its Common Stock under the Massachusetts
General Laws and the Securities Exchange Act of 1934, as amended, concurrently
with or promptly following the Conversion, provided that either or both such
registrations are required under applicable law. The Holding Company will not
deregister such securities for a period of at least three years.
21. MARKET FOR CONVERSION STOCK.
The Bank and Holding Company shall use their best efforts to (i) encourage
and assist a market maker to establish and maintain a market for the Common
Stock, and (ii) list or quote the Shares on a national or regional securities
exchange or on the Nasdaq quotation system.
22. CONVERSION STOCK NOT INSURED.
The Conversion Stock will not be covered by deposit insurance.
23. NO LOANS TO PURCHASE STOCK.
The Mutual Holding Company and the Bank shall not loan funds or otherwise
extend credit to any Person to purchase Conversion Stock in connection with the
Conversion. The Holding Company will not offer or sell Conversion Stock to any
Person whose purchase would be financed by funds loaned, directly or indirectly,
to the Person by the Mutual Holding Company or the Bank.
24. RESTRICTIONS ON ACQUISITION.
Current Massachusetts regulations provide that for a period of three years
following completion of the Conversion, no Person, or group of Persons Acting In
Concert, shall directly, or indirectly, offer to acquire or actually acquire the
beneficial ownership of more than ten percent (10%) of any class of equity
security of the Holding Company without prior written notice to the Holding
Company and the prior approval of the Commissioner. However, approval is not
required for purchases directly from the Holding Company or the underwriters or
selling group acting on its behalf with a view towards public resale, or for
purchases not exceeding one percent (1%) per annum of the shares outstanding, or
for the acquisition of securities by one or more Tax-Qualified Employee Stock
Benefit Plan of the Bank, provided that the plan or plans do not have beneficial
ownership in the aggregate of more than twenty-five (25%) of any class of equity
security of the Holding Company. 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 (10%) of any class of equity security of the Holding Company within such
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three-year period without the prior approval of the Commissioner, stock of the
Holding Company beneficially owned by such person in excess of ten percent (10%)
shall not be counted as shares entitled to vote and shall not be voted by any
person or counted as voting shares in connection with any matter submitted to
the stockholders for a vote.
25. STOCK ARTICLES OF ORGANIZATION AND BYLAWS.
As part of the Conversion, Amended and Restated Stock Articles of
Organization and Bylaws in the forms attached to this Plan will be adopted by
the Bank. By approving the Plan, the Corporators will thereby approve the
Amended and Restated Stock Articles of Organization and Bylaws of the Bank.
Prior to completion of the Conversion, the proposed Amended and Restated Stock
Articles of Organization and Bylaws of the Bank may be amended in accordance
with the provisions and limitations for amending the Plan under Section 17
herein. The effective date of the adoption of the Amended and Restated Stock
Articles of Organization and Bylaws of the Bank shall be the date of filing of
the Amended and Restated Stock Articles of Organization and such other documents
as required by the Conversion Regulations with the Secretary of State of the
Commonwealth of Massachusetts, including any required certificate of authority
as issued by the Commissioner, which shall be the date of consummation of the
Conversion.
26. CONDITIONS TO CONVERSION.
The Conversion pursuant to this Plan is expressly conditioned upon the
following:
(a) Prior receipt by the Mutual Holding Company or the Bank of either
rulings of the Internal Revenue Service and the Massachusetts taxing
authorities, or opinions of counsel or independent auditors, substantially to
the effect that the Conversion will not result in any adverse federal or state
tax consequences to Eligible Account Holders or to the Bank and the Holding
Company before or after the Conversion;
(b) The sale of all of the Conversion Stock offered in the Conversion
pursuant to this Plan; and
(c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
27. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the Mutual
Holding Company and the Board of Directors of the Bank shall be final, subject
to the authority of the Commissioner and any other applicable bank regulatory
authority.
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ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of _______________ between Berkshire Bancorp (the
"Mutual Holding Company"), a Massachusetts-chartered mutual holding company, and
Berkshire Bank (the "Bank" or the "Surviving Corporation"), a Massachusetts-
chartered savings bank.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted a Plan of
Conversion (the "Plan" or "Plan of Conversion") for the Mutual Holding Company
and the Bank pursuant to which the Bank organized Berkshire Hills Bancorp, Inc.
(the "Company"), and upon consummation of the following transactions, or in any
other manner consistent with the Plan and applicable regulations, will become a
wholly owned subsidiary of the Company: (1) the Mutual Holding Company, which
currently owns 100% of the outstanding shares of common stock of the Bank, will
convert from mutual form to a Massachusetts interim stock savings bank and
simultaneously merge into the Bank, with the Bank being the surviving entity;
(2) the outstanding shares of Bank common stock will be canceled; (3) the offer
and sale of shares of the Company's common stock; and (4) the issuance to the
Company of the newly authorized shares of the Bank's common stock in exchange
for up to fifty percent (50%) of the proceeds received from the sale of the
Company's common stock; and
WHEREAS, the Mutual Holding Company, which owns one hundred percent (100%)
of the outstanding common stock of the Bank, One Dollar ($1.00) par value per
share ("Bank Common Stock"), will convert to a Massachusetts-chartered interim
stock savings bank pursuant to the Plan of Conversion and merge with and into
the Bank pursuant to this Plan of Merger (the "Mutual Holding Company Merger"),
pursuant to which, among other things, all interests of the corporators in the
Mutual Holding Company and all shares of Bank Common Stock held by the Mutual
Holding Company will be canceled; and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger.
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. Effective Date. The Mutual Holding Company Merger shall become
effective on the date specified in the articles of merger filed with the
Massachusetts Secretary of the Commonwealth (the "Effective Date").
<PAGE>
2. The Mutual Holding Company Merger and Effect Thereof. Subject to the
terms and conditions set forth herein and the prior approval of the
Massachusetts Division of Banks and any other required bank or regulatory
authority, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, the Mutual Holding Company shall convert from the
mutual form to a Massachusetts interim stock savings bank and simultaneously
merge with and into the Bank, which shall be the Surviving Corporation. Upon
consummation of the Mutual Holding Company Merger, the Surviving Corporation
shall be considered the same business and corporate entity as each of the
Constituent Corporations and thereupon and thereafter all the property, rights,
powers and franchises of each of the Constituent Corporations shall vest in the
Surviving Corporation and the Surviving Corporation shall be subject to and be
deemed to have assumed all of the debts, liabilities, obligations and duties of
each of the Constituent Corporations and shall have succeeded to all of each of
their relationships, fiduciary or otherwise, as fully and to the same extent as
if such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Corporation. In addition, any reference to either of the
Constituent Corporations in any contract, will or document, whether executed or
taking effect before or after the Effective Date, shall be considered a
reference to the Surviving Corporation if not inconsistent with the other
provisions of the contract, will or document; and any pending action or other
judicial proceeding to which either of the Constituent Corporations is a party
shall not be deemed to have abated or to have been discontinued by reason of the
Mutual Holding Company Merger, but may be prosecuted to final judgment, order or
decree in the same manner as if the Mutual Holding Company Merger had not
occurred or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the Mutual Holding Company Merger had not occurred.
3. Cancellation of Bank Common Stock held by the Mutual Holding Company
and Member Interests; Liquidation Account. On the Effective Date: (i) each
share of Bank Common Stock issued and outstanding immediately prior to the
Effective Date and held by the Mutual Holding Company shall, by virtue of the
Mutual Holding Company Merger and without any action on the part of the holder
thereof, be canceled; (ii) the interests in the Mutual Holding Company of any
person, firm or entity who or which qualified as a corporator of the Mutual
Holding Company in accordance with its Amended and Restated Articles of
Organization and Bylaws and the laws of Massachusetts prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Corporators")
shall, by virtue of the Mutual Holding Company Merger and without any action on
the part of the holder thereof, be canceled; and (iii) the Bank shall establish
a liquidation account on behalf of each eligible and supplemental account holder
of the Bank, as defined in the Plan of Conversion, in accordance with Section 13
of the Plan of Conversion.
2
<PAGE>
4. Dissenting Shares. No Corporator of the Mutual Holding Company and,
subject to the laws of the Commonwealth of Massachusetts, no holder of shares of
Bank Common Stock shall have any dissenter or appraisal rights in connection
with the Mutual Holding Company Merger.
5. Name of Surviving Corporation. The name of the Surviving Corporation
shall be "Berkshire Bank."
6. Directors of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Amended and Restated Articles of
Organization and Bylaws of the Surviving Corporation and applicable law, the
directors of the Surviving Corporation shall be the directors of the Bank
immediately prior to the Effective Date. Each such director shall serve the
remainder of his existing term and until a successor is elected and qualified.
The address of each such director is c/o 24 North Street, Pittsfield,
Massachusetts 01201.
7. Officers of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Amended and Restated Articles of
Organization and Bylaws of the Surviving Corporation and applicable law, the
officers of the Bank immediately prior to the Effective Date shall be the
officers of the Surviving Corporation.
8. Offices. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 24 North Street, Pittsfield,
Massachusetts and the location of the other deposit-taking offices of the
Surviving Corporation shall remain at the location they existed immediately
prior to the Effective Date, except for the addition of deposit-taking offices
authorized or the deletion of deposit-taking offices closed subsequent to the
date hereof and the Effective Date.
9. Articles of Organization and Bylaws. On and after the Effective Date,
the Articles of Organization of the Bank as in effect immediately prior to the
Effective Date shall be replaced with the Amended and Restated Articles of
Organization of the Surviving Corporation.
On and after the Effective Date, the Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and applicable
law.
10. Stockholder and Corporator Approvals. The affirmative votes of the
holders of the Bank Common Stock set forth in Section 3 of the Plan of
Conversion and the Corporators set forth in Section 3 of the Plan of Conversion
shall be required to approve the Plan of Conversion, of which this Plan of
Merger is a part, on behalf of the Bank and the Mutual Holding Company,
respectively.
11. Abandonment of Plan. This Plan of Merger may be abandoned by either
the Mutual Holding Company or the Bank at any time before the Effective Date in
the manner set forth in Section 17 of the Plan of Conversion.
3
<PAGE>
12. Amendments. This Plan of Merger may be amended in the manner set
forth in Section 17 of the Plan of Conversion by a subsequent writing signed by
the parties hereto upon the approval of the Board of Trustees of the Mutual
Holding Company and the Board of Directors of the Bank.
13. Successors. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Bank.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
BERKSHIRE BANCORP
Attest:
____________________________ By: _____________________________
John A. Davidson James A. Cunningham, Jr.
Clerk President
BERKSHIRE BANK
Attest:
____________________________ By: _____________________________
John Kittredge James A. Cunningham, Jr.
Clerk President and Chief Executive
Officer
4
<PAGE>
EXHIBIT I
AMENDED AND RESTATED
ARTICLES OF ORGANIZATION
OF
BERKSHIRE COUNTY SAVINGS BANK
WHEREAS, a Charter was granted in the year 1846 to incorporate Berkshire
County Savings Bank (hereinafter, the "Original Bank") as a Massachusetts
savings bank; and
WHEREAS, the Original Bank, in accordance with chapter 167H of the
Massachusetts General Laws and all other applicable law, has voted to reorganize
into a mutual holding company by establishing 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 Original Bank, in accordance with said Chapter 167H, has voted
to establish the Bank as a stock form savings bank organized under Massachusetts
law;
NOW, THEREFORE, the Articles of Organization ("Charter") of the Bank shall
read as follows:
ARTICLE 1. Corporate Title. The full corporate title of the Bank is
---------------
"Berkshire County Savings 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 The
------
PopCorner, Pittsfield, Massachusetts 01201 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 Chapters 167H
and 168 (including without limitation those sections of Chapter 172 listed in
Section 34C of Chapter 168) 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 Twenty Million (20,000,000), of which
Ten Million (10,000,000) shares shall be common stock, One Dollar ($1.00) par
value per share, and Ten Million (10,000,000) 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 and as approved by its
stockholders to the extent that such approval is required by this Charter or by
applicable law or regulation. The
<PAGE>
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 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.
The minimum amount of capital and surplus with which the Bank shall
commence business shall be not less than that required to satisfy capital or
reserve requirements of any applicable state or federal law.
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:
A. 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 shares
of common stock shall be entitled to one vote on all matters for each share held
by such holder. There shall be no cumulative voting rights in the election of
Directors.
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 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.
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<PAGE>
B. Preferred Stock. Subject to (i) regulatory approvals if they are
---------------
required by law, and (ii) stockholder approval to the extent required by this
Charter, the Board of Directors of the Bank 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 Bank into one or more 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 such series shall be separately
designated so as to distinguish the shares thereof from the shares of all other
series and classes. All shares of the same class shall be identical except as
to the following relative rights and preferences, as to which there by be
variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) 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;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) 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;
(e) The amount or amounts payable upon the shares of such series in
the event of voluntary or involuntary liquidation, dissolution or
winding up of the Bank;
(f) 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;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of stock of
the Bank, and if so convertible or exchangeable, the conversion
price or prices or the rate or rates of exchange, and the
adjustments thereof, if any, at which such conversion or exchange
may be made, and any other terms and conditions of such conversion
or exchange;
-3-
<PAGE>
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) 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.
Unless otherwise provided by law, any such vote shall become effective when
the Bank 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 Bank, 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 and the stockholders, if required by this Charter.
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.
C. 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).
D. Corporator Vote Required to Approve Stock Issuance Plan. Any plan
-------------------------------------------------------
providing for the issuance of securities by the Bank to a person other than the
Bank's mutual holding company parent shall be approved by the affirmative vote
of (i) a majority of the total votes of the corporators of such mutual holding
company (the "Corporators") and (ii) a majority of independent Corporators (who
must constitute not less than 60% of all Corporators), eligible to be cast. An
"independent Corporator" is a Corporator who is not an employee, officer or
trustee or a significant borrower of the Bank or its mutual holding company
parent.
ARTICLE 6. 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 7. Directors. The Bank shall be under the direction of a Board of
---------
Directors. The number of Directors shall not be fewer nor more than permitted
by law, and shall be set by the stockholders in accordance with the By-Laws.
The number of Directors shall initially be set at twelve (12). The names of the
original Directors under this Charter are set forth in Appendix A hereto.
-4-
<PAGE>
ARTICLE 8. Indemnification. The Directors, officers and employees of the
---------------
Bank shall be indemnified to the extent provided in the By-Laws of the Bank.
ARTICLE 9. Acting as a Partner. The Bank may be a partner in any business
-------------------
enterprise which it would have power to conduct by itself.
ARTICLE 10. 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 11. Amendment of Charter. This charter may be amended by a
--------------------
majority vote of the shares of the Bank's capital stock outstanding and entitled
to vote, subject to applicable law.
ARTICLE 12. Liquidation Account. The Bank shall establish and maintain a
-------------------
liquidation account for the benefit of its deposit account holders as of
September 30, 1998 ("Eligible Account Holders") and its deposit account holders
as of September 30, 1999 ("Supplemental Eligible Account Holders"). In the event
of a complete liquidation of the Bank it shall comply with such rules and
regulations of the Commissioner with respect to the amount and the priorities on
liquidation of each of the Bank's Eligible Account Holder's and Supplemental
Eligible Account Holder's inchoate interests in the liquidation account to the
extent it is still existence; provided, however, that an Eligible Account
Holder's and Supplemental Eligible Account Holder's inchoate interest in the
liquidation account shall not entitle such Eligible Account Holder or
Supplemental Eligible Account Holder to any voting rights at meetings of the
Bank's stockholders.
ARTICLE 13. Certain Provisions Applicable for Three Years.
----------------------------------------------
Notwithstanding anything contained in the Bank's articles of organization or
bylaws to the contrary, for a period of three years from the date of
consummation of the Conversion, the following provisions shall apply.
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of more than ten
percent (10%) of any class of any equity security of the Bank without prior
written notice to the Bank and the prior written approval of the Commissioner.
This limitation shall not apply to a transaction in which the Bank forms a
holding company without a change in the respective beneficial ownership
interests of its stockholders other than pursuant to the exercise of any
dissenter and appraisal rights, the purchase of shares by underwriters in
connection with a public offering, or the purchase of shares by an employee
stock benefit plan.
In the event shares are acquired in violation of this Article 13, all
shares beneficially owned by any person in excess of ten percent (10%) shall be
considered "excess shares" and shall not be counted as shares entitled to vote,
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to the stockholders for a vote, and shall not be counted
as outstanding for purposes of determining the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote.
-5-
<PAGE>
For purposes of this ARTICLE 13, the following definitions apply:
1. The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the equity
securities of the Bank.
2. The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
3. The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
4. The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
5. The term "conversion" means (i) the conversion of the Mutual Holding
Company to stock form and the combination of the Mutual Holding Company with and
into the Bank pursuant to the MHC Combination, pursuant to which the Mutual
Holding Company will cease to exist and each share of the Bank's common stock
outstanding immediately prior to the effective time thereof shall automatically
be canceled, (ii) the issuance of Conversion Stock by the Holding Company in the
offering in the Plan of Conversion, and (iii) the issuance to the Holding
Company of the Bank's common stock to be outstanding upon consummation of the
Conversion in exchange for a portion of the net proceeds received by the Holding
Company from the sale of the Conversion Stock, all of which shall be in
accordance with the Conversion Regulations, Massachusetts law and regulations
and the Plan of Conversion.
ARTICLE 14. Certain Requirements for Business Combinations. In addition
-----------------------------------------------
to any affirmative vote required by law or these articles of Organization, the
vote of stockholders of the Bank required to approve any Business Combination
(as defined below) shall be as set forth in this ARTICLE 14.
A. None of the following Business Combinations shall be consummated
without the affirmative vote of the holders of at least eighty percent (80%) of
the shares entitled to vote thereon ("Voting Stock"):
1. any merger or consolidation of the Bank with or into (a) any
Interested Shareholder or (b) any other corporation or entity (whether or not
itself an Interested Shareholder) which is, or after each merger or
consolidation would be, an Affiliate of an Interested Shareholder;
-6-
<PAGE>
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate of any Interested Shareholder of assets
of the Bank having an aggregate Fair Market Value of $100,000 or more;
3. the issuance or transfer by the Bank (in one transaction or a
series of transactions) of any securities of the Bank to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange for cash,
securities or other property (or a combination thereof) having an aggregate Fair
Market Value of $100,000 or more, other than the issuance of securities upon the
conversion of any class or series of stock or securities convertible into stock
of the Bank which were not acquired by such Interested Shareholder or such
Affiliate from the Bank;
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Bank proposed by or on behalf of an Interested Shareholder or
any Affiliate of any Interested Shareholder; or
5. any reclassification of securities (including any reverse stock
split), or any recapitalization of the Bank, or any merger or consolidation of
the Bank or any other transaction (whether or not with or into or otherwise
involving an Interested Shareholder) which in any such case (a) has the effect,
directly or indirectly of increasing the proportionate share of the outstanding
shares of any class or series of stock of the Bank which is directly or
indirectly beneficially owned by any Interested Shareholder or any Affiliate of
any Interested Shareholder or (b) would have the effect of increasing such
proportionate share upon conversion of any class or series of stock or
securities convertible into stock of the Bank.
B. The provisions of paragraph A hereof shall not be applicable to any
Business Combination in respect of which the conditions specified in either of
the following subparagraphs 1 and 2 are met. Any such Business Combination shall
require the affirmative vote of only the holders of a majority of the Voting
Stock.
1. Such Business Combination shall have been approved by a majority
of the Disinterested Directors, or
2. All of the following conditions relating to minimum price and
consideration for stock shall have been met:
(a) Common Stock. The aggregate amount of the cash and the Fair
------------
Market Value as of the "Consummation Date" of any consideration other than cash
to be received by holders of the common stock of the Bank in such Business
Combination shall be at least equal to the higher of the following:
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such common stock
-7-
<PAGE>
beneficially owned by the Interested Shareholder which were acquired
beneficially by such Interested Shareholder within the two-year period
immediately prior to the Announcement Date or in the transaction in which it
became an Interested Shareholder, whichever is higher; or
(ii) the Fair Market Value per share of such common stock on the
Announcement Date or the Determination Date, whichever is higher; or
(b) Other Stock. The aggregate amount of the cash and the Fair
-----------
Market Value as of the Consummation Date of any consideration other than cash to
be received per share by holders of shares of any class or series of outstanding
Voting Stock other than common stock shall be at least equal to the highest of
the following (it being intended that the requirements of this subparagraph (b)
shall be required to be met with respect to every class and series of such
Voting Stock, whether or not the Interested Shareholder beneficially owns any
shares of a particular class or series of such Voting Stock):
(i) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of such class or series of Voting Stock beneficially owned by
the Interested Shareholder which were acquired beneficially by such Interested
Shareholder within the two-year period immediately prior to the Announcement
Date or in the transaction in which it became an Interested Shareholder,
whichever is higher;
(ii) the highest preferential amount per share to which the
holders of shares of such class or series of Voting Stock are entitled in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Bank; or
(iii) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement date or the determination Date, whichever is
higher; and
(c) Form of Consideration. The consideration to be received by
---------------------
holders of a particular class or series of outstanding Voting Stock shall be in
cash or in the same form as was previously paid in order to acquire beneficially
shares of such class or series of Voting Stock that are beneficially owned by
the Interested Shareholder and, if the Interested Shareholder beneficially owns
shares of any class or series of Voting Stock that were acquired with varying
forms of consideration, the form of consideration to be received by the holders
of such class or series of Voting Stock shall be either cash or the form used to
acquire beneficially the largest number of shares of such class or series of
Voting Stock beneficially acquired by it prior to the Announcement Date; and
(d) Prohibited Conduct. After the Determination Date, and prior to
------------------
the Consummation Date:
(i) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at regular dates
therefor the full amount of any
-8-
<PAGE>
dividends (whether or not cumulative), payable on any class or series having a
preference over the common stock of the Bank as to dividends, or upon
liquidation;
(ii) there shall have been no reduction in the annual rate of
dividends paid on the common stock of the Bank (except as necessary to reflect
any division of the common stock) except as approved by a majority of the
Disinterested Directors; and there shall have been an increase in such annual
rate of dividends as necessary to prevent any such reduction in the event of any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of reducing the
number of outstanding shares of the common stock, unless the failure so to
increase such annual rate was approved by a majority of the Disinterested
Directors;
(iii) an Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as part of the
transaction in which it became an Interested Shareholder; and
(iv) after an Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or tax credits or
other tax advantages provided by the Bank, whether in anticipation of or in
connection with such Business Combination or otherwise; and
(e) Informational Requirements. A proxy or information statement
---------------------------
describing the proposed Business Combination and complying with the then current
regulatory requirements shall be mailed to holders of Voting Stock at least 30
days prior to the shareholder vote on such Business Combination (whether or not
such proxy or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
C. For the purpose of this ARTICLE 14:
1. The term "Business Combination" shall mean any transaction that
is referred to in any one or more subsections 1 through 5 of paragraph A hereof.
2. A "person" shall mean any individual, firm, corporation or other
entity.
3. "Interested Shareholder" shall mean any person (other than the
Bank) who or which:
(a) is the beneficial owner, directly or indirectly, of more than ten
percent (10%) of the combined voting power of the then outstanding shares of
Voting Stock;
-9-
<PAGE>
(b) is an Affiliate of the Bank and at any time within the two-year
period immediately prior to the date in question was the beneficial owner,
directly or indirectly, of ten percent (10%) or more of the combined voting
power of the then outstanding shares of Voting Stock; or
(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock that were at any time within the two-
year period immediately prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
4. A person shall be a "Beneficial Owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(b) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote or direct the vote
pursuant to any agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Voting Stock.
5. For the purposes of determining whether a person is an Interested
Shareholder pursuant subparagraph 3 of this paragraph C, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of subparagraph 4 of this paragraph C.
6. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934.
7. "Subsidiary" means any corporation more than fifty percent (50%)
of whose outstanding stock having ordinary voting power in the election of
directors is owned, directly or indirectly, by the Bank or by a Subsidiary
thereof or by the Bank and one or more Subsidiaries thereof; provided, however,
that for the purposes of the definition of Interested Shareholder set forth in
subparagraph 3 of this paragraph C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Bank.
-10-
<PAGE>
8. "Disinterested Director" means any member of the Board of
Directors of the Bank who is unaffiliated with, and not a nominee of, the
Interested Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, the
Interested Shareholder and who is recommended to succeed a Disinterested
Director by a majority of Disinterested Directors then on the Board of
Directors.
9. "Fair Market Value" means:
(a) in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if
such stock is not quoted on the Composite Tape on the New York Stock Exchange,
or, if such stock is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or, if such stock is not listed on any such
exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, of a share of such stock. Such price
shall be the higher of (1) the closing sales price or bid quotation with respect
to a share of such stock during the 30-day period preceding the date in question
on the National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as determined
by a majority of the Disinterested Directors in good faith; and (2) in the case
of stock of any class or series which is not traded on any United States
registered securities exchange nor in the over-the-counter market or in the case
of property other than cash or stock, the fair market value of such property on
the date in question as determined by a majority of the Disinterested Directors
in good faith.
10. In the event of any Business Combination in which the Bank
survives, the phrase "any consideration other than cash" as used in subparagraph
2.a. of paragraph B hereof shall include the shares of common stock and/or the
shares of any class or series of outstanding Voting Stock other than common
stock of the Bank retained by the holders of such shares.
11. "Announcement Date" means the date of first public announcement
of the proposed Business Combination.
12. "Consummation Date" means the date of consummation of a Business
Combination.
13. "Determination Date" means the date on which the Interested
Shareholder became an Interested Shareholder.
-11-
<PAGE>
D. A majority of the Disinterested Directors of the Bank shall have the
power and duty to determine, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance with this
ARTICLE 14, including, without limitation, (i) whether a person is an Interested
Shareholder, (ii) the number of shares of Voting Stock beneficially owned by a
person, (iii) whether a person is an Affiliate or Associate of another person,
(iv) whether the requirements of paragraph B hereof have been met with respect
to any Business Combination, and (v) whether the assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Bank or any subsidiary in any
Business Combination has, an aggregate Fair Market Value of $100,000 or
more. The good faith determination of a majority of the Disinterested Directors
on such matters shall be conclusive and binding for all purposes of this
ARTICLE 14.
E. Nothing contained in this ARTICLE 14 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
F. This ARTICLE 14 may be amended only by the vote of holders of two-
thirds of the Voting Stock, unless the amendment is approved by a majority of
the Disinterested Directors, in which event it may be amended by the vote of
holders of a majority of the Voting Stock.
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<PAGE>
EXHIBIT II
BYLAWS
OF
BERKSHIRE BANK
ARTICLE I
---------
Organization
------------
The name of this Bank shall be "Berkshire Bank". The main office of the
Bank is and shall be located in the City of Pittsfield, Massachusetts, or such
other location as the Board of Directors may designate, subject to change as
authorized by law. Branches and depots heretofore or hereafter established
shall be located and operated in accordance with applicable law. The Bank shall
have and may exercise all the powers, privileges and authority, express, implied
and incidental, now or hereafter conferred by applicable law.
ARTICLE II
----------
Stockholders
------------
SECTION 2.1 Annual Meeting. The annual meeting of the stockholders for
--------------
elections and other purposes shall be held on the first Wednesday in May (or if
that be a legal holiday in the place where the meeting is to be held, on the
next succeeding full business day), at the main office of the Bank in
Massachusetts, unless a different date or place within Massachusetts (or if
permitted by applicable law, elsewhere in the United States) is fixed by the
Board of Directors, the Chairman of the Board or the Chief Executive Officer.
If no annual meeting has been held on the date fixed above, a special meeting in
lieu thereof may be held, and such special meeting shall have for the purposes
of these By-Laws or otherwise all the force and effect of an annual meeting.
SECTION 2.2 Special Meetings. Special meetings of the stockholders for
----------------
any purpose or purposes may be called at any time only by the Chairman of the
Board, by the Chief Executive Officer, by a majority of the Directors then in
office or by the holder or holders of not less than a majority of all the
outstanding capital stock of the Bank entitled to vote at the meeting. Only
those matters set forth in the call of the special meeting may be considered or
acted upon at such special meeting, unless otherwise provided by law.
SECTION 2.3 Matters to be Considered at Annual Meetings. At an annual
-------------------------------------------
meeting of stockholders, only such new business shall be conducted, and only
such proposals shall be acted upon as shall be proper subjects for stockholder
action pursuant to the Charter, these By-Laws, or applicable law and shall have
been brought before the annual meeting (a) by, or at the direction of, the Board
of Directors, the Chairman of the Board, or the Chief Executive Officer or (b)
by the holder or holders of not less than a majority of all the outstanding
capital stock of the Bank entitled to vote at the meeting.
<PAGE>
SECTION 2.4 Notice of Meetings. A written notice of all annual and
------------------
special meetings of stockholders shall state the place, date, hour, and purposes
of such meetings, and shall be given by the Clerk or an Assistant Clerk (or
other person authorized by these By-Laws or by law) at least seven (7) days
before the meeting to each stockholder entitled to vote at such meeting or to
each stockholder who, under the Charter or under these By-laws, is entitled to
such notice, by leaving such notice with him or at his residence or usual place
of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears on the stock transfer books of the
Bank. When any stockholders' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. It shall not be necessary to give any notice of
the time and place of any meeting adjourned for less than thirty (30) days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken. A written waiver of notice, executed before
or after a meeting by such stockholder or his attorney thereunto authorized and
filed with the records of the meeting, shall be deemed equivalent to notice of
the meeting.
SECTION 2.5 Quorum. The holders of a majority in interest of all stock
------
issued, outstanding, and entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders, but if less than a
quorum is present at a meeting, a majority in interest of the stockholders
present may adjourn the meeting from time to time and the meeting may be held as
adjourned without further notice, except as provided in Section 2.4. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The 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.
SECTION 2.6 Voting and Proxies. Stockholders shall have one vote for
------------------
each share of stock entitled to vote owned by them of record according to the
books of the Bank, unless otherwise provided by law or by the Charter.
Stockholders of record may vote either in person or by written proxy dated not
more than six (6) months before the meeting named therein. Proxies shall be
filed with the Clerk at the meeting, or any adjournment thereof, before being
voted. Proxies solicited on behalf of the management shall be voted as directed
by the stockholder or, in the absence of such direction, as determined by a
majority of the Board of Directors. Except as otherwise limited therein, proxies
shall entitle the persons authorized thereby to vote at any adjournment of such
meeting, but they shall not be valid after final adjournment of such meeting. A
proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of the proxy the
Clerk of the 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
2
<PAGE>
unless successfully challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger.
SECTION 2.7 Action at Meeting. When a quorum is present, any matter
-----------------
before the meeting shall be decided by vote of the holders of a majority of the
shares of stock voting on such matter, except where a larger vote is required by
law, by the Charter or by these By-Laws. Any election by stockholders shall be
determined by a plurality of the votes cast, except where a larger vote is
required by law, by the Charter or by these By-Laws. No ballot shall be required
for any election unless requested by a stockholder entitled to vote in the
election.
SECTION 2.8 Action without Meeting. Any action to be taken at any annual
----------------------
or special meeting of stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
ARTICLE III
-----------
Directors
---------
SECTION 3.1 Powers. The business and affairs of the Bank shall be managed
------
by a Board of Directors who may exercise all the powers of the Bank except as
otherwise provided by law, by the Charter or by these By-Laws. In the event of
a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board.
SECTION 3.2 Composition and Term. 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 Board of Directors shall initially
consist of twelve (12) individuals, and shall remain fixed at such number until
another number is fixed by the Board of Trustees of the mutual holding company
which owns the majority of the outstanding capital stock of the Bank, after
consideration of the recommendation of the Executive Committee of such Board of
Trustees. Except as otherwise provided in these By-Laws, the members of the
Board of Directors shall be elected for a term of one (1) year and until their
successors are elected and qualified. The Board of Directors shall be composed
of: (a) those persons designated in the Charter of the Bank, such persons to
serve as Directors until the expiration of their terms and until their
successors are elected and qualified; and (b) as such terms expire, those
persons who are elected as directors from time to time as provided herein.
SECTION 3.3 Director Nominations. Nominations of candidates for election
--------------------
as Directors at any annual meeting of stockholders shall be made by the
Executive Committee of the Board of Trustees of the mutual holding company which
owns the majority of the outstanding capital stock of the Bank. Only persons
nominated in accordance with this Section 3.3 shall be eligible for election as
directors at an annual meeting.
3
<PAGE>
SECTION 3.4 Qualification. Each Director shall have such qualifications
-------------
as are required by applicable law. No Director shall serve as a corporator,
trustee, director or officer of any holding company for any bank or thrift
institution which is not the mutual holding company which owns the majority of
the outstanding capital stock of the Bank, or as a trustee, director or officer
of any other bank or thrift institution which is not a subsidiary of the mutual
holding company which owns the majority of the outstanding capital stock of the
Bank. No person shall be qualified to continue to serve as a Director after the
annual meeting immediately following his or her seventy-second birthday;
provided, however, that any Director who was born prior to January 1, 1930 and
who serves as a Trustee of the mutual holding company which owns the majority of
the outstanding capital stock of the Bank shall be qualified to serve as a
Director until the expiration of his or her last term as such a Trustee. If
required by applicable law, three- fourths (3/4) of the Board of Directors shall
be residents of The Commonwealth of Massachusetts.
SECTION 3.5 Resignation and Removal. Any Director may resign at any time
-----------------------
by delivering his written resignation to the main office of the Bank addressed
to the Chairman of the Board or the Chief Executive Officer. Such resignation
shall be effective upon receipt thereof by the Chairman of the Board or the
Chief Executive Officer, unless it is specified to be effective at some other
time or upon the happening of some other event. Any Director may be removed
from office, with or without cause, by the holder or holders of not less than a
majority of all the outstanding capital stock of the Bank entitled to vote at
the meeting.
SECTION 3.6 Vacancies. Any vacancy occurring on the Board of Directors,
---------
whether as a result of resignation, removal, death or increase in the number of
Directors, may be filled by the Executive Committee of the Board of Trustees of
the mutual holding company which owns the majority of the outstanding capital
stock of the Bank.
SECTION 3.7 Compensation. The members of the Board of Directors and the
------------
members of either standing or special committees may be allowed such
compensation for attendance at meetings as the Board of Directors may determine.
SECTION 3.8 Regular Meetings. Unless otherwise provided by the Board of
----------------
Directors, a regular meeting of the Board of Directors shall be held without
other notice than this By-Law on the same date and at the same place as the
annual meeting of stockholders, or the special meeting held in lieu thereof,
following such meeting of stockholders. The Board of Directors may provide by
resolution, the time, date and place for the holding of regular meetings without
other notice than such resolution. There shall be regular meetings of the Board
of Directors at a place or places fixed from time to time by the Board of
Directors.
SECTION 3.9 Special Meetings. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairman of the Board, the Chief
Executive Officer, or a majority of the Directors. The persons authorized to
call special meetings of the Board of Directors may fix the time, date and place
for holding any special meeting of the Board of Directors called by such
persons.
4
<PAGE>
SECTION 3.10 Notice of Meetings. Notice of the time, date and place of
------------------
all special meetings of the Board of Directors shall be given to each Director
by the Clerk or Assistant Clerk or in the case of the death, absence, incapacity
or refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice of any special meeting of the Board of Directors shall be given
to each Director in person or by telephone or sent to his business or home
address by telecommunication at least twenty-four (24) hours in advance of the
meeting, or by written notice mailed to his business or home address at least
forty-eight (48) hours in advance of such meeting. If mailed, such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
thereon prepaid. When any Board of Directors' meeting, either regular or
special, is adjourned for thirty (30) days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than thirty (30) days or of the business to be transacted thereat, other
than an announcement at the meeting at which such adjournment is taken. Any
Director may waive notice of any meeting by a writing executed by him 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 a Director attends a meeting for the express purpose
of objecting to the transaction of any business because such meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 3.11 Quorum. A majority of the number of Directors then in
------
office shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors, but if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time and
the meeting may be held as adjourned without further notice, except as provided
in Section 3.10. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed.
SECTION 3.12 Action at Meeting. The act of the majority of the Directors
-----------------
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by governing law, by the
Charter or by these By-Laws.
SECTION 3.13 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 3.14 Presumption of Assent. A Director of the Bank who is
---------------------
present at a meeting of the Board of Directors at which action on any Bank
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention has been entered in the minutes of the meeting or
unless he 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
5
<PAGE>
minutes of the meeting. Such right to dissent shall not apply to a Director who
voted in favor of such action.
SECTION 3.15 Committees. The Board of Directors, by vote of a majority
----------
of all of the Directors then in office, shall elect from its number an Audit
Committee and an Executive Committee, and may elect such other committees as it
deems appropriate, and may delegate to such committees some or all of its powers
except those which by law, by the Charter or by these By-Laws may not be
delegated. Any committees shall consist of not less than three (3) members of
the Board of Directors. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-Laws for the Board of Directors. All members of committees shall
hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any committee (other than the Executive Committee) at any
time, subject to applicable law. Any committee to which the Board of Directors
delegates any of its powers or duties shall keep records of its meetings and
shall report its action to the Board of Directors. The Board of Directors shall
have power to rescind any action of any committee, but no such rescission shall
have retroactive effect.
SECTION 3.16 Manner of Participation. Members of the Board of Directors
-----------------------
may participate in meetings of the Board by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person.
ARTICLE IV
----------
Officers
--------
SECTION 4.1 Enumeration. The officers of the Bank shall consist of a
-----------
President, a Treasurer, a Clerk, and such other officers, including without
limitation a Chairman of the Board, a Chief Executive Officer, a Secretary, and
one or more Vice Presidents, Vice Treasurers, Assistant Treasurers, Assistant
Clerks or Assistant Secretaries, as the Board of Directors may determine.
SECTION 4.2 Election. The President, the Chief Executive Officer, the
--------
Treasurer and all officers at the level of Vice President or above shall be
elected by the Board of Directors annually at their first meeting following the
annual meeting of stockholders. The Clerk shall be elected by the stockholders
at their annual meeting or at a special meeting of the stockholders. All other
officers may be elected by the Board of Directors or appointed by the President.
SECTION 4.3 Qualification. Any two or more offices may be held by any
-------------
person. The President shall be a Director. The Clerk shall be a resident of
Massachusetts unless the Bank has a resident agent appointed for the purpose of
service of process. Any officer may be required by the Board of Directors to
give bond for the faithful performance of his duties in such amount and with
such sureties as the Board of Directors may determine. Other than as required
by applicable law or regulation, no officer need be a stockholder. No officer
shall serve as a corporator, trustee, director
6
<PAGE>
or officer of any holding company for any bank or thrift institution which is
not the mutual holding company which owns the majority of the outstanding
capital stock of the Bank, or as a trustee, director or officer of any other
bank or thrift institution which is not a subsidiary of the mutual holding
company which owns the majority of the outstanding capital stock of the Bank.
SECTION 4.4 Tenure. Except as otherwise provided by law, by the Charter
------
or by these By-Laws, the President and Treasurer shall hold office until the
first meeting of the Board of Directors following the next annual meeting of
stockholders and until their respective successors are chosen and qualified. The
Clerk shall hold office until the next annual meeting of stockholders and until
his successor is chosen and qualified. All other officers shall hold office
until the first meeting of the Board of Directors following the next annual
meeting of stockholders and until their successors are chosen and qualified, or
for such shorter term as the Board of Directors may fix at the time such
officers are chosen. Election or appointment of an officer, employee or agent
shall not of itself create contract rights to continued employment or otherwise.
The Board of Directors may authorize the Bank to enter into an employment
contract with any officer in accordance with governing law or regulation, but no
such contract right shall preclude the Board of Directors from exercising its
right to remove any officer at any time in accordance with Section 4.5.
SECTION 4.5 Resignation and Removal. Any officer may resign by
-----------------------
delivering his written resignation to the Bank at its main office addressed to
the Chief Executive Officer, Clerk or Secretary. Such resignation shall be
effective upon receipt thereof by the Chief Executive Officer, Clerk or
Secretary, unless it is specified to be effective at some other time or upon the
happening of some other event. Any officer elected by the Board of Directors may
be removed at any time with or without cause by the Board of Directors. Any
officer appointed by the Chief Executive Officer, and any employee or agent of
the Bank, may be removed at any time with or without cause by the Chief
Executive Officer, or by the Board of Directors.
SECTION 4.6 Chairman of the Board. The Board of Directors may annually
---------------------
elect a Chairman of the Board. Unless the Board of Directors otherwise
provides, the Chief Executive Officer of the Bank shall be the Chairman of the
Board and shall preside, when present, at all meetings of stockholders and the
Board of Directors.
SECTION 4.7 Chief Executive Officer. The Chief Executive Officer shall
-----------------------
have, subject to the direction of the Board of Directors, general supervision
and control of the Bank's business.
SECTION 4.8 President and Vice President. The President shall have such
----------------------------
powers and shall perform such duties as the Board of Directors may from time to
time designate and shall serve as the Chief Executive Officer of the Bank,
unless the Board of Directors otherwise provides. Unless otherwise provided by
the Board of Directors, he shall preside, when present, at all meetings of
stockholders and of the Board of Directors if there is no Chairman of the Board
or if the Chairman of the Board does not attend such meetings.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate.
7
<PAGE>
SECTION 4.9 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 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 4.10 Clerk and Assistant Clerks. The Clerk shall keep a record
--------------------------
of the meetings of stockholders. In case a Secretary is not elected or is
absent, the Clerk or an Assistant Clerk shall keep a record of the meetings of
the Board of Directors. In the absence of the Clerk from any meeting of the
stockholders, an Assistant Clerk if one be elected, otherwise a Temporary Clerk
designated by the person presiding at the meeting, shall perform the duties of
the Clerk.
SECTION 4.11 Secretary and Assistant Secretaries. The Secretary, if one
-----------------------------------
be elected, shall keep a record of the meetings of the Board of Directors. In
the absence of the Secretary, any Assistant Secretary, the Clerk and any
Assistant Clerk, a Temporary Secretary shall be designated by the person
presiding at such meeting to perform the duties of the Secretary.
SECTION 4.12 Other Powers and Duties. Subject to these By-Laws, each
-----------------------
officer of the Bank shall have in addition to the duties and powers specifically
set forth in these By-Laws, such duties and powers as are customarily incident
to his office, and such duties and powers as may be designated from time to time
by the Board of Directors or the Chief Executive Officer.
ARTICLE V
---------
Capital Stock
-------------
SECTION 5.1 Certificates of Stock. Each stockholder shall be entitled to
---------------------
a certificate of the capital stock of the Bank in such form as may from time to
time be prescribed by the Board of Directors. Such certificate shall be signed
by the President or a Vice President and by the Treasurer or an Assistant
Treasurer, 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 were such
officer at the time of its issue. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. Every certificate for
shares of stock which are subject to any restriction on transfer and every
certificate issued when the 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.
8
<PAGE>
SECTION 5.2 Transfers. Subject to any restrictions on transfer, shares
---------
of stock may be transferred on the books of the Bank by the surrender to the
Bank or its transfer agent of the certificate therefor properly endorsed or
accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the Bank or its transfer agent may reasonably
require.
SECTION 5.3 Record Holders. Except as may be otherwise required by law,
--------------
by the Charter or by these By-Laws, the Bank shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Bank in accordance
with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Bank of his current
post office address.
SECTION 5.4 Record Date. The Board of Directors may fix in advance a
-----------
time of not more than sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend or the making of any
distribution to stockholders, or the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders having the right to notice of and to vote at
such meeting, and any adjournment thereof, or the right to receive such dividend
or distribution or the right to give such consent or dissent. In such case only
stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the Bank after the record
date. Without fixing such record date the Board of Directors may for any of such
purposes close the transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed, (a) the
record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto.
SECTION 5.5 Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
SECTION 5.6 Issuance of Capital Stock. Subject to (i) regulatory
-------------------------
approvals if they are required by law, and (ii) stockholder approval if required
by the Charter, the Board of Directors shall have the authority to issue or
reserve for issue from time to time the whole or any part of the capital stock
of the Bank which may be authorized from time to time, to such persons or
organizations, for such consideration, whether cash, property, services or
expenses, and on such terms as the Board of Directors may determine, including
without limitation the granting of options, warrants, or conversion or other
rights to subscribe to said capital stock.
9
<PAGE>
SECTION 5.7 Dividends. Subject to applicable law, the Charter and these
---------
By-Laws, the Board of Directors may from time to time declare, and the Bank may
pay, dividends on outstanding shares of its capital stock.
ARTICLE VI
----------
Indemnification
---------------
SECTION 6.1 Officers. To the extent permitted by law and except as
--------
provided in Sections 6.3 and 6.4, each Officer of the Bank (and his heirs and
personal representatives) shall be indemnified by the Bank against all Expenses
incurred by him in connection with any Proceeding in which he is involved as a
result of (a) his serving or having served as an Officer or employee of the
Bank, (b) his serving or having served as a director, officer or employee of any
of its wholly-owned subsidiaries, or (c) his serving or having served any other
corporation, organization, partnership, joint venture, trust or other entity at
the request or direction of the Bank.
SECTION 6.2 Non-Officer Employees. To the extent permitted by law and
---------------------
except as provided in Sections 6.3 and 6.4, each non-Officer Employee of the
Bank (and his heirs and personal representatives) may, in the discretion of the
Board of Directors, be indemnified against any or all Expenses incurred by him
in connection with any Proceeding in which he is involved as a result of (a) his
serving or having served as a non-Officer Employee of the Bank, (b) his serving
or having served as a director, officer, or employee of any of its wholly-owned
subsidiaries, or (c) his serving or having served any other corporation,
organization, partnership, joint venture, trust or other entity at the request
or direction of the Bank.
SECTION 6.3 Service at Direction of Board of Directors. No
------------------------------------------
indemnification shall be provided to an Officer or non-Officer Employee with
respect to his serving or having served in any of the capacities described in
Sections 6.1(c) and 6.2(c), respectively, 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 6.4 Good Faith. No indemnification shall be provided to an
----------
Officer or to a non-Officer Employee with respect to a 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 interests of the Bank. In
the event that a Proceeding is compromised or settled so as to impose any
liability or obligation upon an Officer or upon a non-Officer Employee, no
indemnification shall be provided to said Officer or to said non-Officer
Employee with respect to a matter if there is a determination that with respect
to said matter said Officer or said non-Officer Employee did not act in good
faith in the reasonable belief that his action was in the best interests of the
Bank. The determination shall be made by a majority vote of those Directors who
are not involved in such Proceeding. However, if more than half of the Directors
are involved in such Proceeding, the
10
<PAGE>
determination shall be made by a majority vote of a committee of three
disinterested Directors chosen at a regular or special meeting of the Board of
Directors to make such determination; provided, however, that if there are fewer
than three disinterested Directors, the determination shall be made by a
committee consisting of three disinterested Trustees of the mutual holding
company which owns a majority of the outstanding common stock of the Bank,
chosen at a regular or special meeting of the Board of Directors to make such a
determination; and if there are fewer than three disinterested Trustees, the
determination shall be made by a committee of three disinterested corporators of
the mutual holding company which owns a majority of the outstanding common stock
of the Bank, chosen at a regular or special meeting of the Board of Directors to
make such a determination.
SECTION 6.5 Prior to Final Disposition. Any indemnification provided
--------------------------
under this Article may, in the discretion of the Board of Directors, include
payment by the Bank of Expenses incurred in defending a civil or criminal
Proceeding in advance of the final disposition of such Proceeding, upon the
Bank's receipt of an undertaking by the Officer or non-Officer Employee
indemnified to repay such payment if he shall be adjudicated or determined to be
not entitled to indemnification under Section 6.4
SECTION 6.6 Insurance. The Bank may purchase and maintain insurance to
---------
protect itself and any Officer or non-Officer Employee against any liability of
any character asserted against and incurred by the Bank or any such Officer or
non-Officer Employee, 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 VI.
SECTION 6.7 Definitions. For the purposes of this Article VI:
-----------
(a) "Officer" means any person who serves or has served as a Director or
officer of the Bank;
(b) "non-Officer Employee" means any person who serves or has served as an
employee of the Bank but who is not an Officer;
(c) "Proceeding" means any action, suit or proceeding, civil or criminal,
brought or threatened in or before any court, tribunal, administrative or
legislative body or agency; and
(d) "Expenses" means any liability fixed by a judgment, order, decree or
award 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 6.8 Other Indemnification Rights. The provisions of this Article
----------------------------
VI shall not be construed to be exclusive. The Bank shall have the power and
authority to indemnify any person entitled or eligible to be indemnified under
this Article VI and to enter into specific agreements, commitments or
arrangements for indemnification on any terms not prohibited by law which the
11
<PAGE>
Board of Directors deems to be appropriate. Nothing in this Article VI shall
limit any lawful rights to indemnification existing independently of this
Article.
SECTION 6.9 Survival of Benefits. The provisions of this Article VI
--------------------
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.
ARTICLE VII
-----------
Certain Operating Provisions
----------------------------
SECTION 7.1 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 By-Laws, assenting to the same and to all of the
regulations of the Bank whether then existing or thereafter enacted.
The Bank in its 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 representative to withdraw the whole or any part of the
amount standing to the credit of his 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.
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 7.2 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 By-Laws or with any rules,
12
<PAGE>
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 7.3 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 Vice 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 Vice Treasurer, any Assistant
Treasurer, any Mortgage Officer, any Loan Officer and any Real Estate Officer
are 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.
13
<PAGE>
SECTION 7.4 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 7.5 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 7.6 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 7.7 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 7.8 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.
ARTICLE VIII
------------
Conflicts of Interest
---------------------
No contract or transaction between the Bank and one or more of its
Directors or officers, or between the Bank and any other corporation,
partnership, association, or other organization of which one or more of its
Directors, officers, partners, or members are members of the Board of Directors
or officers of the Bank, or in which one or more of the Bank's Directors or
officers have a financial or other interest, shall be void or voidable solely by
reason thereof, or solely because the Director
14
<PAGE>
or officer is present at or participates in the meeting of the Board of
Directors of the Bank or a committee thereof which authorized the contract or
transaction; if:
(1) Any duality of interest or possible conflict of interest on the
part of any Director or officer of the Bank is disclosed to the other
members of the Board or committee at a meeting at which a matter
involving such duality or conflict of interest is considered or acted
upon; and
(2) Any Director having a duality of interest or possible conflict of
interest on any matter refrains from voting on the matter. The minutes
shall reflect that a disclosure was made and the abstention from
voting.
The foregoing requirements shall not be construed as preventing a Director
from briefly stating his or her position in the matter, nor from answering
pertinent questions of other members of the Board or committee.
Each Director and officer shall be advised of the foregoing upon the
acceptance of his or her office and shall answer an annual questionnaire that
requests the disclosure of such duality of interest or possible conflict of
interest.
ARTICLE IX
----------
Miscellaneous Provisions
------------------------
SECTION 9.1 Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Bank shall be the twelve months ending
December 31st.
SECTION 9.2 Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Bank.
SECTION 9.3 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, the
Chief Executive Officer, the President, any Vice President, Treasurer or, as the
Board of Directors may authorize, any other officer, employee or agent of the
Bank.
SECTION 9.4 Voting of Securities. Unless otherwise provided by the Board
--------------------
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any other officer or agent designated by the Board of Directors may
waive notice of and act on behalf of the Bank, or appoint another person or
persons to act as proxy or attorney in fact for the Bank with or without
discretionary power and/or power of substitution, at any meeting of stockholders
or shareholders of any other organization, any of whose securities are held by
the Bank.
<PAGE>
SECTION 9.5 Resident Agent. The Board of Directors may appoint a
--------------
resident agent upon whom legal process may be served in any action or proceeding
against the Bank. Said resident agent shall be either an individual who is a
resident of and has a business address in Massachusetts, a corporation organized
under the laws of The Commonwealth of Massachusetts, or a corporation organized
under the laws of any other state of the United States, which has qualified to
do business in, and has an office in, Massachusetts.
SECTION 9.6 Bank Records. The original, or attested copies, of the
------------
Charter, By-Laws and record of all meetings of the Directors or stockholders,
and the stock and transfer records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each, shall
be kept in Massachusetts at the main office of the Bank, or at an office of its
transfer agent, Clerk or resident agent.
SECTION 9.7 Charter. All references in these By-Laws to the Charter
-------
shall be deemed to refer to the Charter of the Bank, as amended and in effect
from time to time.
SECTION 9.8 Amendments. These By-Laws may be altered, amended or
----------
repealed by a majority vote of the shares outstanding and entitled to vote.
16
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BERKSHIRE HILLS BANCORP, INC.
FIRST: The name of the Corporation is Berkshire Hills Bancorp, Inc.
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-seven million
(27,000,000) consisting of:
1. One million (1,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Twenty-six million (26,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of the Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote
on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of Common Stock (the
<PAGE>
"Limit"), be entitled, or permitted to any vote in respect
of the shares held in excess of the Limit. The number of
votes which may be cast by any record owner by virtue of the
provisions hereof in respect of Common Stock beneficially
owned by such person beneficially owning shares in excess of
the Limit shall be a number equal to the total number of
votes which a single record owner of all Common Stock
beneficially owned by such person would be entitled to cast,
(subject to the provisions of this Article FOURTH)
multiplied by a fraction, the numerator of which is the
number of shares of such class or series which are both
beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total
number of shares of Common Stock beneficially owned by such
person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in
Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, as in
effect on the date of filing of this Certificate of
Incorporation.
b. "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended (or
any successor rule or statutory provision), or, if said
Rule 13d-3 shall be rescinded and there shall be no
successor rule or provision thereto, pursuant to said
Rule 13d-3 as in effect on the date of filing of this
Certificate of Incorporation; provided, however, that a
person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage
of time), pursuant to any agreement, arrangement
or understanding (but shall not be deemed to be
the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other
arrangement with this Corporation to effect any
transaction which is
2
<PAGE>
described in any one or more of clauses 1 through
5 of Section A of Article EIGHTH of this
Certificate of Incorporation ("Article EIGHTH")),
or upon the exercise of conversion rights,
exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to
any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed
to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for
a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting,
with respect to shares of which neither such
person nor any such Affiliate is otherwise deemed
the beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such
first mentioned person or any of its Affiliates
acts as a partnership, limited partnership,
syndicate or other group pursuant to any
agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing
of any shares of capital stock of this
Corporation; and provided further, however, that:
(1) no Director or Officer of this Corporation (or
any Affiliate of any such Director or Officer)
shall, solely by reason of any or all of such
Directors or Officers acting in their capacities
as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially
owned by any other such Director or Officer (or
any Affiliate thereof); and (2) neither any
employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation,
nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of
such capacity of such trustee), shall be deemed,
for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For
purposes only of computing the percentage of
beneficial ownership of Common Stock of a person,
the outstanding Common Stock shall include shares
deemed owned by such person through application of
this subsection but shall not include any other
Common Stock which may be issuable by this
3
<PAGE>
Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common
Stock then outstanding and shall not include any
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or
options, or otherwise.
c. The "limit" shall mean 10% of the then-outstanding
shares of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with
respect to: (i) the number of shares of Common Stock
beneficially owned by any person; (ii) whether a person is
an affiliate of another; (iii) whether a person has an
agreement, arrangement, or understanding with another as to
the matters referred to in the definition of beneficial
ownership; (iv) the application of any other definition or
operative provision of the section to the given facts; or
(v) any other matter relating to the applicability or effect
of this section.
4. The Board of Directors shall have the right to demand that
any person who is reasonably believed to beneficially own
Common Stock in excess of the Limit (or holds of record
Common Stock beneficially owned by any person in excess of
the Limit) supply the Corporation with complete information
as to: (i) the record owner(s) of all shares beneficially
owned by such person who is reasonably believed to own
shares in excess of the Limit; and (ii) any other factual
matter relating to the applicability or effect of this
section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of
4
<PAGE>
record of shares of capital stock of the Corporation
entitling the holders thereof to cast a majority of the
votes (after giving effect, if required, to the provisions
of this Section C) entitled to be cast by the holders of
shares of capital stock of the Corporation entitled to vote
shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder
consent or approval shall be deemed to refer to such
majority or other proportion of the votes (or the holders
thereof) then entitled to be cast in respect of such capital
stock.
6. Any constructions, applications, or determinations made by
the Board of Directors pursuant to this section in good
faith and on the basis of such information and assistance as
was then reasonably available for such purpose shall be
conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or
unenforceable for any reason, the remaining provisions (or
portions thereof) of this Section shall remain in full force
and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this
Section C remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
5
<PAGE>
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
SIXTH:
-----
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election with each Director to hold
office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock of the Corporation
6
<PAGE>
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
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repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
------
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any
Affiliate of any Interested Stockholder, of any assets of
the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding common stock of the Corporation and its
Subsidiaries, except for any
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issuance or transfer pursuant to an employee benefit plan of
the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of
an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with
or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation
or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter
defined).
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2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by the holders of Common Stock
in such Business Combination shall at least be equal to
the higher of the following:
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year
period immediately prior to the first public
announcement of the proposal of the Business
Combination (the "Announcement Date"); or (ii) in
the transaction in which it became an Interested
Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in
this Article EIGHTH as the "Determination Date"),
whichever is higher.
b. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the
following (it being intended that the requirements of
this subparagraph (b) shall be required to be met with
respect to every such class of outstanding Voting
Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of
Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder
for any shares
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<PAGE>
of such class of Voting Stock acquired by it: (i)
within the two-year period immediately prior to
the Announcement Date; or (ii) in the transaction
in which it became an Interested Stockholder,
whichever is higher; or
(2) (if applicable) the highest preferential amount
per share to which the holders of shares of such
class of Voting Stock are entitled in the event of
any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a
particular class of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as
the Interested Stockholder has previously paid for
shares of such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration to be received per share by holders of
shares of such class of Voting Stock shall be either
cash or the form used to acquire the largest number of
shares of such class of Voting Stock previously
acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this
Article EIGHTH shall be subject to appropriate
adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
d. After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of
such Business Combination: (1) except as approved by a
majority of the Disinterested Directors (as hereinafter
defined), there shall have been no failure to declare
and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any
outstanding stock having preference over the Common
Stock as to dividends or liquidation; (2) there shall
have been: (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as
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<PAGE>
necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the
Disinterested Directors; and (ii) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar
transaction which has the effect of reducing the number
of outstanding shares of the Common Stock, unless the
failure to so increase such annual rate is approved by
a majority of the Disinterested Directors, and (3)
neither such Interested Stockholder or any of its
Affiliates shall have become the beneficial owner of
any additional shares of Voting Stock except as part of
the transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
e. After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder),
of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided, directly or indirectly, by the
Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
f. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or
any subsequent provisions replacing such Act, and the
rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company,
a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the 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 10% of the voting power of the outstanding
Voting Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the
date in question was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the
then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within
the two-year period immediately prior to the date in
question beneficially owned by any Interested
Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series
of transactions not involving a public offering within
the meaning of the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Article FOURTH
hereof.
4. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate
of Incorporation.
5. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for
the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an
Interested Stockholder, and any Director who is thereafter
chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with
the Interested Stockholder and in connection with his or her
initial
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<PAGE>
assumption of office is recommended for appointment or
election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price
of the stock during the 30-day period immediately
preceding the date in question of a share of such stock
on the National Association of Securities Dealers
Automated Quotation System or any system then in use,
or, if such stock is admitted to trading on a principal
United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, Fair
Market Value shall be the highest sale price reported
during the 30-day period preceding the date in
question, or, if no such quotations are available, the
Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in
good faith, in each case with respect to any class of
stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split
or reclassification of outstanding shares of such stock
into a greater number of shares of such stock or any
combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the
Fair Market Value of such property on the date in
question as determined by the Board of Directors in
good faith.
8. Reference to "Highest Per Share Price" shall in each case
with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of
such stock or any stock split or reclassification of
outstanding shares of such stock into a greater number of
shares of such stock or any combination or reclassification
of outstanding shares of such stock into a smaller number of
shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall
include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the
holders of such shares.
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<PAGE>
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of the Voting Stock (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall
be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer of another Person (as defined in Article EIGHTH hereof) to: (A) make a
tender or exchange offer for any equity security of the Corporation; (B) merge
or consolidate the Corporation with another corporation or entity; or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings institution to fulfill the objectives of a
stock form savings institution under applicable statutes and regulations.
14
<PAGE>
TENTH:
-----
A. Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable
15
<PAGE>
period shall be twenty days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid
also the expenses of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to indemnification hereunder
(but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not
met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought
by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article TENTH or otherwise shall
be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or subsidiary or Affiliate or another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
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ELEVENTH: A Director of this Corporation shall not be personally liable to
--------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
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provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- ---------------
Joseph P. Daly Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
17
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 10/th/ day of January,
2000.
/s/ Joseph P. Daly
-------------------------------
Joseph P. Daly
Incorporator
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<PAGE>
EXHIBIT 3.2
BERKSHIRE HILLS BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
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An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article IV of the Corporation's
Certificate of Incorporation), shall constitute a quorum for all
<PAGE>
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article IV of the
Corporation's Certificate of Incorporation) shall constitute a quorum entitled
to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in his or her
absence of such a person, the President and Chief Executive Officer of the
Corporation or, in his or her absence, such person as may be chosen by the
holders of a majority of the shares entitled to vote who are present, in person
or by proxy, shall call to order any meeting of the stockholders and act as
chairman of the meeting. In the absence of the Secretary of the Corporation,
the secretary of the meeting shall be such person as the chairman of the meeting
appoints.
Section 6. Conduct of Business.
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(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of
2
<PAGE>
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in accordance with the provisions of this Section 6(b).
The Officer of the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 6(b) and, if he or she should so determine, shall so
declare to the meeting and any such business so determined to be not properly
brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
and meet the qualifications set forth in these Bylaws shall be eligible for
election as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders at which
directors are to be elected only: (i) by or at the direction of the Board of
Directors; or (ii) by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with the notice procedures
set forth in this Section 6(c). Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made by timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered or mailed to and received at the principal executive
offices of the Corporation not less than ninety (90) days prior to the date of
the meeting; provided, however, that in the event that less than one hundred
(100) days' notice or prior disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth: (i) as to each person whom
such stockholder proposes to nominate for election or re-election as a Director,
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (ii) as to
the stockholder giving the notice (x) the name and address, as they appear on
the Corporation's books, of such stockholder and (y) the class and number of
shares of the Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the
3
<PAGE>
Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she shall so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded. No nomination
shall be made or voted upon if the nominee is ineligible for election to the
Board of Directors under these Bylaws.
(d) No person shall be eligible for election or appointment to the
Board of Directors: (i) if such person has, within the previous 10 years, been
the subject of supervisory action by a financial regulatory agency that resulted
in a cease and desist order or an agreement or other written statement subject
to public disclosure under 12 U.S.C. 1818(u), or any successor provision; (ii)
if such person has been convicted of a crime involving dishonesty or breach of
trust which is punishable by imprisonment for a term exceeding one year under
state or federal law; (iii) if such person is currently charged in any
information, indictment, or other complaint with the commission of or
participation in such a crime; and (iv) except for persons serving as members of
the initial Board of Directors unless such person has been, for a period of at
least one year immediately prior to his or her nomination or appointment, a
resident of a county in which the Corporation or its subsidiaries maintains a
banking office or of a county contiguous to any such county. No person shall be
eligible for election or appointment to the Board of Directors if such person is
the nominee or representative of a company, as that term is defined in Section
10 of the Home Owners' Loan Act or any successor provision, of which any
director, partner, trustee or shareholder controlling more than 10% of any class
of voting stock would not be eligible for election or appointment to the Board
of Directors under this Section 6. No person may serve on the Board of
Directors and at the same time be a director or other officer of another co-
operative bank, credit union, savings bank, state or federally-chartered savings
and loan association, trust company, bank holding company or national banking
association that engages in business activities in the same market area as the
Corporation or its subsidiaries. No person shall be eligible for election to
the Board of Directors if such person is the nominee or representative of a
person or group, or of a group acting in concert (as defined in 12 C.F.R Section
574 4(d)), that includes a person who is ineligible for election to the Board of
Directors under this Section 6. The Board of Directors shall have the power to
construe and apply the provisions of this Section 6 and to make all
determinations necessary or desirable to implement such provisions, including
but not limited to determinations as to whether a person is a nominee or
representative of a person, a company or a group, whether a person or company is
included in a group, and whether a person is the nominee or representative of a
group acting in concert.
(e) Notwithstanding any other provision of these Bylaws, in no event
shall any person, group or company that would not be eligible for election to
the Board of Directors or to have his or its representative or nominee eligible
for election to the Board of Directors under Section 6 of this Article I be
entitled or permitted to vote his or its shares with respect to any amendment,
modification or repeal of Section 6 of this Article I.
4
<PAGE>
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
5
<PAGE>
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be
eighteen (18). The Board of Directors shall annually elect a Chairman of the
Board from among its members who shall, when present, preside at its meetings.
No person shall be qualified to continue to serve as a Director after the
annual meeting immediately following his or her seventy-second birthday;
provided, however, that any Director serving on the date these Bylaws are
adopted may not be re-elected following his or her seventy-second birthday but
shall be qualified to serve as a Director until the expiration of the last term
he or she is elected to serve prior to his or her seventy-second birthday.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
6
<PAGE>
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), or by
the Chairman of the Board or the President or, in the event that the Chairman of
the Board or the President are incapacitated or otherwise unable to call such
meeting, by the Secretary, and shall be held at such place, on such date, and at
such time as they, or he or she, shall fix. Notice of the place, date, and time
of each such special meeting shall be given each Director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
---------- -------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
7
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
Officer upon any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for Directors, Officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
8
<PAGE>
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
--------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members of the Board of Directors. The
Nominating Committee shall have authority: (a) to review any nominations for
election to the Board of Directors made by a stockholder of the Corporation
pursuant to Section 6(c)(ii) of Article I of these Bylaws in order to determine
compliance with such Bylaw; and (b) to recommend to the Whole Board nominees for
election to the Board of Directors to replace those Directors whose terms expire
at the annual meeting of stockholders next ensuing.
9
<PAGE>
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after
the annual meeting of stockholders shall choose a Chairman of the Board, a
President and Chief Executive Officer, one or more Vice Presidents, a Secretary
and a Treasurer and from time to time may choose such other officers as it may
deem proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of the Chairman of the Board and of all
Officers shall be until the next annual election of Officers and until their
respective successors are chosen but any Officer may be removed from office at
any time by the affirmative vote of a majority of the authorized number of
Directors then constituting the Board of Directors or the Chief Executive
Officer.
(c) All Officers chosen by the Board of Directors or the Chief
Executive Officer shall have such powers and duties as generally pertain to
their respective Offices, subject to the specific provisions of this Article IV.
Such officers shall also have such powers and duties as from time to time may be
conferred by the Board of Directors or by any committee thereof.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall perform such duties designated to him or
her by the Board of Directors and which are delegated to him or her by the Board
of Directors by resolution of the Board of Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer, when present, shall preside at
all meetings of the stockholders of the Corporation. The President and Chief
Executive Officer shall have general responsibility for the management and
control of the business and affairs of the Corporation and shall perform all
duties and have all powers which are commonly incident to the office of
President and Chief Executive Officer or which are delegated to him or her by
the Board of Directors. Subject to the direction of the Board of Directors, the
President and Chief Executive Officer shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision of all of the other Officers
(other than the Chairman of the Board), employees and agents of the Corporation.
Section 4. Vice President.
--------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may
10
<PAGE>
be properly assigned to them by the Board of Directors, the Chairman of the
Board or the President. A Vice President or Vice Presidents may be designated as
Executive Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
--------- ---------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- ----------------------------------------
The Board of Directors or the Chief Executive Officer may appoint one or
more Assistant Secretaries and such other Officers who shall have such powers
and shall perform such duties as are provided in these Bylaws or as may be
assigned to them by the Board of Directors, the Chairman of the Board or the
President and the Chief Executive Officer .
Section 8. Action with Respect to Securities of Other Corporation.
---------- ------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
11
<PAGE>
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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
12
<PAGE>
of such loss, theft or destruction and concerning the giving of a satisfactory
bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of business because
the meeting is not lawfully called or convened.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors
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<PAGE>
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of January 10, 2000, the date of
incorporation of Berkshire Hills Bancorp, Inc.
14
<PAGE>
EXHIBIT 4.0
COMMON STOCK
PAR VALUE $.01 COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
BERKSHIRE HILLS BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
BERKSHIRE HILLS BANCORP, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, Berkshire Hills Bancorp, Inc. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
BERKSHIRE HILLS BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT_______ custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
____________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED ________________________ ____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED: ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE>
EXHIBIT 5.0
__________________, 2000
Board of Directors
Berkshire Hills Bancorp, Inc.
24 North Street
Pittsfield, Massachusetts 01201
Re: The issuance of up to 10,326,609 shares of
Berkshire Hills Bancorp, Inc. Common Stock
Lady and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Berkshire Bancorp, a Massachusetts-
chartered mutual holding company that owns all of the outstanding common stock
of Berkshire Bank, a Massachusetts-chartered stock savings bank (the "Bank"),
into the stock form of organization (the "Conversion"), and the related
subscription offering, direct community offering and syndicated community
offering (the "Offerings") by Berkshire Hills Bancorp, Inc. (the "Company"), a
Delaware corporation and the proposed holding company for the Bank, of up to
8,314,500 shares of its common stock, par value $.01 per share ("Common Stock")
(9,561,675 shares if the estimated valuation range is increased up to 15% to
reflect changes in market and financial conditions following commencement of the
Offerings) and the issuance of 665,160 shares of Common Stock to Berkshire Hills
Foundation (the "Foundation"), a privately-owned charitable foundation formed by
the Company (764,934 shares if the estimated valuation range is increased up to
15% to reflect changes in market and financial conditions following commencement
of the Offerings), pursuant to a gift instrument.
We understand that the Company will contribute funds to a wholly-owned
subsidiary of the Company (the "Subsidiary") which Subsidiary will lend funds to
the trust for the Bank's Employee Stock Ownership Plan (the "ESOP") which the
ESOP trust will use to purchase shares of Common Stock for which the ESOP trust
subscribes pursuant to the Offerings. For purposes of rendering the opinion set
forth in paragraph 2 below, we assume that: (a) the Board of Directors of the
Company (the "Board") has duly authorized the capital contribution to the
Subsidiary for the purpose of making the loan to the ESOP trust (the "Loan");
(b) the Board of Directors of the Subsidiary has duly authorized the Loan to the
ESOP trust; (c) the ESOP serves a valid corporate purpose for the Company; (d)
the Loan will be made at an interest rate and on other terms that are fair to
the Subsidiary; (e) the terms of the Loan will be set forth in customary
<PAGE>
Board of Directors
Berkshire Hills Bancorp, Inc.
___________________,2000
Page 2
and appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP trust to the Subsidiary as a result of
the Loan; and (f) the closing for the Loan and for the sale of Common Stock to
the ESOP trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof and the contribution by the Company to the Subsidiary of funds
sufficient to make the Loan.
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on January 10, 2000 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as initially filed with the Securities and Exchange Commission on
March 10, 2000 (the "Registration Statement"); a consent of the sole
incorporator of the Company; the Plan of Conversion; the gift instrument whereby
shares will be granted to the Foundation; the ESOP trust agreement and the ESOP
Loan agreement; resolutions of the Board concerning the organization of the
Company, the Offerings and designation of a pricing committee of the Board (the
"Pricing Committee"), and the form of stock certificate approved by the Board to
represent shares of Common Stock. We have also been furnished a certificate of
the Delaware Secretary of State certifying the Company's good standing as a
Delaware corporation. Capitalized terms used but not defined herein shall have
the meaning given them in the Certificate of Incorporation.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares and the total price of the Common Stock to be sold in the
Offerings, the Common Stock to be issued in the Offerings (including the shares
to be issued to the ESOP trust) and the shares to be granted to the Foundation
will be duly authorized and, when such shares are sold and paid for or granted,
in the case of the Foundation, in accordance with the terms set forth in the
prospectus which is included in the Registration Statement and such resolution
of the Pricing Committee or, in the case of the Foundation, in accordance with
the gift instrument and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
<PAGE>
Board of Directors
Berkshire Hills Bancorp, Inc.
____________________,2000
Page 3
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe
and apply the provisions of those Articles, subsection C.4 of
Article FOURTH, to the extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the provision of Subsection
C.7 of Article EIGHTH empowering the Board to determine the Fair
Market Value of property offered or paid for the Company's stock
by an Interested Stockholder, in each case to the extent, if any,
that a court applying Delaware law were to impose equitable
limitations upon such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We assume no obligation to advise you of any events that occur subsequent
to the date of this opinion.
Very truly yours,
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.0
FORM OF FEDERAL TAX OPINION
__________, 2000
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
24 North Street
Pittsfield, Massachusetts 01201
Dear Board Members:
You have requested our opinion regarding certain federal income tax
consequences of the conversion of Berkshire Bancorp (the "Mutual Holding
Company") and its wholly-owned subsidiary, Berkshire Bank (the "Bank"), from the
mutual holding company structure to the stock holding company form, as
effectuated pursuant to the integrated transactions described below. Our
opinion is based upon the existing provisions of the Internal Revenue Code of
1986, as amended (the "Code") and regulations thereunder (the "Treasury
Regulations"), and upon current Internal Revenue Service published rulings and
existing court decisions, any of which could be changed at any time. Any such
changes may be retroactive and could significantly modify the statements and
opinions expressed herein. Similarly, any change in the facts and assumptions
stated below, upon which this opinion is based, could modify the conclusions.
This opinion is as of the date hereof, and we disclaim any obligation to advise
you of any change in any matter considered herein after the date hereof. Since
our opinion is rendered in advance of the closing of the transactions described
below, we have assumed that the transactions will be consummated in accordance
with such description, as well as all of the information and representations
referred to herein. Any changes in the transaction could cause us to modify our
opinion.
We, of course, opine only as to the matters we expressly set forth, and no
opinions should be inferred as to any other matters or as to the tax treatment
of the transactions that we do not specifically address. We express no opinion
as to other federal laws and regulations, or as to laws and regulations of other
jurisdictions, or as to factual or legal matters other than as set forth herein.
We express no opinion on the state or local income tax consequences of the
transactions described herein. We understand that Wolf & Company, P.C. will
address such matters in a separate letter.
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 2
We have made such other investigations as we have deemed relevant or
necessary for the purpose of this opinion. In our examination, we have assumed
the authenticity of original documents, the accuracy of copies and the
genuineness of signatures. We have further examined and have relied upon the
accuracy of the factual matters set forth in the Plan of Conversion (the "Plan")
and the Registration Statement on Form S-1 filed by Berkshire Hills Bancorp,
Inc. (the "Company") with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended, and the Application for Conversion
(the "Application") filed with the Massachusetts Division of Banks (the
"Division").
The Proposed Transactions
- -------------------------
The Mutual Holding Company, a Massachusetts-chartered mutual holding
company, and the Bank, a Massachusetts-chartered stock savings bank, were
created in a reorganization of a Massachusetts-chartered mutual savings bank, at
that time named Berkshire County Savings Bank (the "Mutual Bank"), in 1996 (the
"MHC Reorganization"). In the MHC Reorganization, the Mutual Bank organized the
Mutual Holding Company and the Mutual Holding Company organized the Bank. In
connection with the reorganization, the Bank issued shares of its common stock
("Bank Common Stock") to the Mutual Holding Company. The Mutual Bank then merged
with and into the Bank under a plan of reorganization in which all of the Mutual
Bank's equity interests were exchanged for liquidation interests in the Mutual
Holding Company. No other shares of Bank Common Stock were issued in connection
with the MHC Reorganization. The Mutual Holding Company will own 100% of the
outstanding Bank Common Stock immediately prior to the Conversion.
Subsequently, on October 22, 1999, the Mutual Holding Company adopted the
Plan, providing for the conversion of the Mutual Holding Company into the
capital stock form of organization.
The Board of Trustees of the Mutual Holding Company and the Board of
Directors of the Bank believe that the reorganization of the Mutual Holding
Company and the Bank in the stock holding company form of organization pursuant
to the Plan is in the best interests of the Mutual Holding Company and the Bank,
as well as in the best interests of the Bank's depositors. Accordingly, the
following transactions will occur in the Conversion (as defined in the Plan)
pursuant to the Plan:
1. The Bank will incorporate the Company, a Delaware corporation, for the
purpose of holding all of the capital stock of the Bank and in order to
facilitate the Conversion.
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 3
2. Subscription rights ("Subscription Rights") to purchase shares of the
common stock of the Company ("Company Common Stock") will be issued without
payment therefor to Eligible Account Holders, Supplemental Eligible Account
Holders and Tax-Qualified Employee Stock Benefit Plans (as such persons are
defined in the Plan). In addition, Subscription Rights will be issued to
directors, trustees, officers and employees of the Bank in a fourth priority
category who do not otherwise qualify as Eligible or Supplemental Eligible
Account Holders.
3. Upon the effective date (the "Effective Date") of the Conversion, the
Mutual Holding Company will convert (the "Interim Conversion") into an interim
Massachusetts-chartered stock savings bank (the "Interim"), and the Interim will
simultaneously merge with and into the Bank pursuant to a plan of merger, with
the Bank being the surviving institution (the "MHC Merger"). As a result of the
MHC Merger, (a) the shares of Bank Common Stock currently held by the Mutual
Holding Company will be extinguished, and (b) the Eligible and Supplemental
Eligible Account Holders will be granted interests in a liquidation account (the
"Liquidation Account") to be established by the Bank pursuant to the Plan.
4. Upon the Effective Date, the Company will sell shares of Company
Common Stock in a subscription offering (the "Subscription Offering") in order
of priority to Eligible Account Holders, Supplemental Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans and directors, trustees, officers and
employees of the Bank. Any shares of Company Common Stock remaining unsold after
the Subscription Offering will be sold to the public through a Community
Offering (as defined in the Plan), a Syndicated Community Offering (as defined
in the Plan), and/or Public Offering (as defined in the Plan) as determined by
the Boards of Trustees and Directors of the Mutual Holding Company, the Company
and the Bank in their sole discretion. Collectively, the Subscription Offering,
the Community Offering, the Syndicated Community Offering and the Public
Offering are referred to herein as the Offerings.
5. The Company will contribute to the Bank 50% of the net proceeds
received by the Company in the Offerings (the "Contributed Offering Proceeds")
in exchange for 100% of the Bank Common Stock.
The Liquidation Account will be established by the Bank for the benefit of
the Eligible and Supplemental Eligible Account Holders who maintain Deposit
Accounts (as defined in the Plan) in the Bank after the Conversion. The
Liquidation Account balance will initially be an amount equal to 100% of the
Bank's net worth as reflected in its latest statement of financial condition
contained in the final prospectus utilized in the Conversion. Each Eligible and
Supplemental Eligible Account Holder will have an undivided interest in the
Liquidation Account balance (referred to as a
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 4
"subaccount balance"). The proportionate interest of an Eligible or Supplemental
Eligible Account Holder in the Liquidation Account will never increase, but
will, however, decrease to reflect subsequent withdrawals from the Deposit
Account of such Eligible or Supplemental Eligible Account Holders. In the sole
event of a complete liquidation of the Bank after the Conversion, each Eligible
or Supplemental Eligible Account Holder will be entitled to receive a
liquidation distribution from the Liquidation Account in the amount of their
then current interest before any liquidation distribution may be made with
respect to the capital stock of the Bank.
Each Deposit Account in the Bank at the time of the consummation of the
Conversion will become a Deposit Account in the Bank equivalent in withdrawable
amount to the withdrawal value (as adjusted to give effect to any withdrawal
made for the purchase of Company Common Stock purchased in the Offerings) and
subject to the same terms and conditions (except as to liquidation rights) as
such Deposit Account in the Bank immediately preceding consummation of the
Conversion.
Representations
- ---------------
You have made the following representations to us with regard to the
Conversion. We have not independently investigated these representations, but,
we are relying on them as an integral part of our opinion.
a. The merger of Interim into the Bank in the MHC Merger will be effected
pursuant to applicable state and/or federal banking laws.
b. The aggregate fair market value of the interest in the Liquidation
Account and the Subscription Rights received by each Eligible or Supplemental
Eligible Account Holder pursuant to the MHC Merger will be approximately equal
to the fair market value of the equity interest in the Mutual Holding Company
surrendered by the Eligible or Supplemental Eligible Account Holder in exchange
therefor.
c. To the best of the knowledge of the management of the Mutual Holding
Company and the Bank, there is no plan or intention on the part of the Eligible
or Supplemental Eligible Account Holders to withdraw from their Deposit Accounts
subsequent to the Conversion such that the withdrawals would reduce their
aggregate interests in the Liquidation Account to an amount having a value at
the Effective Date of less than fifty percent of the value of the aggregate
interests which the Eligible and Supplemental Eligible Account Holders of the
Mutual Holding Company will have in the residual equity of the Mutual Holding
Company immediately prior to the Conversion.
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 5
d. The Bank has no plan or intention to reacquire any of the interests in
the Liquidation Account issued in the MHC Merger.
e. The liabilities of the Mutual Holding Company assumed by the Bank in
the MHC Merger and the liabilities to which the transferred assets of the Mutual
Holding Company are subject were incurred by the Mutual Holding Company in the
ordinary course of its business.
f. The Company, the Bank, the Mutual Holding Company, the Interim and the
Eligible and Supplemental Eligible Account Holders will pay their respective
expenses, if any, incurred in connection with the Conversion, except that the
Company, the Bank, and the Mutual Holding Company may pay fees to brokers and
investment bankers for assisting Eligible and Supplemental Eligible Account
Holders and other eligible subscribers in completing and/or submitting Order
Forms (as defined in the Plan). The expenses for brokers and investment bankers
to assist Eligible and Supplemental Eligible Account Holders and other eligible
subscribers are solely and directly related to the Conversion and will be paid
by the Company, the Bank, and the Mutual Holding Company directly to the brokers
and investment bankers.
g. There is no intercorporate indebtedness existing (i) between the
Mutual Holding Company and the Bank, or (ii) between the Company and the Bank
that was issued, acquired, or will be settled at a discount in the Conversion.
h. None of the Company, the Bank, the Mutual Holding Company or the
Interim is an investment company as defined in Sections 368(a)(2)(F)(iii) and
(iv) of the Code.
i. Neither the Mutual Holding Company nor the Bank are under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
j. The fair market value of the assets of the Mutual Holding Company
transferred to the Bank in the MHC Merger will equal or exceed the sum of the
liabilities assumed by the Bank plus the amount of liabilities, if any, to which
the transferred assets are subject.
k. The total adjusted basis of the assets of the Mutual Holding Company
transferred to the Bank in the MHC Merger will equal or exceed the sum of the
liabilities assumed by the Bank, plus the amount of liabilities, if any, to
which the transferred assets are subject.
l. The Bank has no plan or intention to issue additional shares of its
stock that would result in the Company owning less than all of the outstanding
stock of the Bank.
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 6
m. The Company has no plan or intention to liquidate the Bank; to merge
the Bank with or into another corporation; to sell or otherwise dispose of the
stock of the Bank except for transfers of stock to corporations controlled by
the Company; or to cause the Bank to sell or otherwise dispose of any of its
assets, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled by the Bank.
n. The Company does not own, nor has it owned during any period of its
existence, any shares of stock of the Bank.
o. On the Effective Date, the fair market value of the assets of the Bank
will exceed the sum of its liabilities, plus the amount of liabilities, if any,
to which the assets are subject.
Opinions
- --------
Based on the foregoing description of the Conversion, and subject to the
qualifications and limitations set forth in this letter, we are of the opinion
that, if the Conversion were to be consummated as described above as of the date
hereof, then:
1. The Interim Conversion will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(F) of the Code. (Section 368(a)(1)(F) of
the Code.)
2. Neither the Mutual Holding Company nor the Interim will recognize any
gain or loss as a result of the Interim Conversion. (Section 354(a) of the
Code.) The Mutual Holding Company and the Interim will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
3. The assets of the Mutual Holding Company will have the same basis in
the hands of the Interim as in the hands of the Mutual Holding Company
immediately prior to the Interim Conversion. (Section 362(b) of the Code.)
4. The holding period of the assets of the Mutual Holding Company to be
received by the Interim will include the period during which the assets were
held by the Mutual Holding Company prior to the Interim Conversion. (Section
1223(2) of the Code.)
5. No gain or loss will be recognized by the Eligible or Supplemental
Eligible Account Holders as a result of the Interim Conversion. (Section 354(a)
of the Code.)
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 7
6. The MHC Merger will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the Code.)
7. The exchange, as a result of the Interim Conversion and the MHC
Merger, of the equity interests of the Eligible and the Supplemental Eligible
Account Holders in the Mutual Holding Company for interests in the Liquidation
Account established by the Bank in the MHC Merger will satisfy the continuity of
interest requirement of Section 1.368-1(b) of the Treasury Regulations (cf. Rev.
Rul. 69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).
8. Neither the Mutual Holding Company nor the Interim will recognize any
gain or loss as a result of the MHC Merger or on the transfer of the Interim's
assets to the Bank in exchange for an interest in the Liquidation Account
established in the Bank for the benefit of the Eligible and the Supplemental
Eligible Account Holders who remain depositors of the Bank. (Section 361 of the
Code.)
9. No gain or loss will be recognized by the Bank as a result of the MHC
Merger or upon the receipt of the assets of the Interim in the MHC Merger in
exchange for the transfer to the Eligible and the Supplemental Eligible Account
Holders of an interest in the Liquidation Account. (Section 1032(a) of the
Code.)
10. The basis of the assets of the Interim to be received by the Bank will
be the same as the basis of such assets in the hands of the Interim immediately
prior to the transfer. (Section 362(b) of the Code.)
11. The holding period of the assets of the Interim to be received by the
Bank will include the holding period of those assets in the hands of the Mutual
Holding Company and the Interim. (Section 1223(2) of the Code.)
12. The Eligible and Supplemental Eligible Account Holders will recognize
no gain or loss as a result of the MHC Merger or upon the receipt of Deposit
Accounts and interests in the Liquidation Account in the Bank in exchange for
their Deposit Accounts in the Bank and liquidation interests in the Mutual
Holding Company. (Section 354(a) of the Code.)
13. The Company will recognize no gain or loss upon the receipt of cash in
the Offerings in exchange for shares of Company Common Stock. (Section 1032 of
the Code.)
<PAGE>
Boards of Trustees and Directors
Berkshire Bank
Berkshire Bancorp
Berkshire Hills Bancorp, Inc.
_____, 2000
Page 8
14. The Company will recognize no gain or loss upon the transfer of the
Contributed Offering Proceeds to the Bank in exchange for common stock of the
Bank. (Section 351(a) of the Code.)
15. The Bank will recognize no gain or loss upon the receipt of the
Contributed Offering Proceeds from the Company in exchange for common stock of
the Bank. (Section 1032 of the Code.)
16. No gain or loss will be recognized by the Company, or by the Eligible
or Supplemental Eligible Account Holders and other persons described in the Plan
who will receive Subscription Rights, as a result of the distribution to the
Eligible and Supplemental Eligible Account Holders and such other persons of
Subscription Rights relating to Company Common Stock. Eligible and Supplemental
Eligible Account Holders and other recipients of Subscription Rights will not
recognize gain or loss as a result of the exercise of such Subscription Rights
to purchase shares of Company Common Stock, provided that the amount to be paid
for the Company Common Stock is equal to the fair market value of the Company
Common Stock. The basis of the Company Common Stock to the Company's
stockholders will be the purchase price thereof plus the basis, if any, of the
Subscription Rights (which, as described below, we have assumed is zero).
We note that you have received an opinion of FinPro, Inc. which concludes
that the Subscription Rights have no value. Under past rulings of the Internal
Revenue Service, gain may be recognized by a recipient of Subscription Rights to
the extent of the fair market value of the Subscription Rights received. The
opinion of FinPro, Inc. has no binding effect on the Internal Revenue Service.
We express no opinion on the fair market value of the Subscription Rights and,
insofar as our opinion in paragraph 16 relates to the federal income tax
consequences of the distribution of Subscription Rights, we are relying upon the
opinion of FinPro, Inc. regarding the valuation of the subscription rights.
We hereby consent to the filing of the opinion as an exhibit to the
Application filed with the Division and to the Company's Registration Statement
on Form S-l as filed with the SEC. We also consent to the references to our firm
in the Prospectus contained in the Application and S-l under the captions "The
Conversion--Tax Effects" and "Legal Opinions."
Very truly yours,
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.1
March 8, 2000
Board of Trustees
Berkshire Hills Bancorp, Inc.
24 North Street
Pittsfield, MA 01201
Board of Directors
Berkshire Bancorp
24 North Street
Pittsfield, MA 01201
Ladies and Gentlemen:
This letter constitutes our opinion as to certain state income tax consequences
of the proposed conversion of Berkshire Bancorp, the mutual holding company
(MHC) of Berkshire Bank (the "Bank"), into Berkshire Hills Bancorp, Inc. a stock
holding company followed by the acquisition of the Bank's capital stock by
Berkshire Hills Bancorp, Inc. (the "Holding Company"), a Delaware corporation,
pursuant to the plan of conversion (the "Conversion").
The opinions contained herein are based solely on the FACTS and REPRESENTATIONS
stated herein. All Section references are to the Internal Revenue Code of 1986,
as amended (the "Code") and Massachusetts General Laws ("MGL") as in effect as
of the date of this opinion. If any of the FACTS and REPRESENTATIONS is not
correct or complete, it is imperative that we be informed in writing as this
could have a material adverse effect on our opinion.
STATEMENT OF FACTS
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Berkshire Bancorp is a Massachusetts chartered mutual holding company and has no
stock or stockholders. Berkshire Bank is a stock savings bank all the stock of
which is owned by Berkshire Bancorp. The proprietary interest in the reserves
and undivided profits of the Bank belong to the deposit account holders of the
Bank, hereinafter sometimes referred to as "depositors". A depositor of the
Bank has a right to share, pro rata, with respect to the withdrawal value of his
respective deposit account in any liquidation proceeds distributed in the event
the Bank is ever liquidated. In addition, a depositor of the Bank is entitled
to interest on his account balance as fixed and paid by the Bank.
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Holding Company is a Delaware corporation recently organized by the Bank for the
purpose of acquiring all of the capital stock of the Bank to be issued in the
Conversion. Holding Company will have authorized capital stock consisting of 26
million shares of common stock ("Common Stock") and 1 million shares of
preferred stock. Only Common Stock will be issued in connection with the
Conversion. Holding Company will acquire the stock of the Bank in exchange for
the greater of that portion of the net proceeds of the Offerings sufficient to
increase the Bank's tangible capital to 10% of its total adjusted assets or 50%
of the net proceeds from the Offerings.
DESCRIPTION OF THE CONVERSION
-----------------------------
In order to provide organizational and economic strength to the Bank, the Board
of Directors has adopted a plan of conversion, as amended, (the "Plan of
Conversion") whereby the Berkshire Bancorp will convert itself into an interim
Massachusetts chartered stock savings bank and merge with and into Berkshire
Bank. In connection with the merger, shares of Berkshire Bank common stock
previously held by Berkshire Bancorp will be cancelled. Berkshire Hills Bancorp
Inc. will then contribute 50% of the net offering proceeds to Berkshire Bank in
exchange for its common stock. In connection with the Conversion, the Holding
Company will issue shares of its $0.01 par value Common Stock in Subscription
and Direct Community Offerings. It is anticipated that all such shares of
Common Stock not subscribed for in the Subscription and Direct Community
Offerings will be offered to the general public in a Syndicated Community
Offering.
The aggregate sales price of the Common Stock issued in the Conversion will be
based on an independent appraiser's valuation of the estimated pro forma value
of the Common Stock of the Converted Bank. The Conversion and sale of the
Common Stock will be accomplished pursuant to the rules and regulations and will
be subject to the approval of the Commissioner of the Massachusetts Division of
Banks.
In accordance with the Plan of Conversion, rights to subscribe for the purchase
of Common Stock have been granted under the Plan of Conversion to the following
persons in the following order of priority: (1) depositors whose accounts in the
Bank totaled $50 or more on September 30, 1998 ("Eligible Account Holders"); (2)
depositors whose accounts in the Bank totaled $50 or more on September 30, 1999
("Supplemental Eligible Account Holders"); (3) the Employee Plans, including the
ESOP; and (4) trustees, directors, officers, and employees who do not otherwise
qualify as Eligible Account Holders or Supplemental Eligible Account Holders.
All subscriptions received will be subject to the availability of Common Stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion.
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REPRESENTATIONS
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Berkshire Bank has received an opinion from Muldoon, Murphy & Faucette LLP,
Washington, D.C., that addresses the material federal income tax consequences of
the conversion. The opinion, which relies upon standard factual representations
given by Berkshire Bank, concludes, as follows:
1. The conversion of Berkshire Bancorp to a Massachusetts-chartered
interim savings bank will constitute a tax-free reorganization within
the meaning of Section 368(a)(1)(F) of the Code.
2. The merger of the interim savings bank and Berkshire Bank will
constitute a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code.
3. Berkshire Bancorp will not recognize any gain or loss on the transfer
of its assets to Berkshire Bank as a consequence of the merger of the
interim savings bank and Berkshire Bank in exchange for an interest in
a liquidation account established in Berkshire Bank for the benefit of
eligible and supplemental eligible account holders who hold a
liquidation interest in Berkshire Bancorp and who remain depositors of
Berkshire Bank.
4. No gain or loss will be recognized by Berkshire Bank upon the receipt
of the assets of Berkshire Bancorp as a consequence of the merger of
the interim savings bank and Berkshire Bank in exchange for the
transfer to the eligible and supplemental eligible account holders who
hold a liquidation interest in Berkshire Bancorp of an interest in the
liquidation account.
5. The basis of the assets of Berkshire Bancorp to be received by
Berkshire Bank as a consequence of the merger of the interim savings
bank and Berkshire Bank will be the same as the basis of such assets in
the hands of Berkshire Bancorp immediately prior to the transfer.
6. The holding period of the assets of Berkshire Bancorp to be received by
Berkshire Bank in connection with the merger of the interim savings
bank and Berkshire Bank will include the holding period of those assets
in the hands of Berkshire Bancorp.
7. An eligible or supplemental eligible account holder will recognize no
gain or loss upon the receipt of an interest in the liquidation account
in Berkshire Bank in exchange for the eligible and supplemental
eligible account holder's liquidation interest in Berkshire Bancorp.
8. Berkshire Hills will recognize no gain or loss upon the receipt of cash
in exchange for shares of common stock of Berkshire Hills issued in the
conversion offering.
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9. Berkshire Hills will recognize no gain or loss upon the transfer of a
portion of the net offering proceeds to Berkshire Bank in exchange for
common stock of Berkshire Bank.
10. Berkshire Bank will recognize no gain or loss upon the receipt of a
portion of the net offering proceeds from Berkshire Hills in exchange
for common stock of Berkshire Bank.
11. Assuming that the subscription rights have no value, no gain or loss
will be recognized by Berkshire Hills or by eligible or supplemental
eligible account holders or other persons described in the plan of
conversion who will receive subscription rights as a result of the
distribution of subscription rights to purchase shares of common stock.
Additionally, eligible or supplemental eligible account holders or
other persons shall not recognize gain or loss upon the exercise of
subscription rights to purchase shares of common stock, provided that
the amount to be paid for the common stock is equal to the fair market
value of the common stock on the date of purchase.
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<PAGE>
DISCUSSION
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Financial Institution Excise Tax
Bank is a Massachusetts stock savings bank subject to the Massachusetts
Financial Institution excise tax under MGL chapter 63, sections 1, 2, 2A, and
7. Holding Company will be a Delaware chartered corporation subject to
Massachusetts excise tax under MGL chapter 63, section 39 or the excise imposed
under MGL chapter 63, section 38B(b) if Holding Company is classified as a
security corporation pursuant to that section. ESOP Loan Subsidiary will be a
Massachusetts domestic corporation subject to the Massachusetts Financial
Institution excise tax under MGL chapter 63, sections 1, 2, 2A and 7 whose
purpose is to loan money to the ESOP to enable the ESOP to purchase stock.
The Massachusetts Financial Institution excise tax provides that banks and
certain corporations are taxed on net income as defined in MGL chapter 63,
section 1, which provides that net income is equal to "gross income other than
ninety-five percent of dividends received in any taxable year beginning on or
after January first, nineteen hundred and ninety-nine from or on account of the
ownership of any class of stock if the financial institution owns fifteen
percent or more of the voting stock of the institution paying the dividend, less
the deductions, but not the credits allowable under the provisions of the
Internal Revenue Code, as amended and in effect for the taxable year. For
taxable years beginning on or after January first, nineteen hundred and ninety-
nine, the provisions of section 291 of said Code shall not apply; and the
provisions of section 171(a)(2) and 265 of said Code shall only apply to the
extent that the income to which the deductions relate is excludable from gross
income. Deductions with respect to the following items, however, shall not be
allowed except as otherwise provided:
(a) dividends received, except as otherwise provided;
(b) losses sustained in other taxable years; or
(c) taxes on or measured by income, franchise taxes measured by net
income, franchise taxes for the privilege of doing business and
capital stock taxes imposed by any state."
Pursuant MGL chapter 63, section 1 for taxable years beginning on or after
January 1, 1995 gross income "is defined under the provisions of the federal
Internal Revenue Code, as amended and in effect for the taxable year, plus the
interest from bonds, notes and evidences of indebtedness of any state, including
the Commonwealth". Accordingly, a transaction that is non-taxable for federal
income tax purposes because it qualities as a tax-free reorganization within the
meaning of Section 368(a)(1)(F) of the federal Internal Revenue Code would also
be non-taxable for Massachusetts Financial Institution excise tax purposes by
reason of the fact that the federal treatment is controlling for Massachusetts
purposes.
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Although there is no case law nor regulations, announcements, or letter rulings
issued by the Department of Revenue ("DOR") since the adoption of the revised
definition of gross income, the DOR has issued numerous letter rulings regarding
reorganizations under pre-1995 law. In several letter rulings, the DOR has ruled
that no gain or loss should be recognized on transactions which qualify as
reorganizations under Code section 368(a)./1/ Other letter rulings have held no
Massachusetts gross income or loss resulted from the conversion of a mutual
savings or cooperative bank to a stock savings or cooperative bank./2/
The letter rulings relating to the conversion from mutual to stock form of doing
business specifically address the issue of whether the issuance of stock, under
Section 1032 of the Code, creates income to the issuer. In all of the rulings,
the DOR stated that no gain or loss should be recognized on the receipt of money
in exchange for shares of common stock./3/
Accordingly, no gain should be recognized by either Holding Company upon
issuance of its shares to the public or by Bank upon issuance of its shares to
Holding Company.
While the above rulings apply to pre-1995 tax law, the statutory definition of
gross income under pre-1995 tax law was very broad to include gross income from
all sources. Accordingly, the conclusions reached by these rulings would provide
weight to our conclusion that a non-taxable transaction for federal income tax
purposes would also be non-taxable for Massachusetts Financial Institution
excise tax purposes.
Corporate Excise Tax
It is the intent of management of Holding Company to obtain classification as a
Massachusetts Security Corporation under Massachusetts Chapter 63, Section
38B(b) for Massachusetts excise tax purposes. One of the requirements for
obtaining classification as a Massachusetts Security Corporation is that the
company be engaged "exclusively in buying. selling, dealing in, or holding
securities its own behalf and not as a broker."/4/
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/1/ Massachusetts Letter Rulings 82-5, 83-53, 85-3, and 85-63.
/2/ Massachusetts Letter Rulings 84-11, 83-61 and 83-53.
/3/ Ibid.
/4/ MGL Chapter 63, Section 38(B).
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Holding Company has been authorized to loan money to the ESOP plan to be used
for the purchase of Holding Company stock. The lending of money is an
impermissible activity for Massachusetts Security Corporations/5/ and would
result in disqualification as a Massachusetts Security Corporation. Such
disqualification could result in additional income taxes being incurred by
Holding Company.
Management has represented to us that if it becomes necessary for the Holding
Company to loan money to the ESOP plan, the Holding Company will create a newly
formed subsidiary, ESOP Loan Subsidiary. ESOP Loan Subsidiary will then loan
the money to the ESOP plan.
Massachusetts Letter Rulings 88-13 and 91-3 addressed the issues of whether bank
holding companies and other corporations, respectively, were allowed to own
wholly-owned subsidiaries and what their permissible activities would be. In
both rulings, and particularly in the case of bank holding companies,
corporations were given fairly broad powers to manage the investment in their
wholly-owned subsidiaries provided they did not actually conduct a trade or
business themselves.
Provided ESOP Loan Subsidiary is created in such a manner that the business of
ESOP Loan Subsidiary can be managed by ESOP Loan Subsidiary and is not managed
by Holding Company, the formation of ESOP Loan Subsidiary followed by the
lending of money from ESOP Loan Subsidiary, to the ESOP plan should not violate
the requirements necessary to obtain and retain Massachusetts Security
Corporation classification status for Holding Company.
OPINION
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Accordingly, based upon the facts and representations stated herein, it is the
opinion of Wolf and Company, P.C. regarding the Massachusetts income tax effect
of the planned reorganization that:
1.) Provided that the conversion of Berkshire Bancorp to a
Massachusetts-chartered interim savings bank constitutes a tax-free
reorganization within the meaning of Section 368(a)(1)(F) of the Code
and provided the merger of the interim savings bank and Berkshire Bank
constitutes a tax-free reorganization with the meaning of Section
368(a)(1)(A) of the Internal Revenue Code, the Conversion will also
qualify as a tax-free reorganization for Massachusetts excise tax
purposes (Massachusetts Letter Rulings 84-11, 83-53 and 83-61).
2.) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock, or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Massachusetts Letter Ruling 87-11, Section
1032(a) of the Code).
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/5/ Massachusetts Directive 86-35.
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<PAGE>
3.) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Massachusetts Letter Ruling 84-
11, Section 362(b) of the Code).
4.) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code and Massachusetts Letter Ruling
84-11).
5.) No gain or loss will be recognized by the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Bank on the
constructive issuance to them of withdrawable deposit accounts in the
Converted Bank plus interests in the liquidation account of the
Converted Bank in exchange for their deposit accounts in the Bank or
to the other depositors on the issuance to them of withdrawable
deposit accounts (Massachusetts Letter Ruling 84-11 and Section 354(a)
of the Code).
6.) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a) and Massachusetts Letter Ruling
84-11). Gain realized, if any, by the Eligible Account Holders and
Supplemental Eligible Account Holders on the distribution to them of
nontransferable subscription rights to purchase shares of Common Stock
will be recognized but only in an amount not in excess of the fair
market value of such subscription rights (Section 356(a) and
Massachusetts Letter Ruling 84-11). Eligible Account Holders and
Supplemental Eligible Account Holders will not realize any taxable
income as a result of the exercise by them of the nontransferable
subscription rights (Massachusetts Letter Ruling 84-11).
7.) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code and Massachusetts Letter Rulings 84-11
and 83-61). The basis of the interests in the liquidation account of
the Converted Bank to be received by the Eligible Account Holders of
the Bank shall be zero (Massachusetts Letter Rulings 84-11 and 83-61).
The basis of the Holding Company Common Stock to its stockholders will
be the purchase price thereof plus the fair market values, if any, of
nontransferable subscription rights (Section 1012 of the Code and
Massachusetts Letter Rulings 84-11 and 83-61). Accordingly, assuming
the nontransferable subscription rights have no value, the basis of
the Common Stock to the Eligible Account
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<PAGE>
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code and Massachusetts Letter Ruling 84-11 and 83-61).
8.) Under MGL Chapter 63, Sections 1, 2 and 7, the Bank and the Converted
Bank will be treated as the same savings bank and as if the Conversion
had not occurred (Massachusetts Letter Ruling 84-11). Accordingly:
a.) the part of the current taxable year of the Bank before the
Conversion and the part of the current taxable year of the
Converted Bank after the Conversion will constitute a single
taxable year of the Converted Bank;
b.) the Converted Bank will succeed to and take into account the net
operating income of the Bank as of the date of the Conversion;
and
c.) for the current taxable year, the Converted Bank may claim as a
credit any estimated tax under MGL Chapter 63, Section 2 paid by
the Bank prior to the Conversion.
9.) The lending of money from ESOP Loan Subsidiary to the ESOP plan will
not prevent Holding Company from qualifying as a Massachusetts
Security Corporation provided that Holding Company does not conduct
any other activities deemed impermissible under MGL Chapter 63,
Section 38B, and the various regulations, announcements and letter
rulings issued by the Department of Revenue.
Our opinion under paragraph (6) above is predicated on the representation that
no person shall receive any payment, whether in money or property, in lieu of
the issuance of subscription rights. Our opinion under paragraphs (6) and (7)
above assumes that the subscription rights to purchase shares of Common Stock
received by Eligible Account Holders, and Supplemental Eligible Account Holders
have a fair market value of zero. We understand that you have received an
opinion of FinPro, Inc. that the subscription rights do not have any value. We
express no view regarding the valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market value,
income may be recognized by various recipients of the subscription rights (in
certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
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Our opinion assumes that the Conversion qualifies under Code Section 368(a) as a
tax free reorganization. We understand that the federal tax opinion is being
rendered by Muldoon, Murphy & Faucette, Attorneys at Law. We express no view
regarding whether the Conversion qualifies as a tax free reorganization under
the Code.
CONCLUSION
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THE OPINIONS CONTAINED HEREIN ARE RENDERED ONLY WITH RESPECT TO THE SPECIFIC
MATTERS DISCUSSED HEREIN AND WE EXPRESS NO OPINION WITH RESPECT TO ANY OTHER
LEGAL, FEDERAL, STATE, OR LOCAL TAX ASPECT OF THESE TRANSACTION. THIS OPINION
IS NOT BINDING UPON ANY TAX AUTHORITY INCLUDING THE MASSACHUSETTS DEPARTMENT OF
REVENUE OR ANY COURT AND NO ASSURANCE CAN BE GIVEN THAT A POSITION CONTRARY TO
THAT EXPRESSED HEREIN WILL NOT BE ASSERTED BY A TAX AUTHORITY.
IN RENDERING OUR OPINIONS WE ARE RELYING UPON THE RELEVANT PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, MASSACHUSETTS GENERAL LAWS AND THE
REGULATIONS, JUDICIAL AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS OF THE
DATE OF THIS LETTER.
HOWEVER, ALL OF THE FOREGOING AUTHORITIES ARE SUBJECT TO CHANGE OR MODIFICATION
WHICH CAN BE RETROACTIVE IN EFFECT AND, THEREFORE, COULD ALSO AFFECT OUR
OPINIONS. WE UNDERTAKE NO RESPONSIBILITY TO UPDATE OUR OPINION FOR ANY
SUBSEQUENT CHANGE OR MODIFICATION.
Very truly yours,
Wolf and Company, P.C.
<PAGE>
EXHIBIT 10.1
[ESOP SUBSIDIARY LETTERHEAD]
________ ____, 200_
James A. Cunningham, Jr.
President and Chief Executive Officer
Berkshire Bank
24 North Street
Pittsfield, Massachusetts 01201
Dear Mr. Cunningham:
This letter confirms [ESOP Subsidiary]'s commitment to fund a leveraged
ESOP in an amount up to $________. The commitment is subject to the following
terms and conditions:
1. Lender: _________________ (the "Company").
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2. Borrower: Berkshire Bank Employee Stock Ownership Plan.
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3. Trustee: ______________________________.
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4. Security: Unallocated shares of stock of the Company held in the
--------
Berkshire Bank Employee Stock Ownership Plan.
5. Maturity: Up to _____ years from takedown.
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6. Amortization: Equal payments of principal and interest on quarterly,
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semi-annual or annual basis; specific amount to be set prior to
takedown upon determination of total loan disbursements.
7. Pricing:
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a. [the Prime Rate as published in the Wall Street Journal on the
date of the loan transaction].
8. Interest Payments:
-----------------
a. Quarterly, semi-annual or annual 360 or 365 day basis.
<PAGE>
Mr. James A. Cunningham, Jr.
_______________, 200_
Page 2
9. Funding: In full by _______________, unless such date is waived by the
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Company.
10. Prepayment: Voluntary prepayments are permitted at any time.
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11. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of Woronoco Savings Bank or the Company.
12. Closing Date: Not later than _____________, unless such date is waived
------------
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Accepted on Behalf of
Berkshire Bank
By: ________________________________________ Date: _____________________
James A. Cunningham, Jr.
President and Chief Executive Officer
<PAGE>
FORM OF
BERKSHIRE BANK
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
[ESOP Subsidiary]
24 North Street
Pittsfield, Massachusetts 01201
___________, 2000
Gentlemen:
The undersigned, ___________________ ("Trustee"), not individually but
solely as Trustee under the Berkshire Bank Employee Stock Ownership Plan Trust
(the "Trust") effective _________________, 2000 (the "Borrower"), applies to you
for your commitment, subject to all of the terms and conditions hereof and on
the basis of the representations hereinafter set forth, to make a loan available
to the Borrower as hereinafter set forth. [ESOP Subsidiary] is hereinafter
referred to as the "Lender". The term "Bank" as used herein refers to the
sponsoring employer of the Berkshire Bank Employee Stock Ownership Plan (the
"ESOP").
SECTION ONE. THE TERM LOAN.
1.1 Amount and Terms. Subject to and upon the terms and conditions herein
----------------
set forth, the Lender agrees to lend amounts to the Borrower (the "Loan") from
time to time during the period of this agreement up to but not including the
maturity date of in an aggregate principal amount (the "Loan Amount") sufficient
to permit the Borrower to acquire a number of shares ("Shares") of common stock,
par value $0.01 ("Common Stock") of Berkshire Hills Bancorp, Inc., a Delaware
corporation, and the Holding Company of the Bank, equal to 8% of the Shares
issued in connection with the conversion of the Bank from the mutual to stock
form (the "Conversion") including the shares issued to ________________
Charitable Foundation, a charitable foundation being established in connection
with the Conversion.
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
<PAGE>
1.2 The Note. The disbursement of the Loan pursuant to Section 1.1 hereof
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shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as Exhibit A (the "Note"), such Note to bear interest as
hereinafter provided, and to mature in _____ (___) equal annual installments
consisting of both principal and interest amortized over a _________ (___) year
period in an amount sufficient to repay all borrowed amounts plus interest,
commencing on ______________, 200___, and on the last day of each and every
______________ each year thereafter, except that the final installment not
sooner paid shall be due on _______________, 20___ the final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 Exempt Loan Rules. Notwithstanding anything to the contrary contained
------------------
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 Interest Rate. The Loan shall bear interest (which the Borrower
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hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
"Interest Rate" defined for purposes of this Agreement to mean the lowest prime
rate reported in The Wall Street Journal on the date of the Conversion.
2
<PAGE>
2.2 Basis and Payment Dates. All interest due on the Note prior to
-----------------------
maturity shall be due and payable on an annual basis on the last day of each
year (commencing ____________, 200___) and at maturity (unless prepaid in whole
prior to such date, then on the date of such prepayment in whole) and interest
due after maturity shall be due and payable upon demand. All interest on the
Note shall be computed on an annual basis.
SECTION THREE. COLLATERAL.
3.1 Grant of Security Interest-Pledged Shares. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender all Shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The Pledged
Shares shall be evidenced by a stock certificate. The assignment and pledge
herein granted and provided for is made and given to secure and shall secure the
prompt payment of principal of and interest on the Note as and when the same
becomes due and payable and the payment, observance and performance of any and
all obligations and liabilities arising under or provided for in this Agreement
or the Note or any of them in each instance as the same may be amended or
modified and whether now existing or hereafter arising.
3.2 Further Assurances. The Borrower covenants and agrees that it will at
------------------
any time and from time to time as requested by the Lender execute and deliver
such further instruments and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 Voting. Upon the occurrence of a Default as defined in Section 9
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall not
be entitled to vote the Pledged Shares unless and until a Default has occurred
and so long as the same shall not have been waived by the Lender.
3.4 Partial Releases. The Lender shall, provided always that no Default
----------------
shall have occurred and be continuing, as promptly as is practicable after
__________ in each year (the period commencing on the date hereof and ending
_________________ in each subsequent 12-month period ending on ______________
being hereinafter referred to as a "Plan Year"), to release that number of
Pledged Shares then being held to secure the Loan which is equal to the number
of such Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the numerator of which is the aggregate amount of all principal and
interest payments made on the Note during the Plan Year and the denominator of
which is the sum of the numerator plus the unpaid principal and interest of the
Note as of the last day of such Plan Year.
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SECTION FOUR. PAYMENTS.
4.1 Place and Application. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at 24 North
Street, Pittsfield, Massachusetts 01201 for the account of the Lender (or at
such other place for the account of the Lender as the Lender may from time to
time in writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 Prepayments. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days' prior
notice to the Lender, each such prepayment to be made by the payment of the
principal amount to be prepaid and accrued interest thereon to the date fixed
for prepayment. The term "Business Day" shall mean any day on which savings
institutions are generally open for business in Massachusetts, other than
Saturday and Sunday. All such prepayments shall be made without premium or
penalty. Prepayments shall first be applied to the several installments of the
Note in the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
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5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and is validly existing and in good standing
under the laws of the Commonwealth of Massachusetts. The Lender has full power
and authority and legal right to make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound, and (iii) any statute, rule
or regulation of any federal, state or local government or agency applicable to
the Lender, except in any such case (i), (ii), (iii) above, for any such
conflicts, violations, defaults which either individually or in the aggregate do
not have a material adverse effect on the business properties of the Lender and
its subsidiaries, taken as a whole.
6.5 To its best knowledge, the Bank has taken such actions as are required
by applicable law to be taken to establish the ESOP and the Trust.
6.6 To its best knowledge, there is no action, suit, investigation or
proceeding pending, or threatened against or affecting the ESOP before any court
or governmental department, agency or instrumentality.
5
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6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are "prohibited transactions" within
the meaning of Section 4975 of the Code or Section 406(a) of ERISA, and are
subject to exemption pursuant to Section 4975(d)(3) of the Code and Section 408
of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded on [Stock Exchange].
6.9 Determination Letter. The Bank shall apply for a determination letter
from the Internal Revenue Service that the Plan and the Trust, taken together,
qualify as an employee stock ownership plan for purposes of Section 4975(e)(7)
of the Code and the rules and regulations thereunder.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within six (6) days of the
date of the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 Compliance. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
6
<PAGE>
8.2 Reports.
-------
(a) The Borrower will maintain a system of accounting for the ESOP
and the Trust in accordance with sound accounting practice and will, from
time to time, furnish to the Lender and its duly authorized
representatives, such information and data with respect to the financial
condition of the ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default hereunder or of
any threatened or pending litigation or governmental proceeding against the
Plan or the Trust.
SECTION NINE. DEFAULT AND REMEDIES.
9.1 Default. Any one or more of the following shall constitute a Default
--------
hereunder:
(a) As of the date when due, the Borrower fails to make payment of
principal and/or interest with respect to the Note or any other amounts
payable under this Agreement within five (5) business days of the date when
due;
(b) As of the date proven false, the Borrower makes any
representation, warranty or statement herein or in connection with the
making of the Loan which proves to be incorrect in any material respect;
(c) As of the date the Borrower fails to perform or observe any term,
covenant or agreement (other than those referred to in subparts (a) and
(b), inclusive, of this Section 9.1) contained in this Agreement and such
failure continues unremedied for a period of 30 days after notice to the
Borrower by the Lender or any other holder of the Note;
(d) As of the date of termination of the ESOP if such termination is
prior to the expiration of the term of this Agreement.
9.2 Limitations on Use of Trust Assets. When any Default described in
-----------------------------------
subsections (a) to (c), of Section 9.1 has occurred and is continuing, the
Lender or the holder of the Note shall have no rights to assets of the Trust
other than (i) contributions (other than contributions of employer securities)
that are made by the Lender to enable the Borrower to meet its obligations
pursuant to the Loan, cash dividends received by the Borrower on the Shares and
earnings attributable to the investment of such contributions and dividends and
(ii) the Pledged Stock; provided further, however, that the value of Trust
assets transferred to the Lender as a result of an Event of Default shall not
exceed the amount of the repayment then in default, and, provided further, that
so long as the Lender is a "party in interest" within the meaning of ERISA
Section
7
<PAGE>
3(14) or a "disqualified person" within the meaning of Section 4975(e)(2) of the
Code, a transfer of Trust assets upon default shall be made only if, and to the
extent of, the Borrower's failure to meet the loan's payment schedule.
9.3 Rights Upon a Default. When any Default has occurred and is
----------------------
continuing the Lender may, in addition to such other rights or remedies as it
may have, then or at any time or times thereafter exercise with respect to the
Collateral any and all of the rights, options and remedies of a secured party
under the Uniform Commercial Code of Massachusetts (the "UCC") including without
limitation the sale of all or any part of the Collateral at any brokers' board
or any public or private sale, provided, however that the Lender shall only be
able to exercise such rights and remedies to the extent of all interest and
principal payments which are due and payable as of the date of the Default and
provided further that prior to such exercise the Lender shall release from the
Collateral so much thereof as it would have been required to release under
Section 3.4 hereof if the period from the previous __________________ to the
date of such release constituted a Plan Year and no Default had occurred. The
net proceeds of any such sale, after deducting all costs and expenses incurred
in the collection, protection, sale and delivery of the Collateral (which
expenses Borrower promises to pay) shall be applied first to the payment of any
costs and expenses incurred by the Lender in selling or otherwise disposing of
the Collateral, second, to the payment of the principal of and the interest on
the Note, and, third, ratably as among any other items of the indebtedness
hereby secured. Any surplus remaining after the full payment and satisfaction of
the foregoing shall be returned to the Borrower or to whomsoever a court of
competent jurisdiction shall determine to be entitled thereto. Any requirement
of said UCC as to reasonable notice shall be met by the Lender personally
delivering or mailing notice (by certified mail - return receipt requested) to
the Borrower at its address as provided in Section 10.6 hereof at least ten (10)
days prior to the event giving rise to the requirement of such notice. In
connection with any offer, solicitation or sale of the Collateral, the Lender
may restrict bidders and otherwise proceed in whatever manner it reasonably
believes appropriate in order to comply or assure compliance with applicable
legal requirements pertaining to the offer and sale of securities of the same
type as the Collateral.
9.4 ERISA Restrictions. The number of shares of Pledged Stock as to which
-------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies set
forth in this Section 9 may only be exercised to the extent consistent with the
restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
SECTION TEN. MISCELLANEOUS.
10.1 Holidays. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the Commonwealth of Massachusetts interest at the rate the Note bears for the
period prior to maturity shall continue to
8
<PAGE>
accrue on such principal from the stated due date thereof to and including the
next succeeding Business Day on which the same is payable.
10.2 No Waiver, Cumulative Remedies. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
10.3 Amendments, Etc. No amendment, modification, termination or waiver
----------------
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
10.4. Survival of Representations. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
10.5 Payments. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
10.6 Addresses for Notices. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at _________________________________, Attention: __________ ,
____________, _____________, ______________; if to the Lender at 24 North
Street, Pittsfield, Massachusetts 01201, and a copy to counsel, Attention:
Thomas P. Hutton, Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W.,
Washington, D.C. 20016, or at such other address as shall be designated by any
party hereto in a written notice to each other party pursuant to this Section
10.6.
10.7 Headings. Article and Section headings used in this Agreement are
--------
for convenience or reference only and are not a part of this Agreement for any
other purpose.
10.8 Severability of Provisions. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
9
<PAGE>
10.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
10.10 Binding Nature, Governing Law, Etc. This Agreement shall be binding
-----------------------------------
upon the Borrower and its successors and assigns and shall inure to the benefit
of the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
10.11 Concerning the Borrower. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain Berkshire Bank
Employee Stock Ownership Plan Trust effective _______________, 200__, by and
between the undersigned and Berkshire Bank and this Agreement shall be binding
upon the undersigned and its successors and assigns and upon the trust estate.
The undersigned assumes no personal or individual liability or responsibility
for payment of the indebtedness evidenced by the Note or for observance or
performance of the covenants and agreements herein contained or for the
truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
10.12 Limited Liability. Anything contained herein or in the Note to the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note ,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
10.13 Lender's Duty of Care. It is agreed and understood that the Lender's
---------------------
duty with respect to the Collateral shall be solely to use reasonable care in
the custody and preservation of the Collateral in the Lender's possession, which
shall not include any steps necessary to preserve rights against prior parties.
10
<PAGE>
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
11
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this _____ day of ___________________, 2000.
[TRUSTEE], and its successors in trust, as Trustee
under that certain Berkshire Bank Employee Stock
Ownership Trust effective _____________, 200__, by and
between the undersigned and Berkshire Bank
By________________________________________
Accepted and agreed to at Pittsfield, Massachusetts as of the date last
above written.
By________________________________________
James A. Cunningham, Jr.
President and Chief Executive Officer
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount ________________, 2000
Pittsfield, Massachusetts
For VALUE RECEIVED, the undersigned, [TRUSTEE] not individually but solely
as Trustee under that certain Berkshire Bank Employee Stock Ownership Plan Trust
effective _________________, 200__, by and between the undersigned ("Borrower")
and Berkshire Bank promises to pay to the order of [ESOP SUBSIDIARY], (the
"Lender") at its office at 24 North Street, Pittsfield, Massachusetts 01201, the
aggregate unpaid principal amount of all loan amounts or advances under the loan
made to the Borrower under Section 1.1 of the Loan and Security Agreement
hereinafter referred to in ______________ (___) consecutive annual equal
installments consisting of both principal and interest amortized over a ______
(____) year period in an amount sufficient to repay all borrowed amounts plus
interest, payable quarterly on the last business day of ______________, 200___
and continuing on the last business day of each and every __________________
thereafter, except that the final installment not sooner paid shall be due on
_______________, 20___, the final maturity hereof.
The Borrower promises to pay interest (computed annually) at said office on
the balance of principal from time to time remaining outstanding and unpaid
hereon at the rate per annum equal at all times to the Interest Rate as defined
in Section 12.1 of the Loan and Security Agreement (as defined below) on the
last business day of each and every ____________, commencing ___________,200___,
and in each year thereafter and on the final maturity date of this Note. On
demand, the Borrower promises to pay interest on any overdue principal hereof
(whether by lapse of time, acceleration, or otherwise) until paid at the stated
rate.
This Note is issued under the terms and provisions of that certain
Berkshire Bank Employee Stock Ownership Trust Loan and Security Agreement
bearing even date herewith by and between the Borrower and the Lender (the "Loan
and Security Agreement") and this Note and the holder hereof are entitled to all
the benefits and security provided for by or referred to in such Loan and
Security Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts without regard to principles of
conflicts of laws. The Borrower hereby waives presentment for payment and
demand.
<PAGE>
Upon the occurrence of a Default as such term is defined in the Loan and
Security Agreement at the option of the Lender, all amounts payable by the
Borrower to the Lender under the terms of this Note may immediately become due
and payable by the Borrower to the Lender pursuant to the provisions of Section
9.3 of the Loan and Security Agreement, and the Lender shall have all of the
rights, powers, and remedies available under the terms of this Note, any of the
other documents evidencing and securing this Loan and all applicable laws. The
Borrower and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of the indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note any payment hereunder may be extended from
time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
[TRUSTEE] and its successors in trust, as
Trustee under that certain Berkshire Bank
Employee Stock Ownership Plan Trust
effective __________200__, by and between
the undersigned and Berkshire Bank
By:____________________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by [ESOP Subsidiary] ("Lender") to the
undersigned ("Borrower"), the receipt whereof is hereby acknowledged and subject
to the terms and provisions of the Loan and Security Agreement described below,
the Borrower does hereby grant a security interest to said Lender in the
instruments or negotiable documents hereafter described ("Collateral"), in all
of which Collateral the Borrower warrants that the Borrower has good, valid and
effective rights to the ownership and possession thereof and to the grant of the
security interest hereby made:
All Shares of the common stock, par value $.01 per share, of Berkshire Hills
Bancorp, Inc., a Delaware corporation, acquired with the proceeds of the
Loan Amount.
Borrower agrees, upon request, to deliver said collateral to said Lender as
soon as practicable after Borrower's receipt of one or more certificates
therefore.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the Commonwealth of
Massachusetts, particularly the Uniform Commercial Code, except where preempted
by federal law.
Dated at Pittsfield, Massachusetts the __ day of ___________, 2000.
[TRUSTEE], and its successors in trust, as
Trustee under that certain Berkshire Bank
Employee Stock Ownership Trust effective
____________, 200___, by and between the
undersigned and Berkshire Bank
By:_________________________________
<PAGE>
EXHIBIT 10.2
FORM OF
BERKSHIRE BANK
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made effective as of [date] (the
"Effective Time") by and between Berkshire Bank (the "Bank"), with its principal
offices at 24 North Street, Pittsfield, Massachusetts, 01202, and [name]
("Executive"). Any reference to the "Holding Company" herein shall mean
Berkshire Hills Bancorp Inc. or any successor to Berkshire Hills Bancorp Inc.
WHEREAS, the Bank believes that the assurance of Executive's employment by
the Bank for the term of this Agreement and the benefit of his business
experience are of material importance; and
WHEREAS, Executive desires to serve in the employ of the Bank on a full-
time basis for the term of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties to
this Agreement hereby agree as follows:
1. POSITIONS AND RESPONSIBILITIES
(a) During the term of this Agreement Executive agrees to serve as
[position(s)] of the Bank. Executive shall render administrative and management
services to the Bank such as are customarily performed by persons in a similar
executive capacity. During the term of this Agreement, Executive also agrees to
serve, if elected, as director of the Bank and in such capacity will carry out
such duties and responsibilities reasonably appropriate to that office.
(b) During the term of Executive's employment under this Agreement, except for
periods of absence occasioned by illness, vacation, and other reasonable leaves
of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties under
this Agreement, including activities and services related to the organization,
operation and management of the Bank, as well as participation in community,
professional and civic organizations; provided, however, that, with the approval
of the Board of Directors of the Bank (the "Board of Directors"), as evidenced
by a resolution of the Board of Directors, from time to time, Executive may
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, companies or organizations, which, in the judgment of
the Board of Directors, will not present any conflict of interest with the Bank
or materially affect the performance of Executive's duties pursuant to this
Agreement.
(c) Notwithstanding anything herein contained to the contrary, either Executive
or the Bank may
<PAGE>
terminate Executive's employment with the Bank at any time during the term of
this Agreement, subject to the terms and conditions of this Agreement.
2. TERM OF EMPLOYMENT
Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective Time and shall continue for a period of thirty-six (36) full
calendar months from the Effective Time. Commencing on the date of execution of
this Agreement, the term of this Agreement shall extend for one day each day
until such time as the Board of Directors or Executive elects not to extend the
term of the Agreement by giving written notice to the other party in accordance
with provisions of Section 8 of this Agreement, in which case the term of this
Agreement shall become fixed and shall end on the third anniversary of the date
of such written notice.
3. COMPENSATION, BENEFITS AND REIMBURSEMENT
(a) Base Salary. The Bank shall pay Executive an annual salary of not less
than $[amount] ("Base Salary"). Executive's Base Salary shall be payable in
accordance with the normal payroll practices of the Bank. Whenever used in this
Agreement, Base Salary shall include any amounts of compensation deferred by
Executive under any tax-qualified retirement or welfare benefit plan or any
other deferred compensation arrangement maintained by the Bank. During the term
of this Agreement, the Board of Directors or a committee appointed by a Board of
Directors shall review Executive's Base Salary at least annually and the Board
of Directors or the committee may increase Executive's Base Salary at any time.
Any increase in Executive's Base Salary shall become a term of this Agreement
and shall be the new "Base Salary" for purposes of this Agreement.
(b) Incentive Compensation. In addition to his Base Salary, Executive shall be
entitled to participate in and shall receive payments under any incentive
compensation bonus program sponsored by the Bank. Executive's incentive
compensation shall be determined by the Board of Directors or a committee
appointed by the Board of Directors at a level appropriate for executive
officers.
(c) Supplemental Pension and Life Insurance. The Bank shall continue to
provide to Executive, without cost, the supplemental pension and life insurance
arrangements in place at the Effective Time. The supplemental pension and life
insurance arrangements shall be governed by the terms of the specific agreements
in effect at the Effective Time.
(d) Club Dues. In addition to any other compensation provided for under this
Agreement, the Bank shall pay Executive an amount sufficient, on an after-tax
basis, to maintain his membership at [club].
(e) Automobile and Cellular Phone. The Bank shall provide Executive with, and
Executive shall have the primary use of, an automobile owned or leased by the
Holding Company or the Bank and the Holding Company or the Bank shall pay (or
reimburse Executive) for all expenses of insurance,
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registration, operation and maintenance of the automobile. Executive shall
comply with reasonable reporting and expense limitations on the use of such
automobile, as the Board of Directors may establish from time to time, and the
Holding Company or the Bank shall annually include on Executive's Form W-2 any
amount attributable to Executive's personal use of such automobile. The Holding
Company or the Bank shall also provide Executive with a cellular phone and shall
pay (or reimburse Executive) for all reasonable expenses related to the business
use of such phone.
(f) Vacation; Holidays; Sick Time. Executive shall be entitled to vacation in
accordance with the standard vacation policies of the Bank for senior executive
officers, but in no event less than four (4) weeks vacation during each year of
employment. Executive shall take vacation at a time mutually agreed upon by the
Bank and Executive. Executive shall receive his Base Salary and other benefits
during periods of vacation. Executive shall also be entitled to paid legal
holidays in accordance with the policies of the Bank. Executive shall also be
entitled to sick leave in accordance with the policies of the Bank for senior
executive officers, but in no event less than the number of days of sick leave
per year to which Executive was entitled at the Effective Time.
(g) Other Employee Benefits. In addition to any other compensation or benefits
provided for under this Agreement, Executive shall be entitled to continue to
participate in any employee benefit plans, arrangements and perquisites of the
Bank in which he participates or is eligible to participate at the Effective
Time. Executive shall also be entitled to participate in any employee benefits
or perquisites the Bank offers to full-time employees or executive management in
the future. The Bank will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites which would adversely
affect Executive's rights or benefits thereunder without separately providing
for an arrangement that ensures Executive receives or will receive the economic
value that Executive would otherwise lose as result of such adverse affect.
Without limiting the generality of the foregoing provisions of this paragraph,
Executive shall be entitled to participate in or receive benefits under all
plans relating to stock options, restricted stock awards, stock purchases,
pension, profit sharing, employee stock ownership, supplemental retirement,
group life insurance, medical and other health and welfare coverage that are
made available by the Bank at the Effective Time or at any time in the future
during the term of this Agreement, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Nothing paid to Executive under any such plans or arrangements will be deemed to
be in lieu of other compensation to which Executive is entitled under this
Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein below) during
Executive's term of employment under this Agreement, the provisions of this
Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination of
Executive's full-time employment under this Agreement by the Bank for any reason
other than a termination governed by Section 7 of this Agreement; or (ii)
Executive's resignation from his employment with the Bank upon, any (A) failure
to elect or re-elect or to appoint or re-appoint Executive to his positions sets
forth in Section 1 of this Agreement, unless
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Executive consents to such event, (B) material change in Executive's functions,
duties, or responsibilities with the Bank or its subsidiaries, which change
would cause Executive's position(s) to become one of lesser responsibility,
importance, or scope, unless Executive consents to such event, (C) relocation of
Executive's principal place of employment by more than 25 miles from its
location at the Effective Time, unless Executive consents to such event, (D)
material reduction in the benefits and perquisites provided to Executive from
those being provided as of the Effective Time of this Agreement, unless
Executive consents to such event, (E) liquidation or dissolution of the Holding
Company or the Bank, or (F) breach of this Agreement by the Bank or the Holding
Company. Upon the occurrence of any event described in clauses (A), (B), (C),
(D), (E) or (F), above, Executive shall have the right to terminate his
employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full calendar months after the
applicable event giving rise to Executive's right to elect to terminate his
employment.
(b) Upon Executive's termination from employment in accordance with paragraph
(a) of this Section 4, on the Date of Termination, as defined in Section 8 of
the Agreement, the Bank shall be obligated to pay Executive, or, in the event of
his death following the Date of Termination, his beneficiary or beneficiaries,
or his estate, as the case may be, an amount equal to the sum of: (i) the Base
Salary and incentive compensation that would have been paid to Executive for the
remaining term of this Agreement had the Event of Termination not occurred
(based on Executive's then current Base Salary and most recently paid or accrued
bonus at the time of the Event of Termination); plus (ii) the value, as
calculated by a recognized firm customarily performing such valuation, of any
stock options which as of the Date of Termination, that have been granted to
Executive but are not exercisable by Executive and the value of any restricted
stock awards which have been granted to Executive, but in which Executive does
not have a non-forfeitable or fully-vested interest as of the Date of
Termination; plus (iii) the value of all employee benefits that would have been
provided to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred, based on the most recent level of contribution,
accrual or other participation by or on behalf of Executive. At the election of
Executive, which election is to be made prior to the Date of Termination, such
payments shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining unexpired term of the Agreement. Such payments
shall not be reduced in the event Executive obtains other employment following
termination of employment.
(c) In addition to the payments provided for in paragraph (b) of this Section
4, upon Executive's termination of employment in accordance with the provisions
of paragraph (a) of this Section 4, to the extent that the Holding Company or
the Bank continues to offer any life, medical, health, disability or dental
insurance plan or arrangement in which Executive participates in on the last day
of his employment (each being a "Welfare Plan"), Executive and his covered
dependents shall continue participating in such Welfare Plans, subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of Termination until the earlier of (i) his death (ii) his
employment by another employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or the Bank does
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not offer the Welfare Plans at any time after the Event of Termination, then the
Bank shall provide Executive with a payment equal to the actuarial value of the
provision of such benefits for the period which runs until the earlier of (i)
his death (ii) his employment by another employer other than one of which he is
the majority owner or (iii) the end of the remaining term of this Agreement.
5. CHANGE IN CONTROL
(a) For purposes of this Agreement, a "Change in Control" shall mean an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Holding Company within
the meaning of the Bank Change in Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a) with respect to the Bank and the Board of Governors of the Federal
Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Holding
Company, as in effect on the date hereof; or (iii) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Bank; or (iv) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding Company in connection with the conversion
of the Bank to the stock form and any securities purchased by any tax-qualified
employee benefit plan of the Bank; or (B) individuals who constitute the Board
of Directors on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company shall be
distributed; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Holding Company.
(b) If any of the events described in paragraph (a) of this Section 5,
constituting a Change in Control, have occurred or the Board of Directors
determines that a Change in Control has occurred,
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Executive shall be entitled to the benefits provided in paragraphs (c), (d),
(e), (f) and (g) of this Section 5 upon his termination of employment on or
after the date the Change in Control occurs at any time during the term of this
Agreement due to (1) Executive's dismissal or (2) Executive's resignation
following any demotion, loss of title, office or significant authority or
responsibility, reduction in annual compensation or benefits or relocation of
his principals place of employment by more than 25 miles from its location
immediately prior to the Change in Control, unless such termination is because
of his death or Termination for Cause; provided, however, that such payments
shall be reduced by any payment made under Section 4 of this Agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in paragraph (b) of this Section 5, the
Bank shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to the greater of: 1) the
payments due for the remaining term of the Agreement or 2) three (3) times
Executive's average annual compensation for the five (5) preceding taxable years
or such lesser number of years in the event that Executive shall have been
employed by the Bank for less than five (5) years. In determining Executive's
average annual compensation, annual compensation shall include Base Salary and
any other taxable income, including but not limited to amounts related to the
granting, vesting or exercise of restricted stock or stock option awards,
commissions, bonuses (whether paid or accrued for the applicable period),
pension and profit sharing plan contributions or benefits (whether or not
taxable), severance payments, retirement benefits, director or committee fees
and fringe benefits paid or to be paid to Executive or paid for Executive's
benefit during any such year. At the election of Executive, which election is to
be made prior to or within thirty (30) days of the Date of Termination on or
following a Change in Control, such payment may be made in a lump sum (without
discount for early payment) on or immediately following the Date of Termination
(which may be the date a Change in Control occurs) or paid in equal monthly
installments during the sixty (60) months following Executive's termination. In
the event that no election is made, payment to Executive will be made on a
monthly basis during the sixty (60) months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled to
receive benefits due him under or contributed by the Bank on his behalf pursuant
to any retirement, incentive, profit sharing or other retirement, bonus,
performance, disability or other employee benefit plan maintained by the Bank on
Executive's behalf to the extent such benefits are not otherwise paid to
Executive under a separate provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination of
employment in connection therewith, the Bank will cause to be continued life,
medical and disability coverage substantially identical to the coverage
maintained by the Bank for Executive and any of his dependents covered under
such plans prior to the Change in Control. Such coverage and payments shall
cease upon the expiration of thirty-six (36) full calendar months following the
Date of Termination. In the event Executive's participation in any such plan or
program is barred by reason of his not being an employee, the Bank shall arrange
to provide Executive and his dependents with benefits substantially similar as
those of which Executive and his dependents would otherwise have
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been entitled to receive under such plans and programs from which their
continued participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place immediately prior to the
Change In Control. To the extent that any item referred to in this paragraph
will at the end of the term of this Agreement, no longer be available to
Executive, Executive will have the option to purchase all rights then held by
the Bank to such item for a price equal to the then fair market value of the
item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board of Directors at a meeting of the Board of Directors
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of the Board of Directors,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination
for Cause pursuant to Section 8 hereof through the Date of Termination, stock
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options granted to Executive under any stock option plan shall not be
exercisable nor shall any unvested awards granted to Executive under any stock
benefit plan of the Bank, vest. At the Date of Termination, such stock options
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Bank or by Executive shall be communicated
by Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be subject to
Executive's compliance with this Section 9 for one (1) full year after the
earlier of the expiration of this Agreement or termination of Executive's
employment with the Bank. Executive shall, upon reasonable notice, furnish such
information and assistance to the Bank as may reasonably be required by the Bank
in connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
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10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Bank for a period of
one (1) year following such termination in any city, town or county in which
Executive's normal business office is located and the Bank has an office or has
filed an application for regulatory approval to establish an office, determined
as of the effective date of such termination, except as agreed to pursuant to a
resolution duly adopted by the Board of Directors. Executive agrees that during
such period and within said cities, towns and counties, Executive shall not work
for or advise, consult or otherwise serve with, directly or indirectly, any
entity whose business materially competes with the depository, lending or other
business activities of the Bank. The parties hereto, recognizing that
irreparable injury will result to the Bank, its business and property in the
event of Executive's breach of this Subsection 10(a) agree that in the event of
any such breach by Executive, the Bank will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the violation
hereof by Executive, Executive's partners, agents, servants, employees and all
persons acting for or under the direction of Executive. Executive represents and
admits that in the event of the termination of his employment pursuant to
Section 7 of this Agreement, Executive's experience and capabilities are such
that Executive can obtain employment in a business engaged in other lines and/or
of a different nature than the Bank, and that the enforcement of a remedy by way
of injunction will not prevent Executive from earning a livelihood. Nothing
herein will be construed as prohibiting the Holding Company or its subsidiaries
from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank as it may exist from
time to time, is a valuable, special and unique asset of the business of the
Bank. Executive will not, during or after the term of his employment, disclose
any knowledge of the past, present, planned or considered business activities of
the Bank to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the Bank. In the event of a breach or threatened breach by
Executive of the provisions of this Section 10, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or from rendering any services to any person, firm, corporation, other
entity to whom such knowledge, in whole or in part, has been disclosed or is
threatened to be disclosed. Nothing herein will be construed as prohibiting the
Bank from pursuing any other remedies available to the Bank for such breach or
threatened breach, including the recovery of damages from Executive.
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11. DEATH AND DISABILITY
(a) Death. Notwithstanding any other provision of this Agreement to the
contrary, in the event of Executive's death during the term of this Agreement,
the Bank shall immediately pay his estate any salary and bonus accrued but
unpaid as of the date of his death, and, for a period of six months after
Executive's death, the Bank shall continue to provide medical insurance benefits
existing on the date of his death and shall pay Executive's designated
beneficiary all compensation that would otherwise be payable to him pursuant to
Section 3 of this Agreement. This provision shall not negate any rights
Executive or his beneficiaries may have to death benefits under any employee
benefit plan of the Bank.
(b) Disability.
(i) Disability. If during the term of Executive's employment Executive
begins to receive disability benefits under the long-term disability insurance
policy maintained by the Bank (the "Disability Policy"), then the Bank's
obligation to pay Executive his Base Salary shall, as of the date such benefits
first become payable under the Disability Policy on account of the his
disability, be reduced to equal the difference between Executive's Base Salary
and amounts received under all long-term disability policies, to the extent that
such salary payments do not result in a reduction in disability payments.
(ii) Incapacity. If as a result of Disability Executive is determined by a
physician chosen by the Bank and reasonably acceptable to Executive or
Executive's personal representatives not to be capable of fulfilling Executive's
responsibilities as an officer of the Bank or the Holding Company ("Incapacity
Determination"), (1) Executive shall continue to be covered by the Bank's
medical insurance and life insurance policies until the third anniversary of the
Incapacity Determination, and (2) the Bank's obligation to provide Executive
with other employment related fringe benefits hereunder shall cease as of the
date of such Incapacity Determination ("Incapacity Determination Date"). Prior
to the Incapacity Determination Date, the Bank shall continue to pay Executive
his annual salary in usual installments and Executive shall continue to receive
all other employment related fringe benefits due to Executive in accordance with
this Employment Agreement. The Bank's obligation to provide Executive with the
benefits described in Section 3(c) shall not be affected by an Incapacity
Determination unless the terms of the separate arrangements governing such
benefits so provide.
(iii) Termination of Employment by Reason of Incapacity. At any time from
and after the Incapacity Determination date, the Board, in its discretion, may
elect to terminate Executive's employment by reason of such incapacity. Any such
termination as a result of incapacity shall be considered to be an Event of
Termination in accordance with Section 4 of this Agreement.
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12. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank subject to Section 12(b). The Holding
Company, however, unconditionally guarantees payment and provision of all
amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive under the Employment Agreement dated [date], between Executive and the
Holding Company, such compensation payments and benefits paid by the Holding
Company will be subtracted from any amount due simultaneously to Executive under
similar provisions of this Agreement. Payments pursuant to this Agreement and
the Holding Company Agreement shall be allocated in proportion to the level of
activity and the time expended on such activities by Executive as determined by
the Holding Company and the Bank.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior employment agreement between the Bank or any predecessor of
the Bank and Executive, except that this Agreement shall not affect or operate
to reduce any benefit or compensation inuring to Executive of a kind elsewhere
provided. No provision of this Agreement shall be interpreted to mean that
Executive is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived,
nor shall there
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be any estoppel against the enforcement of any provision of this Agreement,
except by written instrument of the party charged with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless specifically
stated therein, and each such waiver shall operate only as to the specific term
or condition waived and shall not constitute a waiver of such term or condition
for the future as to any act other than that specifically waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts without regards to principles of conflicts of law of this state.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by Executive within fifty (50) miles
from the location of the Bank, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
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20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any dispute
or question of interpretation relating to this Agreement shall be paid or
reimbursed by the Bank, if Executive is successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
(a) The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to and
conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Part
359 and any rules or regulations promulgated thereunder.
22. SUCCESSOR TO THE HOLDING COMPANY.
The Bank shall require any successor or assignee, whether direct or indirect, by
purchase, merger, consolidation or otherwise, to all or substantially all the
business or assets of the Bank or the Holding Company, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Berkshire Bank has caused this Agreement to be executed
and its seal to be affixed hereunto by its duly authorized officer and its
directors, and Executive has signed this Agreement, on [date].
ATTEST: BERKSHIRE BANK
_______________________________ By: _________________________
Corporate Secretary For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
_______________________________ By: _________________________
Corporate Secretary
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EXHIBIT 10.3
FORM OF
BERKSHIRE HILLS BANCORP, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made effective as of [date] (the
"Effective Time") by and between Berkshire Hills Bancorp, Inc. (the "Holding
Company"), a corporation organized under the laws of Delaware, with its
principal offices at 24 North Street, Pittsfield, Massachusetts, 01202, and
[name] ("Executive"). Any reference to the "Bank" herein shall mean Berkshire
Bank or any successor to Berkshire.
WHEREAS, the Holding Company believes that the assurance of Executive's
employment by the Holding Company for the term of this Agreement and the benefit
of his business experience are of material importance; and
WHEREAS, Executive desires to serve in the employ of the Holding Company on
a full-time basis for the term of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties to
this Agreement hereby agree as follows:
1. POSITIONS AND RESPONSIBILITIES
(a) During the term of this Agreement Executive agrees to serve as
[position(s)] of the Holding Company. Executive shall render administrative and
management services to the Holding Company such as are customarily performed by
persons in a similar executive capacity. During the term of this Agreement,
Executive also agrees to serve, if elected, as an officer and/or director of any
subsidiary of the Holding Company and in such capacity will carry out such
duties and responsibilities reasonably appropriate to that office.
(b) During the term of Executive's employment under this Agreement, except for
periods of absence occasioned by illness, vacation, and other reasonable leaves
of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties under
this Agreement, including activities and services related to the organization,
operation and management of the Holding Company and its subsidiaries, as well as
participation in community, professional and civic organizations; provided,
however, that, with the approval of the Board of Directors of the Holding
Company (the "Board of Directors"), as evidenced by a resolution of the Board of
Directors, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations, which, in the judgment of the Board of Directors, will not
present any conflict of interest with the Holding Company or its subsidiaries,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
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(c) Notwithstanding anything herein contained to the contrary, either Executive
or the Holding Company may terminate Executive's employment with the Holding
Company at any time during the term of this Agreement, subject to the terms and
conditions of this Agreement.
2. TERM OF EMPLOYMENT
Executive's employment under this Agreement shall be deemed to have commenced as
of the Effective Time and shall continue for a period of thirty-six (36) full
calendar months from the Effective Time. Commencing on the date of execution of
this Agreement, the term of this Agreement shall extend for one day each day
until such time as the Board of Directors or Executive elects not to extend the
term of the Agreement by giving written notice to the other party in accordance
with provisions of Section 8 of this Agreement, in which case the term of this
Agreement shall become fixed and shall end on the third anniversary of the date
of such written notice.
3. COMPENSATION, BENEFITS AND REIMBURSEMENT
(a) Base Salary. The Holding Company shall pay Executive an annual salary of
not less than $[amount] ("Base Salary"). Executive's Base Salary shall be
payable in accordance with the normal payroll practices of the Holding Company.
Whenever used in this Agreement, Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or welfare
benefit plan or any other deferred compensation arrangement maintained by the
Holding Company or the Bank. During the term of this Agreement, the Board of
Directors or a committee appointed by a Board of Directors shall review
Executive's Base Salary at least annually and the Board of Directors or the
committee may increase Executive's Base Salary at any time. Any increase in
Executive's Base Salary shall become a term of this Agreement and shall be the
new "Base Salary" for purposes of this Agreement.
(b) Incentive Compensation. In addition to his Base Salary, Executive shall be
entitled to participate in and shall receive payments under any incentive
compensation bonus program sponsored by the Holding Company or the Bank.
Executive's incentive compensation shall be determined by the Board of Directors
or a committee appointed by the Board of Directors at a level appropriate for
executive officers.
(c) Supplemental Pension and Life Insurance. The Holding Company or the Bank
shall continue to provide to Executive, without cost, the supplemental pension
and life insurance arrangements in place at the Effective Time. The supplemental
pension and life insurance arrangements shall be governed by the terms of the
specific agreements in effect at the Effective Time.
(d) Club Dues. In addition to any other compensation provided for under this
Agreement, the Holding Company or the Bank shall pay Executive an amount
sufficient, on an after-tax basis, to maintain his membership at [club].
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(e) Automobile and Cellular Phone. The Holding Company or the Bank shall
provide Executive with, and Executive shall have the primary use of, an
automobile owned or leased by the Holding Company or the Bank and the Holding
Company or the Bank shall pay (or reimburse Executive) for all expenses of
insurance, registration, operation and maintenance of the automobile. Executive
shall comply with reasonable reporting and expense limitations on the use of
such automobile, as the Board of Directors may establish from time to time, and
the Holding Company or the Bank shall annually include on Executive's Form W-2
any amount attributable to Executive's personal use of such automobile. The
Holding Company or the Bank shall also provide Executive with a cellular phone
and shall pay (or reimburse Executive) for all reasonable expenses related to
the business use of such phone.
(f) Vacation; Holidays; Sick Time. Executive shall be entitled to vacation in
accordance with the standard vacation policies of the Holding Company or the
Bank for senior executive officers, but in no event less than four (4) weeks
vacation during each year of employment. Executive shall take vacation at a time
mutually agreed upon by the Holding Company or the Bank and Executive. Executive
shall receive his Base Salary and other benefits during periods of vacation.
Executive shall also be entitled to paid legal holidays in accordance with the
policies of the Holding Company or the Bank. Executive shall also be entitled to
sick leave in accordance with the policies of the Holding Company or the Bank
for senior executive officers, but in no event less than the number of days of
sick leave per year to which Executive was entitled at the Effective Time.
(g) Other Employee Benefits. In addition to any other compensation or benefits
provided for under this Agreement, Executive shall be entitled to continue to
participate in any employee benefit plans, arrangements and perquisites of the
Holding Company or the Bank in which he participates or is eligible to
participate at the Effective Time. Executive shall also be entitled to
participate in any employee benefits or perquisites the Holding Company or the
Bank offers to full-time employees or executive management in the future. The
Holding Company or the Bank will not, without Executive's prior written consent,
make any changes in such plans, arrangements or perquisites which would
adversely affect Executive's rights or benefits thereunder without separately
providing for an arrangement that ensures Executive receives or will receive the
economic value that Executive would otherwise lose as result of such adverse
affect. Without limiting the generality of the foregoing provisions of this
paragraph, Executive shall be entitled to participate in or receive benefits
under all plans relating to stock options, restricted stock awards, stock
purchases, pension, profit sharing, employee stock ownership, supplemental
retirement, group life insurance, medical and other health and welfare coverage
that are made available by the Holding Company or the Bank at the Effective Time
or at any time in the future during the term of this Agreement, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements. Nothing paid to Executive under any such plans or
arrangements will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
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4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein below) during
Executive's term of employment under this Agreement, the provisions of this
Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination of
Executive's full-time employment under this Agreement by the Holding Company for
any reason other than a termination governed by Section 7 of this Agreement; or
(ii) Executive's resignation from his employment with the Holding Company upon,
any (A) failure to elect or re-elect or to appoint or re-appoint Executive to
his positions sets forth in Section 1 of this Agreement, unless Executive
consents to such event, (B) material change in Executive's functions, duties, or
responsibilities with the Holding Company or its subsidiaries, which change
would cause Executive's position(s) to become one of lesser responsibility,
importance, or scope, unless Executive consents to such event, (C) relocation of
Executive's principal place of employment by more than 25 miles from its
location at the Effective Time, unless Executive consents to such event, (D)
material reduction in the benefits and perquisites provided to Executive from
those being provided as of the Effective Time of this Agreement, unless
Executive consents to such event, (E) liquidation or dissolution of the Holding
Company or the Bank, or (F) breach of this Agreement by the Holding Company.
Upon the occurrence of any event described in clauses (A), (B), (C), (D), (E) or
(F), above, Executive shall have the right to terminate his employment under
this Agreement by resignation upon not less than sixty (60) days prior written
notice given within six full calendar months after the applicable event giving
rise to Executive's right to elect to terminate his employment.
(b) Upon Executive's termination from employment in accordance with paragraph
(a) of this Section 4, on the Date of Termination, as defined in Section 8 of
the Agreement, the Holding Company shall be obligated to pay Executive, or, in
the event of his death following the Date of Termination, his beneficiary or
beneficiaries, or his estate, as the case may be, an amount equal to the sum of:
(i) the Base Salary and incentive compensation that would have been paid to
Executive for the remaining term of this Agreement had the Event of Termination
not occurred (based on Executive's then current Base Salary and most recently
paid or accrued bonus at the time of the Event of Termination); plus (ii) the
value, as calculated by a recognized firm customarily performing such valuation,
of any stock options which as of the Date of Termination, that have been granted
to Executive but are not exercisable by Executive and the value of any
restricted stock awards which have been granted to Executive, but in which
Executive does not have a non-forfeitable or fully-vested interest as of the
Date of Termination; plus (iii) the value of all employee benefits that would
have been provided to Executive for the remaining term of the this Agreement had
an Event of Termination not occurred, based on the most recent level of
contribution, accrual or other participation by or on behalf of Executive. At
the election of Executive, which election is to be made prior to the Date of
Termination, such payments shall be made in a lump sum. In the event that no
election is made, payment to Executive will be made on a monthly basis in
approximately equal installments during the remaining unexpired term of the
Agreement. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
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(c) In addition to the payments provided for in paragraph (b) of this Section
4, upon Executive's termination of employment in accordance with the provisions
of paragraph (a) of this Section 4, to the extent that the Holding Company or
the Bank continues to offer any life, medical, health, disability or dental
insurance plan or arrangement in which Executive participates in on the last day
of his employment (each being a "Welfare Plan"), Executive and his covered
dependents shall continue participating in such Welfare Plans, subject to the
same premium contributions on the part of Executive as were required immediately
prior to the Event of Termination until the earlier of (i) his death (ii) his
employment by another employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement. If the Holding Company
or Bank does not offer the Welfare Plans at any time after the Event of
Termination, then the Holding Company shall provide Executive with a payment
equal to the actuarial value of the provision of such benefits for the period
which runs until the earlier of (i) his death (ii) his employment by another
employer other than one of which he is the majority owner or (iii) the end of
the remaining term of this Agreement.
5. CHANGE IN CONTROL
(a) For purposes of this Agreement, a "Change in Control" shall mean an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Holding Company within
the meaning of the Bank Change in Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a) with respect to the Bank and the Board of Governors of the Federal
Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Holding
Company, as in effect on the date hereof; or (iii) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Bank; or (iv) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding Company in connection with the conversion
of the Bank to the stock form and any securities purchased by any tax-qualified
employee benefit plan of the Bank; or (B) individuals who constitute the Board
of Directors on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the
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Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or the Holding Company.
(b) If any of the events described in paragraph (a) of this Section 5,
constituting a Change in Control, have occurred or the Board of Directors
determines that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon his termination of employment on or after the date the Change in Control
occurs at any time during the term of this Agreement due to (1) Executive's
dismissal or (2) Executive's resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in annual
compensation or benefits or relocation of his principals place of employment by
more than 25 miles from its location immediately prior to the Change in Control,
unless such termination is because of his death or Termination for Cause;
provided, however, that such payments shall be reduced by any payment made under
Section 4 of this Agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in paragraph (b) of this Section 5, the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: 1)
the payments due for the remaining term of the Agreement or 2) three (3) times
Executive's average annual compensation for the five (5) preceding taxable years
or such lesser number of years in the event that Executive shall have been
employed by the Holding Company or the Bank for less than five (5) years. In
determining Executive's average annual compensation, annual compensation shall
include Base Salary and any other taxable income, including but not limited to
amounts related to the granting, vesting or exercise of restricted stock or
stock option awards, commissions, bonuses (whether paid or accrued for the
applicable period), pension and profit sharing plan contributions or benefits
(whether or not taxable), severance payments, retirement benefits, director or
committee fees and fringe benefits paid or to be paid to Executive or paid for
Executive's benefit during any such year. At the election of Executive, which
election is to be made prior to or within thirty (30) days of the Date of
Termination on or following a Change in Control, such payment may be made in a
lump sum (without discount for early payment) on or immediately following the
Date of Termination (which may be the date a Change in Control occurs) or paid
in equal monthly installments during the sixty (60) months following Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly basis during the sixty (60) months following Executive's
termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled to
receive benefits due him under or contributed by the Bank or the Holding Company
on his behalf pursuant to any retirement, incentive, profit sharing or other
retirement, bonus, performance, disability or other employee benefit plan
maintained by the Holding Company or the Bank on Executive's behalf to the
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extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination of
employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Holding Company or the Bank for Executive and any of
his dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or other
perquisites shall be continued during the remaining term of the Agreement on the
same financial terms and obligations as were in place immediately prior to the
Change In Control. To the extent that any item referred to in this paragraph
will at the end of the term of this Agreement, no longer be available to
Executive, Executive will have the option to purchase all rights then held by
the Holding Company or the Bank to such item for a price equal to the then fair
market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the preceding provisions of Section 5 of this Agreement,
for any taxable year in which Executive shall be liable for the payment of an
excise tax under Section 4999 of the Code (or any successor provision thereto),
with respect to any payment in the nature of the compensation made by the
Holding Company or its subsidiaries to (or for the benefit of) Executive
pursuant to this Agreement or otherwise, the Holding Company (or an successor
thereto) shall pay to Executive an amount determined under the following
formula:
An amount equal to: (E x P) + X
WHERE:
E x P
X = -----------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M + PO]
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E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 6;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question
(including any effective increase in Executive's tax rate
attributable to the disallowance of any deduction);
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question (including any effective increase in
Executive's tax rate attributable to the disallowance of any
deduction);
M = highest marginal rate of Medicare tax; and
PO = adjustment for phase out of or loss of deduction, personal
exemption or other similar items.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code may or will be assessed,
the payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 (or any successor provisions)
of the Code had not been imposed. The payment may be adjusted, as appropriate,
if alternative minimum tax rules under the Code are applicable to Executive.
(b) Notwithstanding the foregoing, if it is (i) initially determined by the
Holding Company's tax advisors that no excise tax under Section 4999 is due with
respect to any payment or benefit described in the first paragraph of Section
6(a) and, thereafter, it is determined in a final judicial determination or a
final administrative settlement that the Section 4999 excise tax is due with
respect to such payments or benefits or (ii) subsequently determined in a final
judicial determination or a final administrative settlement to which Executive
is a party that the excise tax under Section 4999 is due or that the excess
parachute payment as defined in Section 4999 of the Code is more than the amount
determined as "P", above (such revised determination under (i) or (ii) above
being thereafter referred to as the "Determinative Excess Parachute Payment"),
then the tax advisors of the Holding Company (or any successor thereto) shall
determine the amount (the "Adjustment Amount"), the Holding Company (or its
successor) must pay to Executive, in order to put Executive in the same position
as Executive would have been if the amount determined as "P" above had been
equal to the
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Determinative Excess Parachute Payment. In determining the Adjustment Amount,
the tax advisors shall take into account any and all taxes (including any
penalties of any nature and interest) paid or payable by Executive in connection
with such final judicial determination or final administrative settlement. As
soon as practicable after the Adjustment Amount has been so determined, the
Holding Company shall pay the Adjustment Amount to Executive.
(c) The Holding Company (or its successor) shall indemnify and hold Executive
harmless from any and all losses, costs and expenses (including without
limitation, reasonable attorney's fees, reasonable accountant's fees, interest,
fines and penalties of any kind) which Executive incurs as a result of any
administrative or judicial review of Executive's liability under Section 4999 of
the Code by the Internal Revenue Service or any comparable state agency through
and including a final judicial determination or final administrative settlement
of any dispute arising out of Executive's liability for the Section 4999 excise
tax or otherwise relating to the classification for purposes of Section 280G of
the Code of any payment or benefit in the nature of compensation made or
provided to Executive by the Holding Company or any successor thereto. Executive
shall promptly notify the Holding Company in writing whenever Executive receives
notice of the commencement of any judicial or administrative proceeding, formal
or informal, in which the federal tax treatment under Section 4999 of the Code
of any amount paid or payable under this Supplemental Agreement is being
reviewed or is in dispute (including a notice of audit or other inquiry
concerning the reporting of Executive's liability under Section 4999). The
Holding Company (or its successor) may assume control at its expense over all
legal and accounting matters pertaining to such federal or state tax treatment
(except to the extent necessary or appropriate for Executive to resolve any such
proceeding with respect to any matter unrelated to amounts paid or payable
pursuant to this contract) and Executive shall cooperate fully with the Holding
Company in any such proceeding. Executive shall not enter into any compromise or
settlement or otherwise prejudice any rights the Holding Company (or its
successor) may have in connection therewith without prior consent to the Holding
Company (or its successor). In the event that the Holding Company (or any
successor thereto) elects not to assume control over such matters, the Holding
Company (or any successor thereto) shall promptly reimburse Executive for all
expenses related thereto as and when incurred upon presentation of appropriate
documentation relating thereto.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board of Directors at a meeting of the Board of Directors
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of the Board of
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Directors, Executive was guilty of conduct justifying Termination for Cause and
specifying the particulars thereof in detail. Executive shall not have the right
to receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination, stock
options granted to Executive under any stock option plan shall not be
exercisable nor shall any unvested awards granted to Executive under any stock
benefit plan of the Bank, the Holding Company or any subsidiary or affiliate
thereof, vest. At the Date of Termination, such stock options and any such
unvested awards shall become null and void and shall not be exercisable by or
delivered to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be subject to
Executive's compliance with this Section 9 for one (1) full year after the
earlier of the expiration of this Agreement or termination of Executive's
employment with the Holding Company. Executive shall, upon reasonable notice,
furnish such information and assistance to the Holding Company as may reasonably
be required by the Holding Company in connection with any litigation in which it
or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board of Directors. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work for or
advise, consult or otherwise serve with, directly or indirectly, any entity
whose business materially competes with the depository, lending or other
business activities of the Holding Company or its subsidiaries. The parties
hereto, recognizing that irreparable injury will result to the Holding Company
or its subsidiaries, its business and property in the event of Executive's
breach of this Subsection 10(a) agree that in the event of any such breach by
Executive, the Holding Company or its subsidiaries, will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 7 of this Agreement, Executive's
experience and capabilities are such that Executive can obtain employment in a
business engaged in other lines and/or of a different nature than the Holding
Company or its subsidiaries, and that the enforcement of a remedy by way of
injunction will not prevent Executive from earning a livelihood. Nothing herein
will be construed as prohibiting the Holding Company or its subsidiaries from
pursuing any other remedies available to the Holding Company or its subsidiaries
for such breach or threatened breach, including the recovery of damages from
Executive.
(b) Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Holding Company and its
subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and subsidiaries thereof to any person, firm, corporation, or
other entity for any reason or purpose whatsoever unless expressly authorized by
the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or
-11-
<PAGE>
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Holding Company. In the
event of a breach or threatened breach by Executive of the provisions of this
Section 10, the Holding Company will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Holding Company or its
subsidiaries or from rendering any services to any person, firm, corporation,
other entity to whom such knowledge, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing herein will be construed as prohibiting
the Holding Company from pursuing any other remedies available to the Holding
Company for such breach or threatened breach, including the recovery of damages
from Executive.
11. DEATH AND DISABILITY
(a) Death. Notwithstanding any other provision of this Agreement to the
contrary, in the event of Executive's death during the term of this Agreement,
the Holding Company shall immediately pay his estate any salary and bonus
accrued but unpaid as of the date of his death, and, for a period of six months
after Executive's death, the Holding Company shall continue to provide medical
insurance benefits existing on the date of his death and shall pay Executive's
designated beneficiary all compensation that would otherwise be payable to him
pursuant to Section 3 of this Agreement. This provision shall not negate any
rights Executive or his beneficiaries may have to death benefits under any
employee benefit plan of the Holding Company or the Bank.
(b) Disability
(i) Disability. If during the term of Executive's employment Executive
begins to receive disability benefits under the long-term disability insurance
policy maintained by the Bank (the "Disability Policy"), then the Bank's
obligation to pay Executive his Base Salary shall, as of the date such benefits
first become payable under the Disability Policy on account of the his
disability, be reduced to equal the difference between Executive's Base Salary
and amounts received under all long-term disability policies, to the extent that
such salary payments do not result in a reduction in disability payments.
(ii) Incapacity. If as a result of Disability Executive is determined by a
physician chosen by the Bank and reasonably acceptable to Executive or
Executive's personal representatives not to be capable of fulfilling Executive's
responsibilities as an officer of the Bank or the Holding Company ("Incapacity
Determination"), (1) Executive shall continue to be covered by the Bank's
medical insurance and life insurance policies until the third anniversary of the
Incapacity Determination, and (2) the Bank's obligation to provide Executive
with other employment related fringe benefits hereunder shall cease as of the
date of such Incapacity Determination ("Incapacity Determination Date"). Prior
to the Incapacity Determination Date, the Bank shall continue to pay Executive
his annual salary in usual installments and Executive shall continue to receive
all other employment related fringe benefits due to Executive in accordance with
this Employment Agreement. The Bank's obligation to provide Executive with the
benefits described in Section 3(c) shall not be
-12-
<PAGE>
affected by an Incapacity Determination unless the terms of the separate
arrangements governing such benefits so provide.
(iii) Termination of Employment by Reason of Incapacity. At any time from
and after the Incapacity Determination date, the Board, in its discretion, may
elect to terminate Executive's employment by reason of such incapacity. Any such
termination as a result of incapacity shall be considered to be an Event of
Termination in accordance with Section 4 of this Agreement.
12. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company or the subject to Section
12(b).
(b) Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits, as provided by this Agreement, are paid to or received by
Executive under the Employment Agreement dated [date], between Executive and the
Bank, such compensation payments and benefits paid by the Bank will be
subtracted from any amount due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the Bank
Agreement shall be allocated in proportion to the level of activity and the time
expended on such activities by Executive as determined by the Holding Company
and the Bank.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto and
supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
-13-
<PAGE>
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived,
nor shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future as to any act other than that specifically waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the [state] without regards to
principles of conflicts of law of this state.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this Agreement
shall be settled exclusively by arbitration, conducted before a panel of three
arbitrators sitting in a location selected by Executive within fifty (50) miles
from the location of the Holding Company, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
-14-
<PAGE>
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any dispute
or question of interpretation relating to this Agreement shall be paid or
reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
21. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
[state] law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to and
conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R. Part
359 and any rules or regulations promulgated thereunder.
22. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
-15-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Berkshire Hills Bancorp, Inc. has caused this Agreement
to be executed and its seal to be affixed hereunto by its duly authorized
officer and its directors, and Executive has signed this Agreement, on [date].
ATTEST: BERKSHIRE HILLS BANCORP, INC.
________________________ By: ___________________________________
Corporate Secretary For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
________________________ By: ___________________________________
Corporate Secretary
-16-
<PAGE>
EXHIBIT 10.4
BERKSHIRE BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the Berkshire Bank Employee Severance Compensation Plan is
to assure for Berkshire Bank (the "Bank") the services of Employees of the Bank
in the event of a Change in Control (capitalized terms are defined in section
2.1) of ___________________ (the "Holding Company") or the Bank. The benefits
contemplated by the Plan recognize the value to the Bank of the services and
contributions of the Employees of the Bank and the effect upon the Bank
resulting from the uncertainties of continued employment, reduced Employee
benefits, management changes and relocations that may arise in the event of a
Change in Control of the Bank or the Holding Company. The Bank's and the
Holding Company's Boards of Directors believe that it is in the best interests
of the Bank and the Holding Company to provide long term and key Employees of
the Bank with such benefits in order to defray the costs and changes in Employee
status that could follow a Change in Control. The Board of Directors believes
that the Plan will also aid the Bank in attracting and retaining highly
qualified individuals who are essential to its success and the Plan's assurance
of fair treatment of the Bank's Employees will reduce the distractions and other
adverse effects on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as "Berkshire
Bank Employee Severance Compensation Plan." The purposes of the Plan are as set
forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those executive officers who have entered into, or
who enter into in the future, and continue to be subject to an employment or
change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Bank, or both.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the 12
months ended the date as of which Annual Compensation is to be determined, which
are or would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Bank" means Berkshire Bank or any successor as provided for in
Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Holding Company, as in
effect on the date hereof; or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
or the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan or reorganization, merger of
2
<PAGE>
consolidation of the Holding Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or the Holding Company.
(d) "Conversion Date" means the date the Holding Company first issues
common stock pursuant to its initial public offering and Berkshire Bancorp's
mutual-to-stock conversion.
(e) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Board that it is either not possible
to determine if or when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
employees lifetime.
(f) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(g) "Employee" means any Employee of the Bank or any subsidiary thereof who
has completed at least one year of service with the Bank, or any subsidiary
thereof, provided, however, that any Employee who is covered or hereinafter
becomes covered by an employment contract or change in control agreement with
the Employer shall not be considered to be an Employee for purposes of this
Plan.
(h) "Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(i) "Employer" means the Bank or a subsidiary of the Bank or a parent of
the Bank which has adopted the Plan pursuant to Article VI hereof.
(j) "Just Cause" shall mean termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure or unjustified neglect to perform
stated duties, conviction of or pleading guilty or nolo contendere to any crime
or offense punishable as a felony or to any crime or offense involving moral
turpitude, or violation of any final cease-and desist order. In determining
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry.
(k) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence authorized under the policies of the
Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
3
<PAGE>
(l) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
(m) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(n) "Plan" means Berkshire Bank Employee Severance Compensation Plan.
(o) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire and running without a termination of employment
in which an Employee is credited with at least one hour of service in each of
the 12 calendar months in such period. The taking of an LOA shall not eliminate
a period of time from being a Year of Service if such period of time otherwise
qualifies as such. Further if a particular 12 month period of time would not
otherwise qualify under the Plan as a Year of Service because one hour of
service is not credited during each month of such period due to the taking of a
LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the Commonwealth of Massachusetts shall be the controlling law
in all matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
For purposes of this Plan, the term "Participant" shall include:
(a) Without regard to Years of Service, all Employees who were employed by
the Employer as of the Conversion Date; and
(b) All Employees employed after the Conversion Date who have completed at
least One Year of Service with the Employer at the time of any termination
pursuant to Section 4.2 herein.
4
<PAGE>
Notwithstanding the foregoing, persons who have entered into and continue
to be covered by an employment contract or change in control agreement with the
Employer shall not be entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from its respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within twenty-four (24)
months thereafter, the Participant's employment by an Employer shall terminate
for any reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
if employment by an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material
5
<PAGE>
reduction in benefits and perquisites generally provided to all Employees of the
Bank on a nondiscriminatory basis would not trigger a payment pursuant to this
Plan.
(e) A successor to the Bank fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Association, a lump sum cash payment equal to 1/12th of his
Annual Compensation for each year of service up to a maximum of 199% of such
Annual Compensation.
(b) Notwithstanding the provisions of paragraph (a) above, if a
Payment to a Participant who is a "Disqualified Individual" shall be in an
amount which includes an "Excess Parachute Payment," the Payment hereunder to
that Participant shall be reduced to the maximum amount which does not include
an Excess Parachute Payment. The terms "Disqualified Individual" and "Excess
Parachute Payment" shall have the same meanings as under Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision thereto.
The Participant shall not be required to mitigate damages on the amount of
a Payment by seeking other employment or otherwise, nor shall the amount of such
Payment be reduced by any compensation earned by the Participant as a result of
employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee
6
<PAGE>
of an Employer, whether existing now or hereafter, under any benefit, incentive,
retirement, stock option, stock bonus, stock ownership or any employment
agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may be
adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority
of the voting power of the Bank's outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
7
<PAGE>
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Bank, unless a Change in Control
has previously occurred. If a Change in Control occurs, the Plan no longer
shall be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this
Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Employee's right to compensation or other benefits under this Agreement.
Employee shall not have the right to receive compensation or other benefits for
any period after termination for Just Cause as defined in Section 2.1
hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the
8
<PAGE>
Federal Deposit Insurance Act, 12 U.S.C. (S)1818(e)(3) or (g)(1), the Bank's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Bank may in its discretion (i) pay the Employee all or part of
the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the Bank
under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
------------------
supervision of the Board of Directors of the Bank or a Committee appointed by
the Board (the "Board"). It shall be a principal duty of the Board to see that
the Plan is carried out in accordance with its terms, for the exclusive benefit
of persons entitled to participate in the Plan without discrimination among
them. The Board will have full power to administer the Plan in all of its
details subject, however, to the requirements of ERISA. For this purpose, the
Board's powers will include, but will not be limited to, the following
authority, in addition to all other powers provided by this Plan: (a) to make
and enforce such rules and regulations as it deems necessary or proper for the
efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize
Payments; (f) to appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the Plan; and (g) to
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
---------------
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and administration of the Plan, and will be responsible for complying with all
of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA.
9
<PAGE>
11.3 Claims and review procedures.
----------------------------
(a) Claims procedure. If any person believes he is being denied any
----------------
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be written
in a manner calculated to be understood by such person and will contain (i)
specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv) information as to the steps to be
taken if the person wishes to submit a request for review. Such notification
will be given within 90 days after the claim is received by the Board (or within
180 days, if special circumstances require an extension of time for processing
the claim, and if written notice of such extension and circumstances is given to
such person within the initial 90 day period). If such notification is not
given within such period, the claim will be considered denied as of the last day
of such period and such person may request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
----------------
person receives a written notice of a denied claim (or, if applicable, within 60
days after the date on which such denial is considered to have occurred) such
person (or his duly authorized representative) may (i) file a written request
with the Board for a review of his denied claim and of pertinent documents and
(ii) submit written issues and comments to the Board. The Board will notify
such person of its decision in writing. Such notification will be written in a
manner calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent Plan
provisions. The decision on review will be made within 60 days after the
request for review is received by the Board (or within 120 days, if special
circumstances require an extension of time for processing the requests such as
an election by the Board to hold a hearing, and if written notice of such
extension and circumstances is given to such person within the initial 60 day
period). If the decision on review is not made within such period, the claim
will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
---------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to the
------------------------
fullest extent permitted by law any person serving on the Board or as a member
of a committee designated as Board (including any person who formerly served as
a Board member or as a member of such committee) against all liabilities,
damages, costs and expenses (including attorneys fees and amounts paid in
settlement of any claims approved by the Bank) occasioned by any act or omission
to act in connection with the Plan, if such act or omission is in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
---------
ending on December 31, 1999 and the 12 consecutive-month period ending each year
thereafter.
10
<PAGE>
11.7 Benefits solely from general assets. The benefits provided hereunder
-----------------------------------
will be paid solely from the general assets of the Bank. Nothing herein will be
construed to require the Bank or the Board to maintain any fund or segregate any
amount for the benefit of any Participant, and no Participant or other person
shall have any claim against, right to, or security or other interest in, any
fund, account or asset of the Bank from which any payment under the Plan may be
made.
[The remainder of this page has been intentionally left blank]
11
<PAGE>
Having been adopted by its Board of Directors, this Plan is executed by its duly
authorized officers this ___ day of _______________________,2000.
Attest: BERKSHIRE BANK
_____________________ By: _________________________________
For the Entire Board of Directors
Having been adopted by its Board of Directors, this Plan is executed by its duly
authorized officers this ___ day of ________________________, 2000.
Attest: [HOLDING COMPANY]
________________________ By: _________________________________
For the Entire Board of Directors
12
<PAGE>
Exhibit 10.5
FORM OF
BERKSHIRE BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
Form of
Berkshire Bank
Supplemental Executive Retirement Plan
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Article I - Introduction.......................... 1
Article II - Definitions.......................... 2
Article III - Eligibility and Participation....... 5
Article IV - Benefits............................. 6
Article V - Accounts.............................. 8
Article VI - Supplemental Benefit Payments........ 9
Article VII - Claims Procedures................... 10
Article VIII - Amendment and Termination.......... 12
Article IX - General Provisions................... 13
</TABLE>
i
<PAGE>
Article I
Introduction
Section 1.01 Purpose, Design and Intent.
--------------------------
(a) The purpose of the Berkshire Bank Supplemental Executive Retirement Plan
(the "Plan") is to assist Berkshire Bank (the "Bank") and its affiliates in
retaining the services of key employees until their retirement, to induce
such employees to use their best efforts to enhance the business of the
Bank and its affiliates, and to provide certain supplemental retirement
benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is specifically designed to
provide certain key employees with retirement benefits that would have been
provided under various tax-qualified retirement plans sponsored by the Bank
but for the applicable limitations placed on benefits and contributions
under such plans by various provisions of the Internal Revenue Code of
1986, as amended.
1
<PAGE>
Article II
Definitions
Section 2.01 Definitions. In this Plan, whenever the context so indicates,
-----------
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or a beneficiary of a Participant, as the case may be, and, except
as otherwise provided, or unless the context otherwise requires, the capitalized
terms shall have the following meanings:
(a) "Affiliate" means any corporation, trade or business, which, at the time of
reference, is together with the Bank, a member of a controlled group of
corporations, a group of trades or businesses (whether or not incorporated)
under common control, or an affiliated service group, as described in Sections
414(b), 414(c), and 414(m) of the Code, respectively, or any other organization
treated as a single employer with the Bank under Section 414(o) of the Code.
(b) "Applicable Limitations" means one or more of the following, as applicable:
(i) the maximum limitation on annual benefits payable by a tax-qualified
defined benefit plan under Section 415(b) of the Code;
(ii) the maximum limitations on annual additions to a tax-qualified defined
contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the annual amount of compensation that
may, under Section 401(a)(17) of the Code, be taken into account in
determining contributions to and benefits under tax-qualified plans; and
(iv) the maximum limitations, under Sections 401(k), 401(m), or 402(g) of
the Code, on pre-tax contributions that may be made to a qualified defined
contribution plan.
(c) "Bank" means Berkshire Bank, and its successors.
(d) "Board of Directors" means the Board of Directors of the Bank.
(e) "Change in Control" means, with respect to the Bank or the Company, an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a) with respect to the Bank and the Board of Governors of the Federal
Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Holding
Company, as in effect on the date hereof; or (iii) results in a transaction
requiring prior FRB approval under the Bank Holding Company Act of 1956 and the
2
<PAGE>
regulations promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in
effect on the date hereof except for the Holding Company's acquisition of the
Bank; or (iv) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding securities except for any securities
of the Bank purchased by the Holding Company in connection with the conversion
of the Bank to the stock form and any securities purchased by any tax qualified
employee benefit plan of the Bank; or (B) individuals who constitute the Board
of Directors on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan or reorganization, merger of consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or property
or securities not issued by the Bank or the Holding Company shall be
distributed; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Holding Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means Berkshire Hills Bancorp, Inc. and its successors.
(j) "Eligible Individual" means any Employee of the Bank or an Affiliate who
participates in the ESOP or the Savings Plan, as the case may be, and whom the
Board of Directors determines is one of a "select group of management or highly
compensated employees," as such phrase is used for purposes of Sections 101,
201, and 301 of ERISA.
(k) "Employee" means any person employed by the Bank or an Affiliate.
(l) "Employer" means the Bank or Affiliate that employs the Employee.
3
<PAGE>
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(n) "ESOP" means the Berkshire Bank Employee Stock Ownership Plan, as amended
from time to time.
(o) "ESOP Acquisition Loan" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
(p) "ESOP Valuation Date" means any day as of which the investment experience of
the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(q) "Effective Date" means [January 1, 2000].
(r) "Participant" means an Eligible Employee who is entitled to benefits under
the Plan.
(s) "Plan" means this Berkshire Bank Supplemental Executive Retirement Plan.
(t) "Retirement" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under either the
ESOP or the Savings Plan, as appropriate.
(u) "Savings Plan" means the Berkshire Bank 401(k) Plan in the SBERA Trust, and
as amended from time to time.
(v) "Supplemental ESOP Account" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(w) "Supplemental ESOP Benefit" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(x) "Supplemental Savings Benefit" means the benefit credited to a Participant
pursuant to Section 4.03 of the Plan.
(y) "Supplemental Savings Account" means an account established by an Employer,
pursuant to Section 5.03 of the Plan, with respect to a Participant Supplement
Savings Benefit.
(z) "Supplemental Stock Ownership Account" means an account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
Supplemental Stock Ownership Benefit.
(aa) "Supplemental Stock Ownership Benefit" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
4
<PAGE>
Article III
Eligibility and Participation
Section 3.01 Eligibility and Participation.
-----------------------------
(a) Each Eligible Employee may participate in the Plan. An Eligible Employee
shall become a Participant in the Plan upon designation as such by the
Board of Directors. An Eligible Employee whom the Board of Directors
designates as a Participant in the Plan shall commence participation as of
the date established by the Board of Directors. The Board of Directors
shall establish an Eligible Employee's date of participation at the same
time it designates the Eligible Employee as a Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee as
a Participant for any or all supplemental benefits provided for under
Article IV of the Plan.
5
<PAGE>
Article IV
Benefits
Section 4.01 Supplemental ESOP Benefit.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated to
the accounts of the Participant under the ESOP for the applicable plan year
if the provisions of the ESOP were administered without regard to and of the
Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such allocation
required by the limitations imposed by any of the Applicable Limitations.
Section 4.02 Supplemental Stock Ownership Benefit.
------------------------------------
(a) Upon a Change in Control, the Employer shall credit to the Participant's
Supplemental Stock Ownership Account a Supplemental Stock Ownership Benefit
equal to (i) less (ii), the result of which is multiplied by (iii), where:
(i) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends, cash
proceeds, or other medium related to such ESOP Acquisition Loans) that
would have been allocated or credited for the benefit of the Participant
under the ESOP and/or this Plan, as the case may be, had the Participant
continued in the employ of the Employer through the first ESOP Valuation
Date following the last scheduled payment of principal and interest on
all ESOP Acquisition Loans outstanding at the time of the Change in
Control; and
(ii) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP acquisition Loans)
and allocated for the benefit of the Participant under the ESOP and this
Plan as of the first ESOP Valuation Date following the Change in
Control; and
(iii) Equals the fair market value of Common Stock immediately preceding the
Change in Control.
6
<PAGE>
(b) For purposes of clause: (i) of subsection (a) of this Section 4.02, the
total number of shares of Common Stock shall be determined by multiplying
the sum of (i) and (ii) by (iii), where:
(i) equals the average of the total shares of Common Stock acquired with
the proceeds of an ESOP Acquisition Loan and allocated for the
benefit of the Participant under the ESOP as of three most recent
ESOP Valuation Dates preceding the Participant's Retirement (or
lesser number if the Participant has not participated in the ESOP for
three full years);
(ii) equals the average number of shares of Common Stock credited to the
Participant's Supplemental ESOP Account for the three most recent
plan years of the ESOP (such that the three recent plan years
coincide with the three most recent ESOP Valuation Dates referred to
in (i) above); and
(iii) equals the total number of scheduled annual payments remaining on the
ESOP Acquisition Loans as of the Change in Control.
Section 4.03 Supplemental Savings Benefit.
----------------------------
A Participant's Supplemental Savings Benefit under the Plan shall be equal to
the excess of (a) over (b), where:
(a) is the sum of the matching contributions and other contributions of the
Employer that would otherwise be allocated to an account of the Participant
under the Savings Plan for a particular year if the provisions of the
Savings Plan were administered without regard to any of the Applicable
Limitations; and
(b) is the sum of the matching contributions and other contributions of the
Employer that are actually allocated on account of the Participant under the
provisions of the Savings Plan for that particular year after giving effect
to any reduction of such allocation required by any of the Applicable
Limitations.
7
<PAGE>
Article V
Accounts
Section 5.01 Supplemental ESOP Benefit Account.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the limitations imposed by the
Code. Shares of Common Stock shall be valued under this Plan in the same manner
as under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
Section 5.02 Supplemental Stock Ownership Account.
------------------------------------
The Employer shall establish, as a memorandum account on its books, a
Supplemental Stock Ownership Account. Upon a Change in Control, the Committee
shall credit to the Participant's Supplemental Stock Ownership Account the
amount of benefits determined under Section 4.02 of the Plan. The Committee
shall credit the account with an amount equal to the appropriate number of
shares of Common Stock or other medium of contribution that would have otherwise
been made to the Participant's accounts under the ESOP but for the Participant's
Retirement. Shares of Common Stock shall be valued under this Plan in the same
manner as under the ESOP. Cash contributions credited to a Participant's
Supplemental Stock Ownership Account shall be credited annually with interest at
a rate equal to the combined weighted return provided to the Participant's non-
stock accounts under the ESOP.
Section 5.03 Supplemental Savings Account.
----------------------------
The Employer shall establish a memorandum account, the "Supplemental Savings
Account" for each Participant on its books, and each year the Committee will
credit the amount of contributions determined under Section 4.03 of the Plan.
Contributions credited to a Participant's Supplemental Savings Account shall be
credited monthly with interest at a rate equal to the combined weighted return
provided to the Participant's matching contribution and/or other Employer
contribution account(s) under the Savings Plan.
8
<PAGE>
Article VI
Supplemental Benefit Payments
Section 6.01 Payment of Supplemental ESOP Benefit.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or in the event of the Participant's death, to his beneficiary in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
Section 6.02 Payment of Supplemental Stock Ownership Benefit.
-----------------------------------------------
(a) A Participant's Supplemental Stock Ownership Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, time and medium (i.e., cash and/or shares of Common Stock)
as his benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the
Supplemental Stock Ownership Benefit credited to him under this Plan.
Section 6.03 Payment of Supplemental Savings Benefit.
---------------------------------------
(a) A Participant's Supplemental Savings Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Savings Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental Savings
Benefit under this Plan in the same percentage as he has to his accrued
benefits under the Savings Plan at the time the benefits become
distributable to him under the Savings Plan.
Section 6.03 Alternative Payment of Benefits.
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Stock Ownership Benefit and/or the Supplemental Savings Benefit to
which he is entitled be paid commencing at a different time, over a different
period, in a different form, or to different persons, than the benefit to which
he or his beneficiary may be entitled under the ESOP or the Savings Plan.
9
<PAGE>
Article VII
Claims Procedures
Section 7.01 Claims Reviewer.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
Section 7.02 Claims Procedure.
----------------
(a) An initial claim for benefits under the Plan must be made by the Participant
or his or her beneficiary or beneficiaries in accordance with the terms of
this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant, unless
special circumstances require the extension of such 90-day period. If such
extension is necessary, the Claims Reviewer shall provide the Participant or
the Participant's beneficiary or beneficiaries with written notification of
such extension before the expiration of the initial 90-day period. Such
notice shall specify the reason or reasons for the extension and the date by
which a final decision can be expected. In no event shall such extension
exceed a period of ninety (90) days from the end of the initial 90-day
period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's claim,
the claimant may have a full and fair review of the claim by the Committee
upon written request submitted by the claimant or the claimant's duly
authorized representative and received by the Committee within sixty (60)
days after the claimant receives written notification that the claimant's
claim has been denied. In connection with such review, the claimant or the
claimant's duly authorized representative shall be entitled to review
pertinent documents and submit the claimant's views as to the issues, in
writing. The Committee shall act to deny or accept the claim within sixty
(60) days after receipt of the claimant's written request for review unless
special circumstances require the extension of such 60-day period. If such
extension is necessary, the Committee shall provide the claimant with
written notification of such extension before the expiration of such initial
60-day period. In all events, the Committee shall act to deny or accept the
claim within 120 days of the receipt of the claimant's written request for
review. The action of the Committee shall be in the form of a written
notice to the claimant and its contents shall include all of the
requirements for action on the original claim.
10
<PAGE>
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
11
<PAGE>
Article VIII
Amendment and Termination
Section 8.01 Amendment of the Plan.
---------------------
The Bank may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
Section 8.02 Termination of the Plan.
-----------------------
The Bank may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
12
<PAGE>
Article IX
General Provisions
Section 9.01 Unfunded, Unsecured Promise to Make Payments in the Future.
----------------------------------------------------------
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the Bank or
its Affiliates and neither a Participant nor his designated beneficiary or
beneficiaries shall have any rights in or against any amount credited to any
account under this Plan or any other assets of the Bank or an Affiliate. The
Plan at all times shall be considered entirely unfunded both for tax purposes
and for purposes of Title I of ERISA. Any funds invested hereunder shall
continue for all purposes to be part of the general assets of the Bank or an
Affiliate and available to its general creditors in the event of bankruptcy or
insolvency. Accounts under this Plan and any benefits which may be payable
pursuant to this Plan are not subject in any manner to anticipation, sale,
alienation, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of a Participant or a Participant's beneficiary. The
Plan constitute a mere promise by the Bank or Affiliate to make benefit payments
in the future. No interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such Participant or beneficiary, including claims
for alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 9.02 Committee as Plan Administrator.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Bank or Affiliate, as they may
deem appropriate. The Committee shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
retained by the Bank with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
Section 9.03 Expenses.
--------
Expenses of administration of the Plan shall be paid by the Bank or an
Affiliate.
Section 9.04 Statements.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
13
<PAGE>
Section 9.05 Rights of Participants and Beneficiaries.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive whatever
benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in any
trust which may be established in connection with the Plan or assets of the
Bank or an Affiliate will be sufficient to pay any benefit hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as creating
any contract of employment or service between the Bank or an Affiliate and
any Participant or other individual. The Plan shall not affect the right of
the Bank or an Affiliate to deal with any Participants in employment or
service respects, including their hiring, discharge, compensation, and
conditions of employment or other service.
Section 9.06 Incompetent Individuals.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Bank or an Affiliate and
the Plan for such Participant or beneficiary.
Section 9.07 Sale, Merger, or Consolidation of the Bank.
------------------------------------------
The Plan may be continued after a sale of assets of the Bank, or a merger or
consolidation of the Bank into or with another corporation or entity only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. Additionally, upon a merger, consolidation or other change
in control any amounts credited to Participant's deferral accounts shall be
placed in a grantor trust to the extent not already in such a trust. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall be terminated subject to the provisions of Section
8.02 of the Plan. Any legal fees incurred by a Participant in determining
benefits to which such Participant is entitled under the Plan following a sale,
merger, or consolidation of the Bank or an Affiliate of which the Participant is
an Employee or, if applicable, a member of the Board of Directors, shall be paid
by the resulting or succeeding entity.
14
<PAGE>
Section 9.08 Location of Participants.
------------------------
Each Participant shall keep the Bank informed of his or her current address and
the current address of his or her designated beneficiary or beneficiaries. The
Bank shall not be obligated to search for any person. If such person is not
located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
Section 9.09 Liability of the Bank and its Affiliates.
----------------------------------------
Notwithstanding any provision herein to the contrary, neither the Bank nor any
individual acting as an employee or agent of the Bank shall be liable to any
Participant, former Participant, beneficiary, or any other person for any claim,
loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Bank or any such
employee or agent of the Bank.
Section 9.10 Governing Law.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of the Commonwealth of
Massachusetts.
Having been adopted by its Board of Directors on the ______________ 2000, this
Plan is executed by its duly authorized officer this ___ day of________________,
2000.
BERKSHIRE BANK
Attest:
________________________ By:______________________________
15
<PAGE>
EXHIBIT 10.6
FORM OF
BERKSHIRE BANK
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of____________, 2000, by and among
Berkshire Bank (the "Institution"), a state chartered savings institution, with
its principal administrative office at 24 North Street, Pittsfield,
Massachusetts 01201, _________________ ("Executive"), and Berkshire Hills
Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of
the State of Delaware which is the stock holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution Executive
has made to the Institution and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Institution.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the term of this
Agreement may be extended for an additional year such that the remaining term of
this Agreement may be three years, unless Executive or the Board elects not to
extend the term of the Agreement by giving written notice to the other party in
accordance with Section 4 of this Agreement, in which case the term of this
Agreement.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the termination of Executive's employment, other than for Cause, as
defined in Section 2(c) of this Agreement, the provisions of Section 3 of this
Agreement shall apply. Upon the occurrence of a Change in Control, Executive
shall have the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion, loss of title,
office or significant authority, material reduction in his annual compensation
or benefits, or relocation of his principal place of employment by more than
____ miles from its location immediately prior to the Change in Control;
provided, however, the Executive may consent in
<PAGE>
writing to any such demotion, loss, reduction or relocation. The effect of any
written consent of the Executive under this Section 2 (a) shall be strictly
limited to the terms specified in such written consent.
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity,
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company, or (E) a tender offer is
made for 20% or more of the voting securities of the Stock Institution or
Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 of this Agreement upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of: 1) Executive's
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties,
2
<PAGE>
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement which results in a material loss to the Institution
or the Holding Company, or 2) Executive's conviction of a crime or act involving
moral turpitude or a final judgement rendered against Executive based upon
actions of Executive which involve moral turpitude. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Bank or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after Termination
for Cause. During the period beginning on the date of the Notice of Termination
for Cause pursuant to Section 4 of this Agreement through the Date of
Termination, stock options granted to Executive under any stock option plan
shall not be exercisable nor shall any unvested stock awards granted to
Executive under any stock-based incentive plan of the Institution, the Holding
Company or any subsidiary or affiliate thereof vest. At the Date of Termination,
such stock options and such unvested stock awards shall become null and void and
shall not be exercisable by or delivered to Executive at any time subsequent to
such Date of Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Institution
shall be obligated to pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to three (3) times Executive's average annual compensation for the five most
recent taxable years that Executive has been employed by the Institution or such
lesser number of years in the event that Executive shall have been employed by
the Institution for less than five years. Such annual compensation shall include
base salary, commissions, bonuses, any other cash compensation, contributions or
accruals on behalf of Executive to any pension and profit sharing plan, benefits
received or to be received under any stock-based benefit plan, severance
payments, director or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of Executive which election
is to be made prior to a Change in Control, such payment shall be made in a lump
sum or on an annual basis in approximately equal installments over a three (3)
year period.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or
3
<PAGE>
involuntary termination of employment, other than for Termination for Cause, the
Institution shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Institution or Holding
Company for Executive prior to his severance, except to the extent such coverage
may be changed in its application to all Institution or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall cease
upon the expiration of thirty-six (36) full calendar months from the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor thereof (the "Termination
Benefits"), would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the
4
<PAGE>
date such Notice of Termination is given); provided, however, that if a dispute
regarding the Executive's termination exists, the "Date of Termination" shall be
determined in accordance with Section 4(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his annual salary)
until the earlier of: (1) the resolution of the dispute in accordance with this
Agreement; or (2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Institution and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Institution or shall impose on the Institution any obligation
to employ or retain Executive in its employ for any period.
5
<PAGE>
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. (S)1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
6
<PAGE>
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Institution (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
---------------
The Institution shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Massachusetts and federal law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Institution (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
16. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Berkshire Bank and Berkshire Hills Bancorp, Inc. have
caused this Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the day of , 2000.
ATTEST: BERKSHIRE BANK
BY:
- --------------------------------- ---------------------------------
SEAL
ATTEST: BERKSHIRE HILLS BANCORP, INC.
(Guarantor)
BY:
- --------------------------------- ---------------------------------
SEAL
WITNESS: EXECUTIVE
- --------------------------------- ------------------------------------
8
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-1 and Prospectus
of Berkshire Hills Bancorp, Inc. (proposed holding company for Berkshire Bank)
of our report dated March 10, 2000, on the consolidated balance sheets of
Berkshire Bancorp (mutual holding company of Berkshire Bank) as of December 31,
1999 and 1998, and the related consolidated statements of income, changes
in retained earnings and cash flows for each of the years in the three-year
period ended December 31, 1999 and to the use of our name and the statements
with respect to us, as appearing under the headings "Experts," "Massachusetts
Taxation," "Tax Effects" and "Legal and Tax Opinions" in the Prospectus.
We also consent to the inclusion of our State Tax Opinion as an exhibit to the
Registraton Statement and the references to summary of such opinion in the
Registration Statement.
Wolf & Company, P.C.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 10, 2000
<PAGE>
Exhibit 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 filed by Berkshire Hills Bancorp, Inc., and
all amendments thereto, and in the Form H-(e)1-S for Berkshire Hills Bancorp,
Inc., and all amendments thereto, relating to the conversion of Berkshire
Bancorp, a Massachusetts-chartered mutual holding company, from the mutual to
stock form of organization, the concurrent issuance of Berkshire Bank's
outstanding capital stock to Berkshire Hills Bancorp, Inc., a holding company
formed for such purpose, and the offering of Berkshire Hills Bancorp, Inc.'s
common stock. In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
MULDOON, MURPHY & FAUCETTE LLP
/s/ Muldoon, Murphy & Faucette LLP
Dated this 10th day of
March, 2000
<PAGE>
Exhibit 23.3
[LETTERHEAD OF FINPRO, INC]
Boards of Trustees and Directors
Berkshire Hills Bancorp, Inc.
Berkshire Bancorp
24 North Street
Pittsfield, Massachusetts 01201
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc., in the
Application for Conversion of Berkshire Bancorp, Pittsfield, Massachusetts, and
any amendments thereto, and in the Registration Statement on Form S-1 and any
amendments thereto filed by Berkshire Hills Bancorp, Inc. We also hereby
consent to the use of our firm's name and the inclusion of, summary of, and
references to our Appraisal Report and our opinion concerning subscription
rights in such filings including the Prospectus of Berkshire Hills Bancorp, Inc.
Very Truly Yours,
/s/ FinPro, Inc.
----------------
FinPro, Inc.
Liberty Corner, New Jersey
March 10, 2000
<PAGE>
[LETTERHEAD OF FINPRO, INC.]
March 10, 2000
Boards of Trustees and Directors
Berkshire Hills Bancorp, Inc.
Berkshire Bancorp
24 North Street
Pittsfield, Massachusetts 01201
Dear Board Members:
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
Berkshire Bancorp (the "MHC") and the Board of Directors of Berkshire Bank (the
"Bank"). Pursuant to the Plan, the MHC will convert to stock form, and all of
the Bank's stock will be issued to Berkshire Hills Bancorp, Inc. (the
"Company"), a Delaware-chartered stock holding company. Simultaneously, the
Company will issue shares of common stock. After the conversion, the MHC will
cease to exist.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of the Common Stock in the Company are to be issued to
(i) Eligible Account Holders, (ii) Supplemental Eligible Account Holders, (iii)
the ESOP, and (iv) directors, trustees, officers and employees of the Bank and
the MHC who do not otherwise qualify as Eligible or Supplemental Eligible
Account Holders. Based solely on our observation that the Subscription Rights
will be available to such recipients without cost, will be legally non-
transferable and of short duration, and will afford such parties the right only
to purchase shares of Common Stock at the same price as will be paid by members
of the general public in the Direct Community Offering, if any, 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 opinion that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable 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 Company's value alone. Accordingly, no assurance can
be given that persons who subscribe to shares of Common Stock in the Conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
/s/ FinPro, Inc.
----------------
FinPro, Inc.
<PAGE>
EXHIBIT 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints James A. Cunningham, Jr. and Charles F. Plungis,
Jr., and each of them, as the true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for them and in their name, place
and stead, in any and all capacities to sign any or all amendments to the
Registration Statement on Form S-1 by Berkshire Hills Bancorp, Inc. and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the U.S. Securities and Exchange Commission and all other
applicable regulatory agencies, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as they
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder, the foregoing Powers of Attorney
prepared in conjunction with the Registration Statement have been duly signed by
the following persons in the capacities and on the dates indicated.
NAME DATE
---- ----
/s/ James A. Cunningham, Jr. March 10, 2000
- -----------------------------
James A. Cunningham, Jr
President, Chief Executive Officer and Director
(principal executive officer)
Berkshire Hills Bancorp, Inc.
/s/ Charles F. Plungis, Jr. March 10, 2000
- ---------------------------
Charles F. Plungis, Jr.
Senior Vice President, Treasurer and
Chief Financial Officer
(principal accounting and financial officer)
Berkshire Hills Bancorp, Inc.
/s/ Robert A. Wells March 10, 2000
- ---------------------------
Robert A. Wells
Chairman of the Board
Berkshire Hills Bancorp, Inc.
<PAGE>
/s/ Thomas O. Andrews March 10, 2000
- -------------------------------
Thomas O. Andrews
Director
Berkshire Hills Bancorp, Inc.
/s/ Thomas R. Dawson March 10, 2000
- --------------------------------
Thomas R. Dawson
Director
Berkshire Hills Bancorp, Inc.
/s/ Henry D. Granger March 10, 2000
- ----------------------------------
Henry D. Granger
Director
Berkshire Hills Bancorp, Inc.
/s/ A. Allen Gray March 10, 2000
- --------------------------------------
A. Allen Gray
Director
Berkshire Hills Bancorp, Inc.
/s/ John Kittredge March 10, 2000
- --------------------------------------
John Kittredge
Director
Berkshire Hills Bancorp, Inc.
/s/ Peter J. Lafayette March 10, 2000
- --------------------------------------
Peter J. Lafayette
Director
Berkshire Hills Bancorp, Inc.
/s/ Edward G. McCormick March 10, 2000
- -----------------------------
Edward G. McCormick
Director
Berkshire Hills Bancorp, Inc.
<PAGE>
/s/ Catherine B. Miller March 10, 2000
- -----------------------------------
Catherine B. Miller
Director
Berkshire Hills Bancorp, Inc.
/s/ Michael G. Miller March 10, 2000
- -----------------------------------
Michael G. Miller
Director
Berkshire Hills Bancorp, Inc.
/s/ Raymond B. Murray, III March 10, 2000
- ------------------------------
Raymond B. Murray, III
Director
Berkshire Hills Bancorp, Inc.
/s/ Louis J. Oggiani March 10, 2000
- -------------------------------------
Louis J. Oggiani
Director
Berkshire Hills Bancorp, Inc.
/s/ Robert S. Raser March 10, 2000
- -------------------------------------
Robert S. Raser
Director
Berkshire Hills Bancorp, Inc.
/s/ Corydon L. Thurston March 10, 2000
- --------------------------------
Corydon L. Thurston
Director
Berkshire Hills Bancorp, Inc.
/s/ Ann H. Trabulsi March 10, 2000
- ------------------------------------
Ann H. Trabulsi
Director
Berkshire Hills Bancorp, Inc.
<PAGE>
/s/ William E. Williams March 10, 2000
- ---------------------------------
William E. Williams
Director
Berkshire Hills Bancorp, Inc.
/s/ Anne Everest Wojtkowski March 10, 2000
- -----------------------------
Anne Everest Wojtkowski
Director
Berkshire Hills Bancorp, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Berkshire Bancorp at and for the year ended December 31,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0001108134
<NAME> BERKSHIRE HILLS BANCORP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 23,301
<INT-BEARING-DEPOSITS> 341
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 93,084
<INVESTMENTS-CARRYING> 17,014
<INVESTMENTS-MARKET> 16,922
<LOANS> 674,088
<ALLOWANCE> 8,534
<TOTAL-ASSETS> 841,651
<DEPOSITS> 680,767
<SHORT-TERM> 27,472
<LIABILITIES-OTHER> 6,411
<LONG-TERM> 32,576
0
0
<COMMON> 0
<OTHER-SE> 88,352
<TOTAL-LIABILITIES-AND-EQUITY> 841,651
<INTEREST-LOAN> 52,522
<INTEREST-INVEST> 5,946
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 58,468
<INTEREST-DEPOSIT> 23,848
<INTEREST-EXPENSE> 26,922
<INTEREST-INCOME-NET> 31,546
<LOAN-LOSSES> 3,030
<SECURITIES-GAINS> 491
<EXPENSE-OTHER> 25,196
<INCOME-PRETAX> 7,618
<INCOME-PRE-EXTRAORDINARY> 5,623
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,623
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.13
<LOANS-NON> 2,841
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,589
<CHARGE-OFFS> 2,353
<RECOVERIES> 268
<ALLOWANCE-CLOSE> 8,534
<ALLOWANCE-DOMESTIC> 8,534
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO BERKSHIRE HILLS FOUNDATION
Berkshire Hills Bancorp, Inc., 24 North Street, Pittsfield, Massachusetts
(the "Company"), desires to make a gift of its common stock, par value $.01 per
share to the C (the "Foundation"), a nonprofit corporation organized under the
laws of the State of Delaware. The purpose of the donation is to establish a
bond between the Company and the communities in which it and its affiliates
maintain a banking office to enable the communities to share in the potential
growth and success of the Company and its affiliates over the long term. To
that end, Berkshire Hills Bancorp, Inc. now gives, transfers, and delivers to
the Foundation _________ shares of its common stock, par value $.01 per share,
or total consideration of $0.01 per share, or $_________, subject to the
following conditions:
1. The Foundation shall use the donation solely for charitable purposes,
including community development, in the communities in which Berkshire Bank,
Pittsfield, Massachusetts, maintains a banking office, in accordance with the
provisions of the Foundation's Certificate of Incorporation; and
2. Consistent with the Company's intent to form a long-term bond between
the Company and the community, the amount of Common Stock that may be sold by
the Foundation in any one year shall not exceed 5% of the market value of the
assets held by the Foundation, except that this restriction shall not prohibit
the board of directors of the Foundation from selling a greater amount of Common
Stock in any one year if the board of directors of the Foundation determines
that the failure to sell a greater amount of the Common Stock held by the
Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status.
Dated:__________________, 2000 Berkshire Hills Bancorp, Inc.
By: ______________________________
James A. Cunningham, Jr.
President and Chief Executive Officer
