As filed with the Securities and Exchange Commission on November 22, 1995
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
______________
CHITTENDEN CORPORATION
(Exact name of registrant as specified in its charter)
Vermont 0-7974 03-0228404
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Two Burlington Square
Burlington, Vermont 05401
(802) 658-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
______________
F. Sheldon Prentice, Esq.
Secretary
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
(802) 660-1410
(Address, including zip code, and telephone number, including area code,
of agent for service)
______________
Approximate date of commencement of the proposed sale of the securities
to the public:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following. ____
CALCULATION OF REGISTRATION FEE
==============================================================================
Title of Each Proposed Proposed
Class of Amount to be Maximum Maximum
Securities to Registered(1) Offering Aggregate Amount of
be Registered Price Per Offering Registration
Unit (2) Price (3) Fee
- ------------------------------------------------------------------------------
Common Stock
($1.00 par) 1,386,100
value) . . . Shares $19,020,379 $1,474.08
===============================================================================
(1) This Registration Statement covers the maximum number of shares of the
Registrant's common stock that may be issued in the transaction described
herein.
(2) Not applicable.
(3) Estimated solely for the purpose of calculating the registration fee and
computed in accordance with Rule 457(f)(2), based on the book value of the
common stock of Flagship Bank and Trust Company on September 30, 1995, ($16.47)
and the maximum number of such shares (1,154,850) that may be exchanged for the
securities being registered.
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 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 Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
November 22, 1995
Securities and Exchange Commission
450th Street
Washington, D.C. 20549
RE: CHITTENDEN CORPORATION - REGISTRATION NO. 0-7974
REGISTRATION STATEMENT (ON FORM S-4)
To Whom it May Concern:
Pursuant to the requirements of Regulation S-t under the Securities Exchange
Act of 1934, there is appended to this transmittal, an electronic file of the
Registration Statement for Chittenden Corporation (on Form S-4) relating to
the Agreement and Plan of Reorganization between Chittenden Corporation and
Flagship Bank and Trust Company (the "Merger"). The Registration Statement
relating to the Merger is hoped to be declared effective by January 3, 1996.
Chittenden Corporation has sent the filing fee of $1,474.08 via Fedwire.
If you have questions concerning this Registration Statement Filing, please
telephone the undersigned at (802) 660-1410.
Thank you.
Sincerely,
S/F. SHELDON PRENTICE
- ---------------------
F. Sheldon Prentice
Secretary
<PAGE>
FLAGSHIP BANK AND TRUST COMPANY
306 Main Street, P.O. Box 487
Worcester, Massachusetts 01613-0487
January 2, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Flagship Bank and Trust Company ("Flagship") to be held on January 26, 1996, at
Mechanics Hall, 321 Main Street, Worcester, Massachusetts, at 10:00 a.m.
(the "Special Meeting").
At the Special Meeting, stockholders will be asked to approve the
Agreement and Plan of Reorganization dated as of September 19, 1995, (the
"Merger Agreement"), by and among Chittenden Corporation ("CC"), Chittenden
Acquisition Bank ("CAB") and Flagship, and to authorize Flagship to enter into
a Plan of Merger with CAB. CAB, a Massachusetts trust company, will be a
wholly-owned subsidiary of CC, a Vermont corporation, which is a registered
bank holding company with its principal place of business in Burlington,
Vermont. CC operates two banking subsidiaries, Chittenden Trust Company
("CTC") and The Bank of Western Massachusetts ("BWM"). CTC is the
largest bank in the State of Vermont, and CC is Vermont's second largest bank
holding company, with assets of $1.5 billion at September 30, 1995. On
March 17, 1995, CC consummated the acquisition of BWM, an FDIC-insured,
Massachusetts-chartered trust company headquartered in Springfield,
Massachusetts, with assets of approximately $240 million at September 30, 1995.
If the Merger Agreement is approved by the Flagship stockholders and the
merger between CAB and Flagship is consummated (the "Merger"), each outstanding
share of Flagship Common Stock, other than shares as to which dissenters' rights
have been perfected and shares held by Flagship as treasury stock, will be
converted into the right to receive 1.2 shares of CC Common Stock. However,
Flagship shall have the right to terminate the Merger Agreement if the market
value of the CC Common Stock (as determined under the Merger Agreement) is less
than $23.25 per share.
If there are not sufficient votes at the time of the Special Meeting
to constitute a quorum, Flagship's stockholders will be asked to approve
adjournment of the Meeting to permit additional solicitation of proxies.
Flagship stock certificates should not be returned to Flagship with the
proxy and should not be forwarded until you receive a letter of transmittal
that will be provided shortly after the Merger is consummated.
The Merger Agreement and Merger is described in the accompanying Proxy
Statement and Prospectus, the forepart of which includes a summary of the terms
of the Merger and certain other information relating to the proposed
transaction. Consummation of the Merger is subject to certain conditions,
including the approval of the Merger Agreement by Flagship stockholders.
We urge you to read the Proxy Statement and Prospectus carefully.
Flagship's Board of Directors has received the opinion of its financial
advisor, Alex Sheshunoff & Co. Investment Banking, ("Sheshunoff"), that the
terms of the proposed Merger are fair and equitable to the stockholders of
Flagship from a financial point of view. The Merger Agreement has been
approved unanimously by the Flagship Board after careful consideration of the
Sheshunoff opinion and relevant financial, legal and other considerations.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
Sheshunoff's opinion is summarized in the Proxy Statement and Prospectus,
and the complete opinion is included as Appendix B to the Proxy Statement and
Prospectus. We urge you to read these items carefully.
YOUR VOTE IS IMPORTANT. THE FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS
A VOTE AGAINST THE MERGER AGREEMENT. Approval of the Merger Agreement by
Flagship stockholders requires the affirmative vote of at least two-thirds of
the shares of Flagship Common Stock outstanding and entitled to vote at the
Special Meeting. Regardless of the size of your holdings or whether you
plan to attend the meeting, we urge you to sign, date and mail the enclosed
proxy card promptly in the postage-prepaid envelope provided. If you attend
the Special Meeting, you may vote in person even if you have already mailed
your proxy card.
On behalf of the Board of Directors, we thank you for your continued
support. We appreciate your interest.
Sincerely yours,
Harold N. Cotton Donald J. McGowan
Chairman President and Chief Executive Officer
<PAGE>
FLAGSHIP BANK AND TRUST COMPANY
306 Main Street, P.O. Box 487
Worcester, Massachusetts 01613-0487
January 2, 1996
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Flagship Bank and Trust Company:
Notice is hereby given that a Special Meeting of the Stockholders of
Flagship Bank and Trust Company ("Flagship") will be held at Mechanics
Hall, 321 Main Street, Worcester, Massachusetts on January 26, 1996
commencing at 10:00 a.m. for the purpose of considering and voting upon the
following matters:
1. A proposal to approve and adopt the Agreement and Plan of
Reorganization (the"Merger Agreement"), dated as of September
19, 1995, by and among Chittenden Corporation ("CC"), Chittenden
Acquisition Bank ("CAB") and Flagship, and to authorize Flagship
to enter into a Plan of Merger with CC and CAB, pursuant to which
Merger Agreement and Plan of Merger, Flagship would be merged with
and into CAB, and stockholders of Flagship would receive 1.2 shares
of CC Common Stock for each share of Flagship Common Stock, all as
more fully described in the attached Proxy Statement and
Prospectus. A copy of the Merger Agreement is attached as
Appendix A to the attached Proxy Statement and Prospectus. A copy
of the Plan of Merger is attached as Exhibit A to the Merger
Agreement.
2. Such other matter or matters which may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on December 8,
1995 (the "Record Date") are entitled to notice of, and to vote at, the
Special Meeting and any and all adjournments or postponements thereof. The
affirmative vote of the holders of two-thirds of the shares of Common Stock of
Flagship outstanding on the Record Date is required for approval of
the Merger Agreement and related Plan of Merger.
If the proposal described in Item 1 above is approved by the stockholders
at the Special Meeting, and effected by Flagship, any stockholder of Flagship
(i) who files with Flagship before the taking of the vote on the approval of
such action, written objection to the proposed action stating that he or she
intends to demand payment for his or her shares if the action is taken, and
(ii) whose shares are not voted in favor of such action, has or may have the
right to demand in writing from Flagship within twenty (20) days after the date
of the mailing to him or her of notice in writing that the corporate action
has become effective, payment of his or her shares and an appraisal of the
value thereof. Flagship, CC and any such stockholder shall in such cases have
the rights and duties and shall follow the procedures set forth in Sections 85
to 98, inclusive, of Chapter 156B of the Business Corporation Law of
Massachusetts.
A Proxy Statement and Prospectus is set forth on the following pages and
a proxy card is enclosed herewith. To ensure that your vote is counted, please
complete, sign, date and return the proxy card in the enclosed, postage-paid
return envelope,whether or not you plan to attend the Special Meeting in person.
If you attend the Special Meeting, you may revoke your proxy and vote your
shares in person. However, attendance at the meeting will not of itself
constitute revocation of a proxy. If your shares are not registered in your
own name, you will need to instruct your recordholder how to vote the shares
beneficially owned by you in accordance with your instructions.
By Order of the Board of Directors
Worcester, Massachusetts Denise L. Solodyna
January 2, 1996 Chief Financial Officer and Clerk
<PAGE>
FLAGSHIP BANK AND TRUST COMPANY
PROXY STATEMENT
_________________
CHITTENDEN CORPORATION
PROSPECTUS FOR
1,386,100 SHARES COMMON STOCK
($1.00 Par Value)
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies from the holders of the common stock of Flagship Bank
and Trust Company ("Flagship"), par value $2.815 per share ("Flagship Common
Stock"), for use at the Special Meeting of Stockholders of Flagship to be
held on January 26, 1996 and any adjournments or postponements thereof (the
"Special Meeting"). The solicitation of proxies from Flagship stockholders is
made by Flagship's Board of Directors.
At the Special Meeting, the Flagship stockholders will be asked to
consider and act upon a proposal to approve and adopt the Agreement and Plan
of Reorganization between Chittenden Corporation ("CC"), Chittenden Acquisition
Bank ("CAB") and Flagship dated as of September 19, 1995 and a related Plan of
Merger (together, the "Merger Agreement"), pursuant to which Flagship would be
merged with and into CAB, a wholly-owned subsidiary of CC, with CAB being the
surviving corporation doing business as "Flagship Bank and Trust Company" (the
"Merger"). A copy of the Merger Agreement is attached hereto as Appendix A and
is incorporated herein by reference.
This Proxy Statement and Prospectus also constitutes a prospectus of CC
in respect of up to 1,386,100 shares of CC Common Stock to be issued to Flagship
stockholders in connection with the Merger. Such shares of CC Common Stock
are to be issued on the conversion of the outstanding shares of Flagship
Common Stock, as described in this Proxy Statement and Prospectus. See
"THE MERGER - Terms of the Merger."
Upon consummation of the Merger, each issued and outstanding share of
Flagship Common Stock, other than shares as to which dissenters' rights have
been perfected and shares held by Flagship as treasury stock, will be converted
into 1.2 shares of CC Common Stock, par value $1.00 per share, (the "Per
Share Consideration"). Based upon the closing price of CC Common Stock of
($Not Available) on (Not Available), 1996, total consideration equals
approximately ($Not Available) million. To the extent the average closing price
of CC (as determined in the Merger Agreement) is less than $23.25 per share,
Flagship shall have the right to terminate the Merger Agreement. Flagship
stockholders will receive cash in lieu of fractional shares. See "THE MERGER -
Terms of the Merger."
The CC Common Stock is listed on NASDAQ-NMS system. The last reported
sale price of CC Common Stock on NASDAQ-NMS on September 29, 1995 was $25.50
per share.
Consummation of the Merger is conditioned upon, among other things,
receipt of all required stockholder and regulatory approvals. If there are
not sufficient votes at the time of the Special Meeting to constitute a quorum,
the Flagship stockholders will be asked to approve adjournment of the Special
Meeting to permit further solicitation of proxies.
THE BOARD OF DIRECTORS OF FLAGSHIP UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT TO THE STOCKHOLDERS OF FLAGSHIP.
This Proxy Statement and Prospectus does not cover any resales of CC
Common Stock received by Flagship stockholders in connection with the Merger,
and no person is authorized to make use of this Proxy Statement and Prospectus
in connection with any such resale.
All information in this Proxy Statement and Prospectus regarding
Flagship and its affiliates has been furnished by Flagship, and all
information herein regarding CC and its affiliates has been furnished by CC.
This Proxy Statement and Prospectus and the form of proxy for the
Special Meeting are first being mailed to stockholders of Flagship on or about
January 2, 1996.
______________________
THE SHARES OF CC COMMON STOCK OFFERED HEREBY HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES AUTHORITY NOR HAS THE COMMISSION OR
ANY STATE SECURITIES AUTHORITY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________________
THE SHARES OF CC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF
A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
______________________
The date of this Proxy Statement and Prospectus is
January 2, 1996
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INCORPORATION OF DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . 9
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SELECTED HISTORICAL AND SUMMARY PRO FORMA FINANCIAL DATA . . . . . . . . . 18
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Quorum and Voting for Flagship Special Meeting . . . . . . . . . . . 24
Vote Required at Flagship Special Meeting . . . . . . . . . . . . . . 24
Beneficial Ownership of Flagship Common Stock . . . . . . . . . . . . 25
Certain Transactions . . . . . . . . . . . . . . . . . . . . . 26
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Background of and Reasons for the Merger;
Recommendation of Flagship Board of Directors . . . . . . . . . . . . 27
Background of and Reasons of Flagship for the Merger . . . . . 27
Recommendation of Flagship Board of Directors . . . . . . . . . 28
Terms of the Merger; Consideration to be Received by
Flagship Stockholders . . . . . . . . . . . . . . . . . . . . . . . 33
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . 33
Surrender of Flagship Common Stock Certificates . . . . . . . . . . . 34
Conditions to Consummation of the Merger . . . . . . . . . . . . . . 34
Regulatory Approvals Required . . . . . . . . . . . . . . . . . . . . 35
Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . 36
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Corporate Transactions . . . . . . . . . . . . . . . . . . . . . . . 36
Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . 37
Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . 38
Interests of Certain Persons in the Merger . . . . . . . . . . . . . 38
Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Management and Operations After the Merger . . . . . . . . . . . . . 40
Rights of Flagship Dissenting Stockholders . . . . . . . . . . . . . 40
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . 41
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . 42
Resale of CC Common Stock Received by Flagship Stockholders . . . . . 42
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Certain Differences in Rights of Stockholders . . . . . . . . . . . . 43
Significant Differences Between the Corporation Laws
of Massachusetts and Vermont . . . . . . . . . . . . . . . . . . . . 43
Significant Differences Between the Charters
and By-Laws of Flagship and CC . . . . . . . . . . . . . . . . . . . 45
BUSINESS OF CC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Description of CC Capital Stock . . . . . . . . . . . . . . . . . . . 48
BUSINESS OF FLAGSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Market Price of and Dividends on Flagship Common Stock . . . . 49
SUPERVISION AND REGULATION . . . . . . . . . . . . . . . . . . . . . . . . 49
Regulation of CC . . . . . . . . . . . . . . . . . . . . . . . . . . 49
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Interstate Acquisitions . . . . . . . . . . . . . . . . . . . . 50
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Certain Transactions by Bank Holding Companies
with their Affiliates . . . . . . . . . . . . . . . . . . . . 50
Holding Company Support of Subsidiary Banks . . . . . . . . . . 50
Liability of Commonly Controlled Depository Institutions . . . 51
Regulation of CTC, BWM and Flagship . . . . . . . . . . . . . . . . . 51
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Examinations and Supervision . . . . . . . . . . . . . . . . . 51
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Affiliate Transactions . . . . . . . . . . . . . . . . . . . . 51
Deposit Insurance . . . . . . . . . . . . . . . . . . . . . . . 51
Federal Reserve Board Policies . . . . . . . . . . . . . . . . 52
Consumer Protection Regulation; Bank Secrecy Act . . . . . . . 52
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . 52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Leverage Capital Ratio . . . . . . . . . . . . . . . . . . . . 52
Risk-Based Capital Requirements . . . . . . . . . . . . . . . . 52
Recent Banking Legislation . . . . . . . . . . . . . . . . . . . . . 53
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Prompt Corrective Action . . . . . . . . . . . . . . . . . . . 54
Risk-Based Deposit Insurance Assessments . . . . . . . . . . . 54
Brokered Deposits and Pass-Through Deposit
Insurance Limitations . . . . . . . . . . . . . . . . . . . . 56
Conservatorship and Receivership Amendments . . . . . . . . . . 56
Real Estate Lending Standards . . . . . . . . . . . . . . . . . 56
Standards for Safety and Soundness . . . . . . . . . . . . . . 56
Activities and Investments of Insured State Banks . . . . . . . 56
Consumer Protection Provisions . . . . . . . . . . . . . . . . 57
Depositor Priority Statute . . . . . . . . . . . . . . . . . . 57
Interstate Banking and Branching . . . . . . . . . . . . . . . 57
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
VALIDITY OF CC COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . 59
PRO FORMA FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . 60
APPENDICES
Appendix A - Agreement and Plan of Reorganization
(with Exhibits, including Plan of Merger) . . . . . . . A-1
Appendix B - Opinion of Alex Sheshunoff & Co.
Investment Banking . . . . . . . . . . . . . . . . . . .B-1
Appendix C - Massachusetts Business Corporation Law,
Chapter 156B, Sections 85 through 98 . . . . . . . . . C-1
Appendix D - Stock Option Agreement . . . . . . . . . . . . . . . . D-1
Appendix E - Annual Report of Flagship for the Year
Ended December 31, 1994 . . . . . . . . . . . . . . . E-1
Appendix F - Flagship Business Description and
Management's Discussion and Analysis of Operations
for the Year Ended December 31, 1994 . . . . . . . . . F-1
Appendix G - Quarterly Report of Flagship for
the Nine Months Ended September 30, 1995 . . . . . . . G-1
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Proxy
Statement and Prospectus in connection with the Merger and offering covered by
this Proxy Statement and Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by CC or
Flagship. This Proxy Statement and Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the CC Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Proxy Statement and Prospectus
nor any issuance of securities made hereunder shall, under any circumstances,
create an implication that there has not been any change in the facts set
forth in this Proxy Statement and Prospectus or in the affairs of CC or
Flagship since the date hereof.
<PAGE>
AVAILABLE INFORMATION
CC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the Commission's office at
450 Fifth Street, N.W., Washington, D.C. 20549 and the Regional Offices of the
Commission in New York - 7 World Trade Center, Suite 1300, New York, New York,
10048; and Chicago - Citicorp Center, 500 West Madison Avenue, Suite 1400,
Chicago, Illinois, 60611-2511. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. CC Common Stock is listed on
NASDAQ-NMS and such reports, proxy statements and other information concerning
CC may be inspected at the offices of the National Association of Securities
Dealers, 33 Whitehall, New York, NY 10004.
CC has also filed a registration statement on Form S-4 (together with all
amendments and exhibits thereto, including documents and information
incorporated by reference, the "Registration Statement") with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), relating
to the shares of CC Common Stock to be issued in connection with the Merger.
This Proxy Statement and Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
Statements contained in this Proxy Statement and Prospectus as to the
contents of any document are not necessarily complete, and in each instance
reference is made to such document itself, each such statement being qualified
in all respects by such reference. The Registration Statement (and exhibits
thereto) may be inspected at the Office of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained
from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
CC.
This Proxy Statement and Prospectus incorporates documents by reference,
certain of which are not presented herein or delivered herewith. These
documents (excluding exhibits unless specifically incorporated therein) are
available without charge upon written or oral request to F. Sheldon Prentice,
Esq., Secretary, CC, Two Burlington Square, Burlington, Vermont, 05401,
telephone number (802) 660-1410. In order to ensure timely delivery of the
documents, any request should be made by January 19, 1996.
Incorporated by reference into this Proxy Statement and Prospectus are
the following documents and information heretofore filed with the Commission
by CC. Except as noted below, these documents are not presented herein or
delivered herewith:
(i) Annual Report on Form 10-K for the year ended December 31, 1994;
(ii) Quarterly Reports on Form 10-Q for each of the quarters ended
March 31, 1995, June 30, 1995, and September 30, 1995; and
(iii) Current Report on Form 8-K filed September 22, 1995.
All documents subsequently filed by CC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the date of the Special Meeting
shall be deemed to be incorporated by reference into this Proxy Statement and
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Proxy Statement and Prospectus to the extent that a statement contained
herein, or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement and Prospectus.
All information in this Proxy Statement and Prospectus regarding
Flagship and its affiliates has been furnished by Flagship, and all
information herein regarding CC and its affiliates has been furnished by CC.
No person is authorized to give any information or to make any representation
not contained in this Proxy Statement and Prospectus in connection with the
solicitation of proxies and offering made hereby and, if given or made, such
information or representation should not be relied upon as having been
authorized by CC or Flagship. This Proxy Statement and Prospectus does not
constitute the solicitation of a proxy, or an offer to sell or a solicitation
of any offer to purchase any securities, in any jurisdiction in which
such solicitation of an offer to purchase any securities may not be lawfully
made. This Proxy and Prospectus does not cover any resales of the CC Common
Stock offered hereby to be received by stockholders of Flagship deemed to be
"affiliates" of Flagship or CC upon the consummation of the Merger. No person
is authorized to make use of this Proxy Statement and Prospectus in
connection with such resales. Neither the delivery of this Proxy Statement
and Prospectus nor any distribution of securities made hereunder shall imply
that there has been no change in the information set forth herein or in the
affairs of CC or Flagship since the date hereof.
SUMMARY
The following summary is not intended to be complete and is qualified in
all respects by the more detailed information in this Proxy Statement and
Prospectus, the appendices hereto and the documents incorporated herein by
reference.
The Companies
CC. CC is a two bank holding company, the principal assets of which are
Chittenden Trust Company ("CTC"), with 40 banking locations in Vermont and Bank
of Western Massachusetts ("BWM"), with 4 banking locations in the Springfield,
Massachusetts area. At September 30, 1995, CC and its consolidated
subsidiaries had consolidated assets of approximately $1,522,808,000,
consolidated deposits of $1,305,416,000, and stockholders' equity of
$131,000,000. CAB, also a wholly-owned subsidiary of CC, will be a newly-formed,
Massachusetts-chartered trust company. The sole purpose of CAB is to
facilitate the Merger and, after the consummation of the Merger of Flagship with
and into CAB ("Effective Time"), CAB will be the surviving entity, but CAB
will operate under the name of "Flagship Bank and Trust Company."
CC, CTC and BWM are subject to federal, state and local laws
applicable to trust companies, banks and bank holding companies and to the
regulations of the Board of Governors of the Federal Reserve System, the
State of Vermont, the Commonwealth of Massachusetts and the Federal Deposit
Insurance Corporation.
For further information concerning CC, see "BUSINESS OF CC" herein and
the CC documents incorporated by reference herein as described under
"Incorporation of Certain Documents by Reference." The principal executive
offices of CC are located at Two Burlington Square, Burlington, Vermont 05401
(telephone number (802) 658-4000).
Flagship. Flagship is an FDIC-insured state-chartered Massachusetts
trust company which has five branch locations, four in Worcester and one in
Leominster, Massachusetts. Flagship is principally engaged in the business
of attracting deposits from its banking offices and investing these funds
primarily in consumer and commercial loans. At September 30, 1995,
Flagship had consolidated assets of approximately $265,100,000, consolidated
deposits of $212,600,000, and stockholders' equity of $17,877,000.
The principal executive offices of Flagship are located at 306 Main
Street, Worcester, Massachusetts 01613. Flagship's telephone number is (508)
799-4321.
Flagship is subject to federal, state and local laws applicable to
Massachusetts trust companies and banks and to the regulations of the Federal
Deposit Insurance Corporation and the Massachusetts Commissioner of Banks.
For further information concerning Flagship, see "--Selected Financial
Data of Flagship" and "BUSINESS OF FLAGSHIP."
The Merger
The Merger Agreement provides for the merger of Flagship with and into
CAB, a wholly-owned subsidiary of CC, with CAB to be the surviving corporation
doing business as "Flagship Bank and Trust Company." Upon consummation of the
Merger, each outstanding share of Flagship Common Stock, other than shares
held by Flagship as treasury stock and shares as to which dissenters'
rights have been perfected, will be converted into the right to receive 1.2
shares of CC Common Stock.
Flagship may terminate the Merger Agreement if the market value of the
CC Common Stock (the average closing price of CC Common Stock on the NASDAQ-
NMS for twenty (20) consecutive trading days ending on the fifth trading day
prior to the date of receipt of the last required regulatory approval regarding
the Merger (the "Determination Price")) falls below $23.25 per share.
Flagship stockholders will receive a cash payment in lieu of the
issuance of fractional shares of CC Common Stock equal to the product obtained
by multiplying the fraction of a share by the Determination Price.
At the Effective Date and in consideration of the Merger, each share of
Flagship Common Stock issued and outstanding immediately prior to the
Effective Date shall be cancelled in return for rights to receive 1.2 shares
of CC Common Stock.
Flagship stockholders will receive a cash payment in lieu of the issuance
of fractional shares of CC Common Stock equal to the product obtained by
multiplying the fraction of a share by the Determination Price.
At the Effective Date and in consideration of the Merger, each share of
Flagship Common Stock issued and outstanding immediately prior to the Effective
Date shall be cancelled in return for rights to receive 1.2 shares of CC Common
Stock.
Flagship's stockholders shall receive an aggregate of approximately
(Not Available) 1.3 Million shares of CC Common Stock and an appropriate amount
in cash to compensate for fractional share interests. The total consideration,
based upon a representative price of CC Common Stock at($Not Available) per
share, equals ($Not Available).
Based on the number of shares of CC Common Stock outstanding at September
30, 1995, Flagship stockholders would hold, in the aggregate, approximately
13.64% of the CC Common Stock outstanding immediately after consummation of the
Merger. All Flagship stockholders currently are minority stockholders of
Flagship and, following the Merger, such stockholders will be minority
stockholders of CC. However, Flagship's stockholders' percentage interest in CC
will be smaller than their prior percentage interest in Flagship, and
accordingly, their ability to affect the business direction of CC through the
right to vote will be reduced as a CC stockholder. The monetary consideration
("Purchase Price") was negotiated by the Chief Executive Officer of CC and a
negotiating team comprised of the Chief Executive Officer and three directors of
Flagship and approved by each corporation's Board of Directors.
Effective Time of the Merger
The Merger will become effective upon the filing of Articles of Merger
relating thereto with the Secretary of State of the Commonwealth of
Massachusetts. The Merger cannot become effective until the Flagship
stockholders have approved the Merger Agreement and all required regulatory
approvals have been received and all other conditions precedent have been
satisfied.
Special Meeting of Flagship Stockholders
The Special Meeting of Flagship stockholders to consider and vote upon the
Merger Agreement will be held at Mechanics Hall, 321 Main Street, Worcester,
Massachusetts on January 26, 1996 at 10:00 a.m. local time. Only holders of
record of Flagship Common Stock at the close of business on December 8, 1995
(the "Flagship Record Date"), will be entitled to notice of and to vote at the
Flagship Special Meeting. At the close of business on the Flagship Record Date,
there were outstanding and entitled to vote 1,xxx,xxx shares of Flagship Common
Stock. Each share of Flagship Common Stock is entitled to one vote on the
Merger Agreement.
Votes Required to Approve the Merger
Approval of the Merger Agreement by Flagship stockholders requires the
affirmative vote of at least two-thirds of all shares of Flagship Common Stock
outstanding and entitled to vote at the Special Meeting.
It is expected that all of the shares of Flagship Common Stock beneficially
owned by directors, executive officers and principal stockholders (defined
herein as holders of 5% or more of the outstanding shares of Flagship Common
Stock ("Principal Stockholders")) of Flagship and their affiliates at the
Flagship Record Date for the Flagship Special Meeting (% of the total number
of outstanding shares of Flagship Common Stock at such date) will be voted for
approval and adoption of the Merger Agreement. As of the Flagship Record Date,
neither CC nor its directors and executive officers and their affiliates
beneficially owned any shares of Flagship Common Stock. See "THE SPECIAL
MEETING - Quorum and Voting for the Special Meeting" and "THE MERGER - Rights of
Flagship Dissenting Stockholders."
Recommendation of the Board of Directors of Flagship
THE BOARD OF DIRECTORS OF FLAGSHIP RECOMMENDS THAT FLAGSHIP STOCKHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
The Board of Directors of Flagship believes that the Merger Agreement,
including the Purchase Price, and each of the transactions contemplated therein
are in the best interests of Flagship and are fair to and in the best interests
of its stockholders. The Flagship Board unanimously recommends that the
stockholders of Flagship vote for approval and adoption of the Merger Agreement.
In reaching its determination, the Board of Directors of Flagship consulted
with management of Flagship and with Flagship's business, financial and legal
advisors, and considered a number of factors, including, but not limited to, the
following: Flagship's business, results of operations, prospects and financial
condition; the cost to Flagship of continuing to operate independently as a
relatively small banking institution in a consolidating market, the advantages
of a business combination with CC, and the possible values to Flagship's shares
by remaining independent; and oral presentations by KPMG Peat Marwick LLP
("KPMG"), as business advisor to Flagship; the oral presentation of
Flagship's financial advisor, Alex Sheshunoff & Co. Investment Banking
("Sheshunoff"), which was confirmed in writing, that as of September 19, 1995,
the terms set forth in the Merger Agreement were fair to Flagship stockholders
from a financial point of view; certain information concerning CC's financial
condition; results of operations and prospects; recent market prices for shares
of Flagship Common Stock and CC Common Stock and the Purchase Price, and the
possible impact of the Merger on Flagship's business, prospects, employees,
customers and community. See "THE MERGER - Reasons of Flagship for the Merger."
Opinion of Sheshunoff
Sheshunoff, Flagship's financial advisor in connection with the Merger, has
delivered its written opinion to the Board of Directors of Flagship to the
effect that, as of September 19, 1995 and as of the date of this Proxy Statement
and Prospectus, the transaction proposed in the Merger Agreement is fair to
Flagship stockholders from a financial point of view. The full text of the
opinion of Sheshunoff, which sets forth assumptions made, matters considered and
the limits on the review undertaken in connection with such opinion, is attached
hereto as Appendix B. Flagship stockholders are encouraged to read this opinion
in its entirety. Sheshunoff's opinion is directed only to the Purchase Price
and does not constitute a recommendation to any Flagship stockholder as to how
such stockholder should vote at the Flagship Special Meeting. See "THE MERGER -
Background of the Merger, - Reasons of Flagship for the Merger, and - Opinion of
Financial Advisor to Flagship."
Corporate Transactions
Pursuant to the Merger Agreement, Flagship has agreed that neither it, nor
any of its directors, officers, employees, advisors, agents or affiliates shall
solicit or encourage inquiries or proposals with respect to, or, except to the
extent required for the discharge by the Flagship Board of Directors of their
fiduciary duties as determined upon written advice of counsel, furnish any
information or recommend or endorse any takeover proposal relating to or
participate in any negotiations or discussions concerning any acquisition or
purchase of all or a substantial portion of the assets or of a substantial
equity interest in, Flagship or any merger, consolidation or business
combination other than as contemplated by the Merger Agreement. See "THE MERGER
- - Corporate Transactions."
Regulatory Approvals Required
The Merger is subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation ("FDIC"), the Massachusetts Commissioner of Banks, and the
Massachusetts Board of Bank Incorporation (the "Massachusetts Board"). CC has
filed applications seeking these required regulatory approvals. As of the date
of this Proxy Statement and Prospectus, none of these approvals has been
received. There can be no assurance that such approvals will be received, or as
to the timing of such approvals or as to the conditions on which they will be
given if they are received. However, neither CC nor Flagship is aware of any
reason as to why the applications would not be approved.
Conditions, Waiver and Amendment, and Termination
The respective obligations of CC and Flagship to consummate the Merger are
subject to the satisfaction of a number of conditions, including the receipt of
all required regulatory approvals, and the approval of the Merger by the
requisite vote of Flagship's stockholders, and certain other conditions
customary in transactions of this kind. See "THE MERGER - Conditions to
Consummation of the Merger."
The Merger Agreement may be amended by mutual agreement of Flagship and CC
at any time prior to the Effective Time of the Merger, provided, however, that
after any approval of the Merger Agreement by the stockholders of Flagship, any
amendment of the Merger Agreement, or waiver of any condition contained therein,
which reduces the amount or changes the form of consideration to be delivered to
Flagship stockholders requires the further approval of such stockholders. See
"THE MERGER - Waiver and Amendment."
The Merger Agreement may be terminated at any time before the Merger
becomes effective under special circumstances specified in the Merger Agreement,
including, without limitation, (i) by mutual consent of CC and Flagship; (ii) by
CC or Flagship if the Effective Time shall not have occurred on or prior to June
30, 1996; (iii) by Flagship or CC if the Merger Agreement and the transactions
contemplated thereby are not approved by the legally required vote of the
stockholders of Flagship; (iv) by CC, if there shall have been any material
breach of any representation, warranty, covenant or agreement of Flagship under
the Merger Agreement; or (v) by Flagship, if there shall have been any material
breach of any representation, warranty, covenant or agreement of CC under the
Merger Agreement. Flagship may terminate the Merger Agreement, after approval
of the Merger by the Flagship stockholders, if the Determination Price of the CC
Common Stock falls below $23.25 per share, as adjusted for any stock split or
stock dividend. See "THE MERGER - Terms of the Merger; Termination."
Interests of Certain Persons in the Merger
Certain members of Flagship's management and Board of Directors have
certain interests in the Merger in addition to their interests as stockholders
of Flagship. These include provisions in the Merger Agreement relating to CC's
agreement to continue the rights of Flagship officers and directors to be
indemnified against certain liabilities arising before and including
consummation of the Merger to the extent such persons would be entitled to
indemnification under Massachusetts law and CC's charter and by-laws. CC has
also undertaken to use its best efforts to cause continuation of the officer and
director liability insurance policy maintained by Flagship for a period of six
years from the Effective Time of the Merger under substantially the same
conditions and terms as currently exist. In addition, an effect of the Merger
will be the continuation of the current severance benefits of certain executive
officers of Flagship in the event that their employment is terminated after the
Merger. Flagship will pay benefits under Mr. McGowan's supplemental retirement
plan at the Effective Time of the Merger. Additionally, CC has entered into an
agreement with the President and Chief Executive Officer of Flagship, Donald J.
McGowan, as to his continued employment after the Merger. This agreement
provides for continued employment of Mr. McGowan after the Merger at his current
salary level. This agreement also contains provisions, effective after the
Merger, entitling Mr. McGowan to certain severance and other benefits if his
employment terminates under certain circumstances after a "change in control" of
CC. Certain stock options held by Mr. McGowan and Flagship officers will
also become vested upon the consummation of the Merger and resultant "change in
control." See "THE MERGER - Interest of Certain Persons in the Merger."
Business Pending the Merger
The Merger Agreement provides that, pending completion of the Merger,
Flagship will limit the manner in which it operates, including conducting its
business only in the ordinary, regular and usual course consistent with past
practice; using its best efforts to keep intact its business organization; and
generally maintaining the status quo of its business and operations. CC has
agreed not to enter into any undertaking that might have a short term material
adverse effect on the price of CC's common stock without first obtaining
Flagship's consent, which consent shall not be unreasonably withheld. See "THE
MERGER - Business Pending the Merger."
Stock Option Agreement
At the same time CC and Flagship entered into the Merger Agreement, and as
consideration therefor, CC and Flagship entered into a stock option agreement
(the "Stock Option Agreement") whereby Flagship granted CC an option (the
"Option") to purchase up to 359,939 fully-paid and nonassessable shares of
Flagship Common Stock (24.9%) at a price of $20.00 per share. The Option is
exercisable on the occurrence of certain events which create the potential for a
third party to acquire control of Flagship. To the best knowledge of CC and
Flagship, no such event as would permit exercise of the Option has occurred to
date.
The Stock Option Agreement and Flagship's agreement that neither it nor its
directors, officers, employees or their affiliates will encourage or hold
discussions with potential acquirors (with an exception for actions required by
fiduciary duty), may have the effect of discouraging persons who might now or
prior to the Effective Date be interested in acquiring all or a significant
portion of shares of Flagship Common Stock from considering such an acquisition,
even if such persons were to pay a higher price per share than under the Merger
Agreement. See "THE MERGER - Stock Option Agreement and Appendix D."
Certain Federal Income Tax Consequences
It is intended that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) and (a)(2)(D) of the Internal Revenue
Code (the "Code"), and, that holders of Flagship Common Stock who receive solely
CC Common Stock in the Merger will not recognize gain or loss for federal income
tax purposes as a result of the Merger. The foregoing tax treatment will not
apply to Flagship stockholders' receipt of cash in lieu of fractional shares of
CC Common Stock or pursuant to dissenters' rights of appraisal. A Flagship
stockholder who receives CC Common Stock and cash in lieu of a fractional share
will be treated as having received capital gain in the amount of the cash
received provided that his/her Flagship shares are held as capital assets and
will have an adjusted basis in such stock equal to his/her adjusted basis in the
Flagship Common Stock surrendered minus (i) the amount of the cash received,
plus (ii) the amount of any gain recognized on the exchange. The holding period
of the shares of CC Common Stock received in the Merger will include the holding
period of the shares of Flagship Common Stock surrendered in exchange therefor
provided that the latter were held as capital assets.
It is recommended that each Flagship stockholder consult his or her own tax
advisor concerning the federal income tax consequences of the Merger, as well as
any applicable state, local or foreign tax consequences, based upon such
stockholders' own particular facts and circumstances. Consummation of the
Merger is conditioned upon, among other things, the receipt by each of CC and
Flagship of an opinion of counsel dated as of the Effective Time, substantially
to the foregoing effect. See "THE MERGER - Certain Federal Income Tax
Consequences" at page 41.
Resales of CC Common Stock
The shares of CC Common Stock issuable to stockholders of Flagship upon
consummation of the Merger may be traded freely by those stockholders who are
not "affiliates" of CC or Flagship. However, stockholders deemed to be
"affiliates" of CC or Flagship will be restricted with regard to the sale of CC
Common Stock received in the Merger under the Securities Act Rules and for
purposes of qualifying the Merger for "pooling of interests" accounting
treatment. Flagship has agreed in the Merger Agreement to use its best efforts
to cause "affiliates" of Flagship to deliver a written agreement intended to
ensure compliance with the Securities Act and preserve "pooling of interests"
accounting treatment. At the Effective Time, each option granted by Flagship to
purchase shares of Flagship Common Stock which is outstanding and unexercised
immediately prior thereto shall be converted automatically into an option to
purchase shares of CC Common Stock in an amount and at an exercise price
determined in the Merger Agreement and indicated later in this Proxy Statement
and Prospectus. CC's Common Stock covered by the new CC options will be
registered for resale by the holders of such options from the Effective Time.
See "THE MERGER - Resale of CC Common Stock received by Flagship Stockholders."
Accounting Treatment
It is intended that the Merger will be accounted for as a "pooling of
interests" for financial statement purposes, that such accounting treatment is
in accordance with generally accepted accounting principles and in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations," as
amended ("APB No. 16") and the consummation of the Merger is conditioned upon
the receipt by CC and Flagship of an opinion by Arthur Andersen LLP that the
Merger qualifies for such "pooling of interests" treatment. Under this method
of accounting, the recorded amount of assets and liabilities of CC and Flagship
will be combined at the Effective Time and carried forward at their previously
recorded amounts and the stockholders' equity accounts of CC and Flagship will
be combined on CC's consolidated balance sheet. Financial statements of CC
issued after the Effective Time will be restated retroactively to reflect the
consolidated operations of CC and Flagship as if CC and Flagship have always
been combined.
The unaudited pro forma condensed combined financial information contained
in this Proxy Statement and Prospectus has been prepared using the pooling of
interests accounting method to account for the Merger. See "SELECTED HISTORICAL
AND PRO FORMA FINANCIAL DATA", "THE MERGER - ACCOUNTING TREATMENT" and "PRO
FORMA FINANCIAL DATA."
Dissenters' Rights of Appraisal
Under Massachusetts law, holders of Flagship Common Stock who do not vote
to approve the Merger Agreement may elect to have the "fair value" of their
shares (determined in accordance with Massachusetts law) judicially appraised
and paid to them, if the Merger is consummated and if they strictly comply with
the provisions of Massachusetts Business Corporation Law ("MBCL") Annotated Ch.
156B Sections 85 through 98, inclusive, a copy of which is attached hereto as
Appendix D. Any deviation from such requirements may result in the loss of
dissenters' rights. See "THE MERGER - Rights of Flagship Dissenting
Stockholders" and Appendix D. Cash received on the exercise of appraisal rights
will not be subject to the tax treatment afforded under Section 368(a) and
related provisions of the Code. See "THE MERGER - Certain Federal Income Tax
Consequences."
Markets and Prices
CC Common Stock is listed on NASDAQ-NMS. There is no public market for
Flagship Common Stock. The following table sets forth the closing price per
share of CC Common Stock as reported on NASDAQ-NMS and the "equivalent per share
price" (as defined below) of Flagship Common Stock, each as of (i) September 19,
1995, the day CC and Flagship announced plans for the Merger after the close of
market trading, and (ii) December 20, 1995. The "equivalent per share price" of
the Flagship Common Stock as of such dates is calculated by multiplying the last
reported sales price of CC Common Stock (set forth below under the heading
"Historical CC Common Stock") by 1.2 (the Per Share Consideration under the
Merger Agreement).
Historical
Historical Historical Flagship Equivalent
CC Common Stock Flagship Common Stock Per Share Price
--------------------------------------------------------------
September 19, 1995 $26.50 $16.47 (1) $31.80
December 20, 1995 $2x.xx $16.xx (2) $3x.xx
______________________
(1) Flagship Common Stock is not traded on any established market. At
September 30, 1995, the book value per share of Flagship's Common Stock was
$16.47 (unaudited).
(2) At December 20, 1995, the book value, unaudited, per share of Flagship's
Common Stock was $16.xx.
No assurance can be given as to what the market price of CC Common Stock
will be if and when the Merger is consummated or when such shares are actually
issued in the Merger.
Certain Differences in Rights of Stockholders
The rights of Flagship stockholders are currently governed by Massachusetts
corporate law, Massachusetts trust company law and Flagship's Articles of
Organization and Bylaws. On completion of the Merger, Flagship stockholders
will become stockholders of CC, and their rights will be governed by the Vermont
Business Corporation Law and CC's Articles of Incorporation and Bylaws. See
"THE MERGER - Certain Differences in Rights of Stockholders" for a discussion of
the material differences in the rights of the holders of CC Common Stock and
Flagship Common Stock.
Management and Operations After the Merger
At the Effective Time of the Merger, the separate corporate existence of
Flagship will cease to exist and CAB will be the surviving corporation but will
do business under the name of "Flagship Bank and Trust Company." The newly-
constituted "Flagship" will remain a direct subsidiary of CC. It is anticipated
that the members of management of Flagship immediately after the Effective Time
will continue largely as before. The Merger Agreement provides that CC intends
to keep Flagship's Board separate from CC's and to name up to two additional
Flagship directors, who may be employees of CC or an affiliate. The Merger
Agreement contains no other agreement as to the makeup of Flagship's Board of
Directors after the Merger. See "THE MERGER - Interests of Certain Persons in
the Merger; Management and Operations After the Merger."
SELECTED HISTORICAL AND SUMMARY PRO FORMA FINANCIAL DATA
The following tables set forth certain selected historical financial
information for CC and Flagship, and certain unaudited pro forma financial
information giving effect to the Merger as of January 1, 1992 using the "pooling
of interests" method of accounting. For a description of the "pooling of
interests" method of accounting with respect to the Merger and the related
effects on the historical financial statements of Flagship, see "THE MERGER -
Accounting Treatment." Summary pro forma information is presented as of and for
the nine months ended September 30, 1995 and for the year ended December 31,
1994. The tables also present unaudited pro forma financial information giving
effect to the acquisition of BWM as of January 1, 1994 (for the approximate two
and one half months ended March 17, 1995 and for the year ended December 31,
1994) using the purchase method of accounting. The BWM transaction was
consummated on March 17, 1995; therefore, the BWM results of operations after
that date are included in the CC historical income statement for the nine months
ended September 30, 1995. The historical income statement data for CC and
Flagship included in the selected financial data for the five years ended
December 31, 1994 are derived from audited consolidated financial statements of
CC and Flagship. The unaudited historical financial data for the nine months
ended September 30, 1995 have been derived from amounts reported on the
Quarterly Report on Form 10-Q by CC and from unaudited consolidated financial
statements of Flagship attached as Appendix G. This information should be read
in conjunction with the December 31, 1994 consolidated financial statements of
each of CC and Flagship, and the related notes thereto, delivered herewith
and/or incorporated herein by reference, and in conjunction with the unaudited
pro forma financial information, including the notes thereto, appearing
elsewhere in this Proxy Statement and Prospectus. See "INCORPORATION OF
DOCUMENTS BY REFERENCE", "PRO FORMA FINANCIAL DATA."
The pro forma financial information included are for information purposes
only and are not necessarily indicative of the results of the future operations
of the merged entity or the actual results that would have been achieved had the
Merger been consummated prior to the periods indicated.
HISTORICAL SELECTED FINANCIAL DATA
CHITTENDEN CORPORATION
Nine
Months
Ended
Sept. 30, Years Ended December 31,
-------- --------------------------------------
1995 1994 1993 1992 1991 1990
(In thousands, except share
amounts)
Statements of Operations
Interest Income 84847 84930 79803 86984 100061 106182
Interest Expense 36760 31025 29574 41300 57972 63410
Net Interest income 48087 53905 50229 45684 42089 42772
Provision for possible loan
losses 2750 4300 6600 7513 8843 12189
Net interest income after
provision for possible loan
losses 45337 49605 43629 38171 33246 30583
Noninterest income 21773 23525 24308 21073 18442 16529
Noninterest expense 44208 49867 51097 49582 45847 50378
Income (loss) before provision
(benefit) for income taxes 22902 23263 16840 9662 5841 -3266
Provision (benefit) for income
taxes 7414 7726 5243 2444 1234 -2219
Income (loss) before cumulative
effect of change in accounting
principle 15488 15537 11597 7218 4607 -1047
Cumulative effect of change in
accounting principle - - -575 - - -
Net income (loss) 15488 15537 11022 7218 4607 -1047
Balance sheets-period end:
Total assets 1522808 1213908 1231003 1192068 1204949 1136988
Long-term debt - - - 59 2473 2473
Balance sheets-average daily
balances:
Total assets 1410535 1200785 1172809 1171060 1115744 1094984
Loans, net of allowance 982777 833205 852958 844126 828433 847440
Investment securities and
interest-bearing cash
equivalents 312472 269050 220927 222428 191244 147353
Total deposits 1275596 1055604 1030839 1021827 992017 959297
Long-term debt - - 7 2034 2473 6368
Total stockholders' equity 117603 100635 92813 83520 74476 74338
Per common share:
Net income (loss) 1.87 1.97 1.42 0.94 0.59 -0.14
Cash dividends declared 0.40 0.37 0.16 0.10 - 0.23
Book value 15.87 13.30 12.58 11.23 10.23 9.27
Weighted average common and
common equivalent shares
outstanding 8263179 7879826 7759357 7743227 7734047 7741317
HISTORICAL SELECTED FINANCIAL DATA
CHITTENDEN CORPORATION (Continued)
Nine
Months
Ended
Sept. 30, Years Ended December 31,
------- -----------------------------------
1995 1994 1993 1992 1991 1990
Selected financial percentages:
Return on average total assets 1.47% 1.29% 0.94% 0.62% 0.41% (0.10)%
Return on average common
stockholders' equity 17.61 15.44 11.88 8.64 6.19 (1.41)
Interest rate spread 4.25 4.33 4.21 3.79 3.41 3.53
Net yield on earning assets 5.00 4.92 4.69 4.35 4.22 4.44
Net charge-offs as a percent
of average loans 0.14 0.48 0.47 0.64 0.89 1.44
Nonperforming asset ratio(1) 1.38 1.08 1.85 2.79 3.75 3.42
Allowance for possible loan
losses as a percent of
period-end loans 2.34 2.19 2.22 1.87 1.73 1.56
Period-end leverage capital
ratio 8.14 8.41 8.13 7.30 6.86 NA
Period-end primary capital
ratio NA NA NA NA NA 7.36
Risk-based capital ratios:
Tier 1 11.06 11.46 11.05 9.64 8.53 7.88
Total 12.43 12.82 12.41 10.95 10.04 9.36
Average stockholders' equity
to average assets 8.34 8.38 7.91 7.13 6.68 6.79
Common stock dividend payout
ratio(2) 20.89 18.27 11.28 11.44 NA NA
____________________
(1) The sum of nonperforming assets (nonaccrual loans, restructured
loans, and other real estate owned) divided by the sum of
total loans and other real estate owned.
(2) Common stock cash dividends declared divided by net income.
HISTORICAL SELECTED FINANCIAL DATA
FLAGSHIP BANK AND TRUST COMPANY
Nine
Months
Ended
Sept. 30, Years Ended December 31,
-------- --------------------------------------
1995 1994 1993 1992 1991 1990
(In thousands, except share
amounts)
Statements of Operations
Interest income 14963 16369 14086 14893 15199 13644
Interest expense 4973 4936 4821 6121 8744 8923
Net Interest income 9990 11433 9265 8772 6455 4721
Provision for possible loan
losses 600 1200 1535 3583 2086 3332
Net interest income after
provision for possible loan
losses 9390 10233 7730 5189 4369 1389
Noninterest income 839 1583 2268 1913 983 126
Noninterest expense 7052 7818 7426 5888 5209 3840
Income (loss) before provision
for income taxes 3177 3998 2572 1214 143 -2325
Provision for income taxes 1177 1498 667 13 45 -
Income (loss) before
extraordinary item 2000 2500 1905 1201 98 -2325
Extraordinary item - - - - 24 -
Net income (loss) 2000 2500 1905 1201 122 -2325
Balance sheets-period end:
Total assets 265099 246138 235289 205484 183916 164832
Long-term debt 1471 1430 4377 7325 1276 1227
Balance sheets-average daily
balances:
Total assets 251651 236865 207021 190129 173052 141952
Loans, net of allowance 146174 127605 122069 131957 120140 107390
Investment securities and
interest-bearing cash
equivalents 88079 99681 70487 45270 42067 24712
Total deposits 202990 193990 169939 166708 154560 125980
Total stockholders' equity 16466 14807 12919 11488 11058 13454
Per common share:
Net income (loss) 1.74 2.31 1.76 1.09 0.11 -2.09
Cash dividends declared 0.305 0.275 0.26 - - -
Book value 16.47 13.82 13.93 11.41 10.10 9.94
Weighted average common and
common equivalent shares
outstanding 1152640 1082100 1076900 1099568 1109144 1113144
HISTORICAL SELECTED FINANCIAL DATA
FLAGSHIP BANK AND TRUST COMPANY (Continued)
Nine
Months
Ended
Sept. 30, Years Ended December 31,
--------- -----------------------------------
1995 1994 1993 1992 1991 1990
Selected financial percentages:
Return on average total
assets(1) 1.06% 1.06% 0.92% 0.63% 0.07% (1.64)%
Return on average common
stockholders' equity(1) 18.41 16.88 14.75 10.46 1.11 (17.28)
Interest rate spread 4.98 4.47 4.30 4.36 3.67 3.25
Net yield on earning assets 5.64 4.99 4.75 4.89 3.87 3.61
Net charge-offs as a percent
of average loans 0.54 0.68 1.44 2.66 1.98 0.77
Nonperforming asset ratio(2) 0.70 0.84 1.90 4.05 4.38 5.90
Allowance for possible loan
losses as a percent of
period-end loans 1.90 2.15 2.17 2.22 2.27 2.89
Period-end leverage capital
ratio 7.13 7.03 6.82 6.19 5.98 6.41
Period-end primary capital
ratio NA NA NA NA NA NA
Risk-based capital ratios:
Tier 1 10.50 10.91 9.98 8.92 8.31 8.73
Total 11.75 12.16 11.23 10.42 9.81 10.13
Average stockholders' equity
to average assets 6.54 6.25 6.24 6.04 6.39 9.48
Common stock dividend payout
ratio 16.56 11.91 14.17 NA NA NA
____________________
(1) Income used in the calculation is net income (loss) applicable
to common stock.
(2) The sum of nonperforming assets (nonaccrual loans, restructured
loans, and other real estate owned) divided by the sum of total
loans and other real estate owned.
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
CC, FLAGSHIP AND BANK OF WESTERN MASSACHUSETTS
Nine Months Ended September 30, 1995
------------------------------------
Historical Historical
------------------------------------
PRO FORMA
CC-
FLAGSHIP PRO
CC FLAGSHIP SUBTOTAL BWM FORMA
(In thousands, except share amounts)
Consolidated Statements of Operations
Interest income 84847 14963 99810 3688 103524
Interest expense 36760 4973 41733 1549 42898
Net interest income 48087 9990 58077 2139 60626
Provision for possible loan losses 2750 600 3350 1200 4550
Net interest income after provision for
possible loan losses 45337 9390 54727 939 56076
Noninterest income 21773 839 22612 76 22688
Noninterest expense 44208 7052 51056 1730 52959
Income (loss) before income taxes 22902 3177 26283 -715 25805
Income tax expense (benefit) 7414 1177 8591 -243 8480
Net Income (loss) 15488 2000 17692 -472 17325
Per common share:
Net Income 1.87 1.83 1.76
Book Value 15.87 15.58 15.58
Weighted average common and common
equivalent shares outstanding 8263179 9646347 9864717
Consolidated Balance Sheet
Total assets 1522808 265099 1787907
Investment securities available for
sale 258991 48977 307968
Investment securities held for
investment 9747 35386 45133
Loans (net of unearned income and
allowance for possible loan losses) 1025254 157872 1183126
Deposits 1305416 212582 1517998
Stockholders' equity 130929 17877 148806
See Notes to Pro Forma Condensed Financial Statements describing adjustments
included in the Pro Forma amounts.
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
CC, FLAGSHIP AND BANK OF WESTERN MASSACHUSETTS
Year Ended December 31, 1994
------------------------------------
Historical Historical
------------------------------------
PRO FORMA
CC-
FLAGSHIP PRO
CC FLAGSHIP SUBTOTAL BWM FORMA
(In thousands, except share amounts)
Consolidated Statements of Operations
Interest income 84930 16369 101299 15411 117261
Interest expense 31025 4936 35961 5928 42575
Net interest income 53905 11433 65338 9483 74686
Provision for possible loan losses 4300 1200 5500 1410 6910
Net interest income after provision for
possible loan losses 49605 10233 59838 8073 67776
Noninterest income 23525 1583 25108 568 25676
Noninterest expense 49867 7818 57685 6235 65148
Income (loss) before income taxes 23263 3998 27261 2406 28304
Income tax expense (benefit) 7726 1498 9224 992 9833
Net Income (loss) 15537 2500 18037 1414 18471
Per common share:
Net Income 1.97 1.97 1.85
Book Value 13.30 13.04 13.68
Weighted average common and common
equivalent shares outstanding 7879826 9178346 9962752
Consolidated Balance Sheet
Total assets
Investment securities available for
sale
Investment securities held for
investment
Loans (net of unearned income and
allowance for possible loan losses)
Deposits
Stockholders' equity
See Notes to Pro Forma Condensed Financial Statements describing adjustments
included in the Pro Forma amounts.
THE SPECIAL MEETING
General
This Proxy Statement and Prospectus is being furnished to the holders of
Flagship Common Stock in connection with the solicitation of proxies for use at
the Special Meeting. The solicitation of proxies is being made by the Board of
Directors of Flagship.
The Special Meeting will be held for the purpose of considering and voting
on a proposal to approve the Merger Agreement, including the Plan of Merger, and
the transactions contemplated thereby, which is being submitted to the Flagship
stockholders.
Quorum and Voting for Flagship Special Meeting
Only stockholders of Flagship of record at the close of business on
December 8, 1995 (the "Flagship Record Date") are entitled to notice of and to
vote at the Special Meeting. As of the Flagship Record Date, there were issued
and outstanding (Not Available) shares of Flagship Common Stock entitled to
vote, of which (Not Available) shares, representing (%Not Available) of the
shares issued and outstanding, were beneficially owned by directors, officers
and Principal Stockholders of Flagship and their respective affiliates. It is
expected that each such director, officer, Principal Stockholder and affiliate
will vote the shares of Flagship Common Stock beneficially owned by him or her
in favor of approval of the Merger Agreement. See "--Beneficial Ownership of
Flagship Common Stock."
The presence in person or by proxy of a majority of the aggregate number of
shares of Flagship Common Stock issued and outstanding on the Flagship Record
Date is necessary to constitute a quorum for the transaction of business at the
Special Meeting.
Each Flagship stockholder is entitled to one vote, in person or by proxy,
for each share of Flagship Common Stock held of record in such stockholder's
name at the close of business on the Flagship Record Date.
Vote Required at Flagship Special Meeting
The approval and adoption of the Merger Agreement, including the Plan of
Merger, and the transactions contemplated thereby, requires the affirmative vote
of the holders of two-thirds of the shares outstanding and entitled to vote of
the Flagship Common Stock. As a consequence, abstentions and broker non-votes
will not be counted as votes "for" the Merger Agreement and, therefore, will
have the effect of votes against the Merger Agreement. Abstentions and "broker
non-votes" (proxy from a broker or other nominee indicating that such person has
not received instructions from the beneficial owner or other person entitled to
vote the shares which are the subject of the proxy on a particular matter with
respect to which the broker or other nominee does not have discretionary voting
power) are counted only for purposes of determining whether a quorum is present
at the meeting. Assuming that all shares beneficially owned by each director,
officer and Principal Stockholder of Flagship votes in favor of the Merger
Agreement, the affirmative vote of the holders of an additional (Not Available)
shares of Flagship Common Stock, representing (%Not Avaialble) of the total
number of shares issued and outstanding on the Flagship Record Date, will be
required to carry the proposal. If the requisite vote to carry the Merger
proposal is not obtained at the Special Meeting, either Flagship or CC has the
right to terminate the Merger Agreement. See "THE MERGER -- Termination."
The enclosed proxy is being solicited by the Board of Directors of
Flagship. Each proxy will be voted as directed; however, if no direction is
indicated, each properly executed proxy will be voted FOR the approval and
adoption of the Merger Agreement, including the Plan of Merger, and the
transactions contemplated thereby, and in such a manner as management's
proxyholders shall decide on such other matters, if any, as may properly come
before the Special Meeting. Any stockholder who returns a proxy before the
Special Meeting has the right to revoke it prior to its exercise by delivering
written notice to the Clerk of Flagship, or by returning a duly executed proxy
bearing a later date, or by attending the Special Meeting and voting in person.
However, if shares are held in street name, a stockholder will need additional
documentation to vote in person at the Special Meeting.
In addition to soliciting proxies by mail, proxies may also be solicited by
telephone or personal interview by employees of Flagship, who will not receive
additional compensation for such solicitation activity. Flagship reserves the
right to retain a proxy solicitor who would be paid a fee and reasonable out-of-
pocket expenses.
Beneficial Ownership of Flagship Common Stock
The following table sets forth further information with respect to
Directors, Principal Stockholders and the Directors and Officers of Flagship as
a group as of October 31, 1995. Information includes the total number of shares
of Common Stock known by Flagship to be beneficially owned by each such person
and the percentage of the outstanding shares of Common Stock each such person
beneficially owns. All shares attributable to Directors and Principal
Stockholders are owned of record and beneficially, and each such person
identified has sole voting and investment power with respect to such shares,
except as otherwise noted. As of October 31, 1995, there were 358 holders of
record of the Common Stock of Flagship.
Sole Voting and Shared Voting and Total Percent
Beneficial Owner(1) Investment Power Investment Power of Class
- --------------------------------------------------------------------------------
Directors Owning 5% or More
- --------------------------------------------------------------------------------
Robert S. Agnello
60 Summer Street
Manchester by the
Sea, MA 01944 31,940 29,460(2) 61,400 5.5%
Harold N. Cotton
11 Chiltern Hill Dr.,
Worcester, MA 01609 72,828(3) 36,080(4) 108,908 10.0%
Gene J. DeFeudis
63 Cherry Street
Northboro, MA 01532 73,360 -- 73,360 6.8%
Donald J. McGowan
2 Hickory Drive
Worcester, MA 01609 102,168(5) -- 102,168 8.8%
- --------------------------------------------------------------------------------
Other Directors
- --------------------------------------------------------------------------------
Michael P. Angelini 4,000 -- 4,000 0.4%
Robert P. Lombardi 2,000 -- 2,000 0.2%
Francis W. Madigan,Jr. 12,000 4,000 16,000 1.5%
Alan M. Stoll 400 4,400 4,800 0.4%
- --------------------------------------------------------------------------------
All Directors and
Officers as a
group (16 persons)(6) 354,770 73,940 428,710 35.7%
- --------------------------------------------------------------------------------
Non-Directors
- --------------------------------------------------------------------------------
Melvin S. Cutler 106,164(7) -- 106,164 9.8%
================================================================================
(1) The information as to Common Stock beneficially owned has been furnished by
each stockholder.
(2) Shares held by Mr. Agnello's wife of which Mr. Agnello disclaims beneficial
ownership.
(3) Includes 9,600 shares registered in the name of the Orseck Associates
partnership, in which Mr. Cotton is a partner, and 14,000 shares registered
in the name of LNB Cotton Associates, a partnership managed by Mr. Cotton
for the benefit of his 3 adult children, in which he holds no financial
interest.
(4) Includes 3,200 shares in the name of Betsy L. Cotton, 800 shares in the
name of Nancy E. Cotton, 1,240 shares in the name of Lauren A. Cotton, Mr.
Cotton's daughters, 6,600 shares in the name of Jonathan Orseck, 3,240 in
the name of Gary Orseck, Mr. Cotton's stepsons, 15,000 shares in the name
of Mr. Cotton's wife and 6,000 shares in the name of the Robert Orseck
Trust, with respect to all of which Mr. Cotton disclaims beneficial
ownership.
(5) Includes the 15,792 shares subject to the fully vested non-qualified stock
option granted to Mr. McGowan under the Plan pursuant to the terms of his
Employment Agreement with Flagship; and 12,720 shares subject to the
incentive stock option granted to Mr. McGowan (i) 4,000 of which will vest
upon year-end performance of Flagship and (ii) the remainder of which will
become fully vested upon consummation of the Merger whereby a "change in
control", for purposes of the Plan, will be effected; and the 43,280 shares
subject to the fully vested incentive stock options granted to Mr. McGowan
under the Plan.
(6) Includes 10,178 shares subject to incentive stock options granted to
certain officers of Flagship under the Plan; and 34,266 shares subject to
incentive stock options granted to certain officers that will become fully
vested upon consummation of the Merger whereby a "change in control" will
be effected. In addition, this figure includes those options granted to
Mr. McGowan for 71,792 shares as described in Note [5] above.
(7) Includes 57,500 shares registered under the name of Cutler Associates
Investments, Inc. of which Mr. Cutler is a principal.
Certain Transactions.
As part of the normal course of its business, Flagship has entered into and
intends to continue to enter into loan and credit transactions and deposit
relationships with its directors, principal officers and Principal Stockholders,
and their respective associates, on terms, including interest rates, collateral
and repayment terms, which are and will be substantially the same as those
prevailing at the time for comparable transactions entered into with individuals
not affiliated with Flagship. None of the transactions has involved more than
the normal risks of collectability or presented other unfavorable risks. During
the year ended December 31, 1994, the highest aggregate total of all loans and
other extensions of credit to, and forms of indebtedness of, Directors and
officers of Flagship, and associates thereof, was $4,159,000, and as of December
31, 1994, the aggregate total of such indebtedness was $4,159,000.
In addition, as part of the normal course of its business, (1) Flagship
leases its primary office space at 306 Main Street, Worcester, Massachusetts
pursuant to a Lease, dated as of January 1, 1988, between Flagship and Day
Building Joint Venture Trust, as amended by subsequent letter agreements.
Melvin S. Cutler, a former director and over 5% stockholder of the Company, is a
trustee of the Lessor, Day Building Joint Venture Trust; (2) Flagship contracts
for legal services with the law firm of Mirick, O'Connell, DeMallie and Lougee,
1700 Bank of Boston - Worcester Tower, Worcester, Massachusetts, of which
director Robert P. Lombardi is a partner; (3) Flagship contracts for legal
services with the law firm of Bowditch and Dewey, 311 Main Street, Worcester,
Massachusetts, of which director Michael P. Angelini is a managing partner; and
(4) Flagship is party to an Operating Agreement, dated as of December 30, 1993,
with Diversified Ventures, Inc., a Massachusetts corporation doing business as
Forward Financial Company ("FFC"), providing for certain financing arrangements
between the parties. The President and majority stockholder of FFC is Gene J.
DeFeudis, an outside director of Flagship.
Except as otherwise described in the preceding paragraphs at no time during
the year ended December 31, 1994 has Flagship retained the services of, or
otherwise engaged in any business transaction with, any firm, corporation or
other business or professional entity, with respect to which any Director,
principal officer or Principal Stockholder of Flagship is a principal officer,
director or holder of record or beneficially of more than 10% of an equity
interest therein.
In the future, Flagship may retain the services of, or otherwise engage in
business transactions with, members of the Board of Directors or with Flagship's
officers or Principal Stockholders, as well as with associates of such persons.
Such transactions would be entered into with such persons or entities on arms-
length terms, and any compensation paid to such persons or entities would be in
amounts payable in comparable transactions to persons not affiliated with
Flagship. If any such transactions with affiliated persons are entered into by
Flagship at any time in the future, other than in the ordinary course of
business, they will be subject to the prior approval of a majority of the
disinterested members of the Board of Directors of Flagship.
THE MERGER
This section of the Proxy Statement and Prospectus describes certain
aspects of the proposed Merger. To the extent that it relates to the Merger
Agreement or the Stock Option Agreement, the following description does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement or the Stock Option Agreement, copies of which are attached
hereto, respectively, as Appendix A and Appendix E and are incorporated herein
by reference. All stockholders are urged to read the Merger Agreement, the
Stock Option Agreement and the other appendices hereto in their entirety.
Background of and Reasons for the Merger; Recommendation of Flagship Board of
Directors
Background of and Reasons of Flagship for the Merger. In 1995, CC and
Flagship began business discussions regarding possible participations of credits
and other mutually beneficial business relationships. During the course of
their discussions, Flagship and CC began to recognize the mutually complementary
characteristics of the two organizations' market areas, business lines and
management structures and orientations. CC and Flagship discussed recent
changes in the competitive economic and regulatory characteristics of the market
for banking services in New England, and of the continuing desire of both CC and
Flagship to provide a broad range of convenient and competitive credit,
depository and trust services to their local communities at competitive rates.
In June, 1995, KPMG began working with Flagship informally to explore the
possible acquisition of certain area branches of a Boston-based bank through
the raising of capital. In July, 1995, the Flagship Board determined not to
pursue such strategic alternative, but authorized management to formally explore
various other strategic alternatives, including remaining independent and an
outright sale to a larger financial institution, as well as the alternative of a
strategic partnership with a larger financial institution. KPMG assisted in
this effort as Flagship's business advisor. Beginning in August, 1995,
representatives of Flagship and CC met on several occasions to dicuss the terms
of a possible combination of the two organizations. Both CC and Flagship came
to believe that a merger of Flagship and a CC entity would provide a resulting
bank with increased product capabilities, service and geographic scope of
operations. Both Flagship and CC also came to believe that a merger would
result in Flagship's being able to attract commercial banking business which
Flagship, on a stand-alone basis, could not attract. CC and Flagship also came
to believe that the more favorable access to capital markets generally enjoyed
by larger financial institutions would place a resulting organization in a
stronger position to satisfy the financial needs of its customers, respond to
changes affecting the banking and financial services industries and to compete
effectively with other larger financial institutions in Vermont and
Massachusetts. At these meetings, the last of which occurred in September,1995,
representatives of Flagship and CC discussed structures for a possible
combination, regulatory review of the transaction, the value of Flagship Common
Stock and a possible exchange rate, adjustments to such exchange rate based upon
changes in the price of CC Common Stock, and other terms and conditions of a
possible combination. The representatives of Flagship and CC considered
structuring the proposed combination to provide for the payment to Flagship
stockholders of cash or CC Common Stock, but determined that a stock transaction
was preferable to a cash or cash and stock transaction because a stock
transaction would provide the tax-free features to the stockholders of Flagship
and create a common stake in the success of the combined enterprises without
causing the drain on capital which would be caused by an all cash or cash and
stock transaction. The representatives of Flagship and CC negotiated a stock
purchase price based upon the then current market value of CC Common Stock and
their respective views of the value of Flagship Common Stock. The
representatives recognized that the proposed transaction could not be concluded
for several months because of the need for regulatory approvals, and therefore
discussed a mechanism under which the exchange rate would automatically adjust
based upon changes in the market price of CC Common Stock. The parties
determined that a fixed stock exchange would create a shared stake in the value
of CC stock. Under this approach, Flagship would have the right to terminate
the transaction if the market price of CC Common Stock fell below $23.25 per
share. The representatives of Flagship and CC also discussed certain conditions
to the obligation of each party to conclude the transaction,including the
receipt of required regulatory approvals, and the treatment of expenses if the
transaction were not concluded. These negotiations resulted in the unanimous
approval of the proposed Merger by the Board of Directors of Flagship on
September 19, 1995, the announcement of the proposed Merger on September 19,
1995, and execution of the Merger Agreement. Mr. Michael P. Angelini, who was
absent from the Meeting, subsequently indicated his concurrence in the Board's
approval of the Merger Agreement.
The Board of Directors of Flagship, after careful study and evaluation of
economic, financial, legal and market factors, believes that the Merger
Agreement is in the best interest of Flagship and its stockholders.
The Board believes that the CC Common Stock (see"THE MERGER--Terms of the
Merger; Consideration to be Received by Flagship Stockholders") represents an
opportunity for the holders of Flagship Common Stock to exchange their shares of
Flagship Common Stock on a favorable basis for a security with a greater market
liquidity than Flagship Common Stock. Among the factors considered by the Board
of Directors of Flagship in deciding to approve and recommend the execution of
the Merger Agreement were the terms and conditions of the Merger, the earnings
and dividend records, financial condition, business, assets and liabilities, and
management of each of Flagship and CC; recent market prices for CC Common stock;
trading statistics, including volume statistics for CC Common Stock; the lack of
a public trading market for Flagship Common Stock; the nature of the banking
markets of Flagship and CC; Flagship's and CC's respective positions in their
markets; the outlook for Flagship in a changing banking and financial services
industry, including the advent of interstate branching, and alternatives
available to Flagship for raising capital necessary to fund the growth required
to achieve competitive economies of scale; the consideration to be received by
the stockholders of Flagship in the Merger; and the price ranges of comparable
transactions. The Board of Directors also determined that the Merger will
afford Flagship stockholders improved potential for long-term growth.
In reaching its decision to approve and recommend that Flagship
stockholders approve the Merger Agreement, including issuing the option to CC
pursuant to the Stock Option Agreement, the Board of Directors determined that,
considering their respective earnings and dividend records, financial condition,
business, assets and liabilities, the business prospects of CC were favorable;
the management of CC was strong and compatible with Flagship; the prospects for
the market price of CC Common Stock were also favorable; the lack of a public
market for shares of Flagship Common Stock was disadvantageous to Flagship
stockholders; that each of CC and Flagship were well positioned in their
respective markets; that Flagship's and CC's geographic markets were
complementary, permitting CC to increase its market share and competitive
position into mid-Massachusetts; that increasing levels of bank regulation, and
the cost to small banks such as Flagship of complying with such regulations,
could adversely affect Flagship's earnings; and that the consideration to be
received by stockholders of Flagship, which reflects a premium above the book
value of Flagship Common Stock, is fair from a financial point of view.
While the Board of Directors did not give greater weight to any one of the
factors listed above, the Board of Directors of Flagship considered the proposed
acquisition of Flagship to be advantageous to its stockholders.
Recommendation of Flagship Board of Directors. The Board of Directors of
Flagship recommends approval of the Merger Agreement. The Board believes that
the terms of the Merger Agreement are fair and that the Merger is in the best
interest of Flagship and its stockholders. In making its recommendation, the
Board has considered the advice of Flagship's financial advisor, Sheshunoff, as
to the fairness of the terms of the Merger Agreement to the stockholders of
Flagship. The Flagship Board also has considered the advice of its business
advisor, KPMG .The directors of Flagship have unanimously indicated that they
intend to vote the Flagship Common Stock that they hold in favor of the Merger
Agreement. See "THE SPECIAL MEETING--Beneficial Ownership of Flagship Common
Stock."
THE BOARD OF DIRECTORS OF FLAGSHIP UNANIMOUSLY RECOMMENDS THAT FLAGSHIP'S
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Financial Advisor. Flagship retained Sheshunoff as its financial advisor
to provide a fairness opinion with regard to the transactions contemplated by
the Merger Agreement. Sheshunoff has delivered to the Board of Directors of
Flagship its written opinion dated September 19, 1995, and as of the date of
this Proxy Statement and Prospectus, that, as of such date and on the basis set
forth therein, the terms of the Merger as provided in the Merger Agreement are
fair and equitable, from a financial perspective, to Flagship and its
stockholders. The Board of Directors retained Sheshunoff because of its
reputation and because Sheshunoff has substantial experience in transactions
such as the Merger. Sheshunoff is a nationally recognized financial advisor. A
copy of Sheshunoff's opinion, dated as of September 19, 1995 and as of the date
of this Proxy Statement and Prospectus, which sets forth the assumptions made,
matters considered and limitations on the review undertaken, are attached as
Appendix B to this Proxy Statement and Prospectus and should be read in their
entirety by Flagship stockholders.
Business Advisor. Flagship retained KPMG as its business advisor in
connection with the Merger. The Flagship Board retained KPMG because of KPMG's
reputation and because KPMG has substantial experience in transactions such as
the Merger. KPMG is a nationally recognized business advisor.
In June, 1995 KPMG began assisting Flagship informally in evaluating the
possible acquisition by Flagship of certain area branches of a Boston-based
bank. Upon receiving Flagship's Board authorization in July, 1995, KPMG began
assisting Flagship in evaluating certain ownership alternatives, including the
possible sale of Flagship to a third party or a merger of equals transaction.
After being approached by CC concerning a possible acquisition in August, 1995,
Flagship retained KPMG to act as Flagship's business advisor.
In connection with the review of the proposed transaction between Flagship
and CC, KPMG advised Flagship management in Flagship's conducting due dilligence
on CC and advised Flagship in its negotiations and execution of the Merger
Agreement with CC. KPMG read certain historical data related to Flagship's and
CC's past performance and that of other financial institutions in New England
as a basis to advise Flagship's Board on the Merger.
Opinion of Sheshunoff. In September, 1995, Flagship retained Sheshunoff,
an investment banking firm based in Austin, Texas, on the basis of its
experience, to render a written fairness opinion (the "Opinion") to the Board of
Directors of Flagship. Sheshunoff has been in the business of consulting for
the banking industry for twenty years, including the appraisal and valuation of
banking institutions and their securities in connection with mergers and
acquisitions and equity offerings. Sheshunoff has a long history of familiarity
and involvement with the banking industry nationwide, as well as familiarity
with the Massachusetts market and recent transactions in this market.
Sheshunoff did review the negotiated terms of the Merger Agreement, including
corporate governance matters. Except as described herein, Sheshunoff is not
affiliated in any way with Flagship or CC or their respective affiliates.
On September 19, 1995, in connection with their consideration of the Merger
Agreement, Sheshunoff issued its Opinion to the Board of Directors of Flagship
that, in its opinion as investment bankers, the terms of the Merger as provided
in the Merger Agreement are fair and equitable, from a financial perspective, to
Flagship and its stockholders. The Sheshunoff Opinion was based upon conditions
as they existed on August 31, 1995 at Flagship and upon conditions as they
existed on June 30, 1995 at CC. Sheshunoff has updated its opinion as of the
date of this Proxy Statement and Prospectus. A copy of the full written text of
the updated Opinion is attached hereto as Appendix B and should be read in its
entirety by Flagship stockholders. Sheshunoff's written opinion does not
constitute an endorsement of the merger or a recommendation to any stockholder
as to how such stockholder should vote. The summary of the Opinion set forth in
this Proxy Statement and Prospectus is qualified in its entirety by reference to
the full text of such Opinion.
In rendering its Opinion, Sheshunoff reviewed certain publicly available
information concerning Flagship and CC. Sheshunoff considered many factors in
making its evaluation. In arriving at its Opinion regarding the fairness of the
transaction, Sheshunoff reviewed: (i) the Merger Agreement between CC and
Flagship; (ii) the most recent internal auditor's reports for the Board of
Directors of each organization; (iii) the August 31, 1995 balance sheet and
income statement for Flagship, the June 30, 1995 balance sheet and income
statement for CC and the audited December 31, 1994 balance sheet and income
statement for each organization; (iv) the Rate Sensitivity Analysis reports for
each organization; (v) each organization's listing of marketable securities
showing rate, maturity and market value as compared to book value; (vi) each
organization's internal loan classification list; (vii) a listing of other real
estate owned for each organization; (viii) the budget and long-range operating
plan of each organization; (ix) a listing of unfunded letters of credit and any
other off-balance sheet risks for each organization; (x) the Minutes of the
Board of Directors meetings of each organization; (xi) the most recent Board
report for each organization; (xii) the listing and description of significant
real properties for each organization; (xiii) material leases on real and
personal property; (xiv) the directors and officers liability and blanket bond
insurance policies for each organization; and (xv) market conditions and current
trading levels of outstanding equity securities of both organizations.
Sheshunoff conducted an on-site review of each organization's historical
performance and current financial condition.
In addition, Sheshunoff discussed with the management of Flagship and CC
the relative operating performance and future prospects of each organization,
primarily with respect to the current level of their earnings and future
expected operating results, giving weight to Sheshunoff's assessment of the
future of the banking industry and each organization's performance within the
industry. Sheshunoff compared the results of operation of Flagship with the
results of operations of a peer group comprised of all Massachusetts banks with
total assets of $100 to $499 million (23 banks). Sheshunoff compared the
results of operations of CC with the results of operations of a peer group
comprised of all bank holding companies in the United States with total assets
of $1 billion to $4.999 billion (130 bank holding companies).
Many variables affect the value of banks, not the least of which is the
uncertainty of future events, so that the relative importance of the valuation
variables differs in different situations, with the result that appraisal
theorists argue about which variables are the most appropriate ones on which to
focus. However, most appraisers agree that the primary financial variables to
be considered are earnings, equity, dividends or dividend-paying capacity, asset
quality and cash flow. In addition, in most instances, if not all, value is
further tempered by nonfinancial factors such as marketability, voting rights or
block size, history of past sales of the bank company's stock, nature and
relationship of the other shareholdings in the bank, and special ownership or
management considerations.
Sheshunoff analyzed the total purchase price on a cash equivalent fair
market value basis using standard evaluation techniques (as discussed below)
including comparable sales multiples, net present value, cash flow analysis,
return on investment and the price as a percentage of total assets based on
certain assumptions of projected growth, earnings and dividends and a range of
discount rates from 10% to 15%.
Net Asset Value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes liquidation on the
date of appraisal with the recognition of securities gains or losses, real
estate appreciation or depreciation, adjustments to the loan loss reserve,
discounts to the loan portfolio and changes in the net value of other assets.
As such, it is not the best approach to use when valuing a going concern,
because it is based on historical costs and varying accounting methods. Even if
the assets and liabilities are adjusted to reflect prevailing prices and yields
(which is often of limited accuracy because readily available data is often
lacking), it still results in a liquidation value for the concern. Furthermore,
since this method does not take into account the values attributable to the
going concern such as the interrelationship among the company's assets and
liabilities, customer relations, market presence, image and reputation, and
staff expertise and depth, little weight is given by Sheshunoff to the net asset
value method of valuation.
Market Value is generally defined as the price, established on an "arms-
length" basis, at which knowledgeable, unrelated buyers and sellers would agree.
The market value is frequently used to determine the price of a minority block
of stock when both the quantity and the quality of the "comparable" data are
deemed sufficient. However, the relative thinness of the specific market for
the stock of the banking company being appraised may result in the need to
review alternative markets for comparative pricing purposes. The "hypothetical"
market value for a small bank with a thin market for its stock is normally
determined by comparison to the average price to earnings, price to equity and
dividend yield of local or regional publicly-traded bank issues, adjusting for
significant differences in financial performance criteria and for any lack of
marketability or liquidity. The market value in connection with the evaluation
of control of a bank is determined by the previous sales of banks in the state
or region. In valuing a business enterprise, when sufficient comparable trade
data is available, the market value deserves greater weighting than the net
asset value and similar emphasis as the investment value as discussed below.
Sheshunoff maintains substantial files concerning the prices paid for
banking institutions nationwide. The database includes transactions involving
Massachusetts banking organizations and banking organizations in the Eastern
region of the United States in 1995 and over the past five years. The database
provides comparable pricing and financial performance data for banking
organizations sold or acquired. Organized by different peer groups, the data
presents averages of financial performance and purchase price levels, thereby
facilitating a valid comparative purchase price analysis. In analyzing the
transaction value of Flagship, Sheshunoff has considered the market approach and
has evaluated price to equity and price to earnings multiples of Eastern banking
organizations with total assets less than $1 billion that sold for 100% common
stock from September 15, 1994 through September 15, 1995.
Comparable Sales Multiples. Sheshunoff calculated an "Adjusted Book Value"
of $35.52 per share based on Flagship's August 31, 1995 equity and the average
price to equity multiple of 2.19x for Eastern banking organizations with total
assets less than $1 billion that sold for 100% common stock from September 15,
1994 through September 15, 1995. Sheshunoff calculated an "Adjusted Earnings
Value" of $38.71 per share based on Flagship's estimated 1995 earnings and the
average price to earnings multiple of 16.98x for Eastern banking organizations
with total assets less than $1 billion that sold for 100% common stock from
September 15, 1994 through September 15, 1995. The financial performance
characteristics of the regional banking organizations vary, sometimes
substantially, from those of Flagship. When the variance is significant for
relevant performance factors, adjustments to the price multiples are appropriate
when comparing them to the transaction value.
Investment Value. The investment value is sometimes referred to as the
income value or earnings value. One investment value method frequently used
estimates the present value of an enterprise's future earnings or cash flow.
Another popular investment value method is to determine the level of current
annual benefits (earnings, cash flow, dividends, etc.), and then capitalize one
or more of the benefit types using an appropriate capitalization rate such as an
earnings or dividend yield. Yet another method of calculating investment value
is a cash flow analysis of the ability of a banking company to service
acquisition debt obligations (at a certain price level) while providing
sufficient earnings for reasonable dividends and capital adequacy requirements.
In connection with the cash flow analysis, the return on investment that would
accrue to a prospective buyer at the transaction value is calculated. The
investment value methods which were analyzed in connection with this transaction
were the net present value analysis, the cash flow analysis and the return on
investment analysis, which are discussed below.
Net Present Value Analysis. The investment or earnings value of any
banking organization's stock is an estimate of the present value of the future
benefits, usually earnings, cash flow or dividends, which will accrue to the
stock. An earnings value is calculated using an annual future earnings stream
over a period of time of not less than ten years and the residual value of the
earnings stream after ten years, assuming no earnings growth, and an appropriate
capitalization rate (the net present value discount rate). Sheshunoff's
computations were based on an analysis of the banking industry, the economic and
competitive situations in Flagship's market area, its current financial
condition and historical levels of growth and earnings. Using a net present
value discount rate of 12%, an acceptable discount rate considering the risk-
return relationship most investors would demand for an investment of this type
as of the valuation date, the "Net Present Value of Future Earnings" equaled
$36.74 per share.
Cash Flow Analysis. The cash flow method assumes the formation of a bank
holding company with maximum leverage according to Federal Reserve System
guidelines and analyzes the ability of the bank to retire holding company
acquisition debt within a reasonable period of time while maintaining adequate
capital. Using this method, Sheshunoff arrived at a value of $37.00 per share.
Return on Investment Analysis. Return on investment analysis (ROI) also
assumes the formation of a bank holding company using maximum regulatory
leverage and analyzes the ten-year ROI of a 33.33% equity investment at the
transaction value of $33.00 per share for Flagship compared to a liquidation at
book value in the year 2005 and a sale at ten times projected earnings for the
year 2005. This ROI analysis provides a benchmark for assessing the validity of
the transaction value of a majority block of stock. The ROI analysis is one
approach to valuing a going concern, and is directly impacted by the earnings
stream, dividend payout levels and levels of debt, if any. Other financial and
nonfinancial factors indirectly affect the ROI; however, these factors more
directly influence the level of ROI an investor would demand from an investment
in a majority block of stock of a specific bank at a certain point in time. The
ROI assuming liquidation at book value in 2005 equaled 11.54%, and the ROI
assuming sale at ten times projected earnings in 2005 equaled 18.49%.
Transaction Value as a Percentage of Total Assets. Furthermore, a price
level indicator, the transaction value as a percentage of total assets, may be
used to confirm the validity of the transaction value. The transaction value as
a percentage of total assets facilitates a truer price level comparison with
comparable banking organizations, regardless of the differing levels of equity
capital and earnings. In this instance, a transaction value of $33.00 per share
results in a transaction value as a percentage of total assets of 13.91%.
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to-transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net present
value analysis. In Sheshunoff's experience with majority block community bank
stock valuations, it has determined that a relationship does exist between the
net present value of an "average" community banking organization and the
transaction value of a majority block of the banking organization's stock. The
net present value-to-transaction value ratio equals 111.33% for Flagship. There
are many other factors to consider, when valuing a going concern, which do not
directly impact the earnings stream and the net present value but which do exert
a degree of influence over the fair market value of a going concern. These
factors include, but are not limited to, the general condition of the industry,
the economic and competitive situations in the market area and the expertise of
the management of the organization being valued.
When the net asset value, market value and investment value methods are
subjectively weighted, using the appraiser's experience and judgment, it is
Sheshunoff's opinion that the proposed transaction is fair.
Consideration was given to the levels of earnings per share, equity per
share and dividends per share appreciation or dilution percentages between the
merger partners over the next three to five years after consummation. A merger
is usually completed with the hopes of realizing economies of scale and earnings
enhancement opportunities, thereby providing a benefit to Flagship stockholders
that otherwise might not be attainable. To justify the fairness of the
transaction for Flagship stockholders it is important to project, based upon
realistic projections of future performance, a positive impact for Flagship
stockholders. Sheshunoff projected that Flagship stockholders will have a
higher level of earnings per share and dividends per share after the merger with
CC than they would on a stand-alone basis.
Neither Flagship nor CC imposed any limitations upon the scope of the
investigation to be performed by Sheshunoff in formulating such Opinion. In
rendering its Opinion, Sheshunoff did not independently verify the asset quality
and financial condition of Flagship or CC, but instead relied upon the data
provided by or on behalf of Flagship and CC to be true and accurate in all
material respects.
Prior to being retained for this assignment, Sheshunoff has provided
professional services and products to Flagship. The revenues derived from such
services and products are insignificant when compared to the firm's total gross
revenues.
Pursuant to the terms of an engagement letter dated August 4, 1995,
Flagship has agreed to pay KPMG a professional fee not to exceed $285,000 for
its business advisory services. Flagship is able to terminate the engagement of
KPMG at any time and the fee due to KPMG upon such cancellation shall not exceed
$75,000.
Pursuant to the terms of an engagement letter dated September 14, 1995,
Flagship has agreed to pay Sheshunoff a professional fee of $25,000 plus
reasonable out-of-pocket expenses not to exceed $250, and out-of-pocket costs
for travel, if necessary, and/or direct delivery charges, in connection with
Sheshunoff's rendering of a fairness opinion. Whether or not the transaction is
consummated, Flagship has agreed to reimburse Sheshunoff for fees accrued but
not paid prior to termination of the engagement letter plus out-of-pocket
expenses.
Flagship has agreed to indemnify KPMG, any employee of KPMG and its
affiliates and its respective partners, principals, heirs, beneficiaries and
legal representatives of the above against certain liabilities, including
liabilities under certain Federal securities laws. Flagship has agreed to
indemnify Sheshunoff, any employee of Sheshunoff and its affiliates and its
respective directors, officers, stockholders and assigns, heirs, beneficiaries
and legal representatives of the above against certain liabilities, including
liabilities under certain Federal securities laws.
Terms of the Merger; Consideration to be Received by Flagship Stockholders.
At the time the Merger becomes effective, Flagship will merge with and into
CAB, and CAB will be the surviving corporation, doing business as "Flagship Bank
and Trust Company." The Articles of Organization and Bylaws of Flagship as in
effect immediately prior to the Merger will be the Articles of Organization and
Bylaws of CAB after the Merger as the surviving corporation.
Upon consummation of the Merger, each outstanding share of Flagship Common
Stock, other than shares held by Flagship as treasury shares or as to which
dissenters' rights have been perfected, will be converted into the right to
receive 1.2 shares of CC Common Stock. In the event the Determination Price of
CC Common Stock is less than $23.25 per share, Flagship shall have the right to
terminate the Merger Agreement. However, assuming the Merger is approved by the
Flagship stockholders, the Flagship Board may elect to consummate the Merger if
the Determination Price of CC Common Stock is below $23.25 without resoliciting
the Flagship stockholders. In such a situation, in considering whether to
consummate the Merger without the resoliciting of Flagship stockholders, the
Flagship Board will take into account, consistent with its fiduciary duties, all
relevant facts and circumstances that exist at such time, including, without
limitation, the advice of its financial advisors and legal counsel. As of the
date hereof, the Flagship Board does not intend to elect to waive its right to
terminate the transaction based upon the Determination Price.
Flagship's stockholders shall receive an aggregate of approximately
1.3 million shares of CC Common Stock and an appropriate amount in cash to
compensate for fractional share interests. The total consideration, based upon
a representative price of CC Common Stock at ($Not Available) per share, equals
($Not Available).
Based on the number of shares of CC Common Stock outstanding at September
30, 1995, Flagship stockholders would hold, in the aggregate, approximately
13.64% of the CC Common Stock outstanding immediately after consummation of the
Merger. All stockholders of Flagship currently are minority stockholders and,
following the Merger, such stockholders will be minority stockholders of CC.
However, Flagship's stockholders' interest in CC will be smaller than their
prior percentage interest in Flagship, and accordingly, their ability to affect
the business direction of CC as a CC stockholder through the right to vote will
be reduced. The Purchase Price was negotiated by the Chief Executive Officer of
CC and a negotiating team comprised of the Chief Executive Officer and three
directors of Flagship and approved by each corporation's Board of Directors.
No fractional shares of CC Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that Flagship stockholders will receive
cash in lieu of such fractional shares. The cash amount paid in lieu of
fractional shares will be determined by multiplying the fraction of a share to
which the holder would otherwise be entitled by the Determination Price.
Shares of CC Common Stock issued and outstanding at the time the Merger
becomes effective will remain issued and outstanding thereafter and will not be
affected by the Merger.
Effective Time of the Merger
The Merger will become effective upon the filing of Articles of Merger
relating thereto with the Secretary of State of the Commonwealth of
Massachusetts. The parties to the Merger Agreement will promptly cause such
Articles of Merger to be so filed after each of the conditions to consummation
of the Merger has been satisfied or waived and following approval by the
stockholders of Flagship. The Merger cannot become effective until Flagship
stockholders have approved the Merger Agreement and all required regulatory
approvals and actions have been obtained and taken. See "--Regulatory Approvals
Required." Subject to satisfaction of the conditions contained in the Merger
Agreement, the parties currently anticipate that the Merger will become
effective during the quarter ending March 31, 1996, although there can be no
assurance as to whether or when the Merger will become effective. See "--
Conditions to Consummation of the Merger."
Surrender of Flagship Common Stock Certificates
As soon as practicable after the Merger becomes effective, the Exchange
Agent will send a notice and transmittal form to each holder of Flagship Common
Stock of record at the time the Merger becomes effective (other than holders who
have properly exercised dissenters' rights of appraisal, see "--Rights of
Flagship Dissenting Stockholders") advising such holder of the effectiveness of
the Merger and of the procedure for surrendering to the Exchange Agent such
holder's certificate or certificates formerly evidencing Flagship Common Stock
in exchange for a new certificate(s) evidencing CC Common Stock and, if
appropriate, a cash adjustment in lieu of fractional share interests.
Flagship stockholders should not send in their stock certificates until
they receive the letter of transmittal form and instructions from the Exchange
Agent.
Upon surrender to the Exchange Agent of certificates formerly evidencing
Flagship Common Stock, together with a properly completed and signed letter of
transmittal, there will be issued and mailed to the holder thereof a new
certificate or certificates representing the number of whole shares of CC Common
Stock to which such holder is entitled under the Merger Agreement and, where
applicable, a check for the amount of cash payable in lieu of a fractional share
of CC Common Stock. If the holder requests participation in the CC Dividend
Reinvestment Plan, a notification of shares held on deposit by the Exchange
Agent will be mailed to the holder in lieu of the stock certificate (and/or
check noted above). A certificate representing CC Common Stock or a check in
lieu of a fractional share will be issued in a name other than the name in which
the surrendered Flagship stock certificate was registered only if (i) the
Flagship stock certificate surrendered is properly endorsed or accompanied by
appropriate stock powers and is otherwise in proper form for transfer, and (ii)
the holder requesting the issuance of such certificate or check either pays to
the Exchange Agent any transfer or other taxes required by reason of the
issuance of such certificate or check in a name other than that of the
registered holder of the certificate surrendered or establishes to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
After the Merger becomes effective, each certificate formerly evidencing
Flagship Common Stock (other than certificates as to which dissenters' rights of
appraisal have been exercised) will, until it is surrendered to the Exchange
Agent, be deemed for all corporate purposes to evidence ownership of that number
of whole shares of CC Common Stock into which it was converted as a result of
the Merger.
If any certificate formerly evidencing Flagship Common Stock has been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificate, upon the making of an affidavit of that fact by
the holder thereof, such shares of CC Common Stock and cash for fractional
shares, if any, as may be required pursuant to the Merger Agreement; provided,
however, that CC may, in its discretion and as a condition to the issuance of a
certificate representing the CC Common Stock into which such Flagship Common
Stock has been converted, require the owner thereof to deliver a bond in such
sum as CC may direct as indemnity against any claim that may be made against
Flagship, CC, the Exchange Agent or any other party with respect to the
certificate alleged to have been lost, stolen or destroyed. After the Merger
becomes effective, no further registration of transfers on the records of
Flagship will be made as to certificates formerly evidencing Flagship Common
Stock and any certificates which are presented for such registration of transfer
will be cancelled and exchanged for certificates representing shares of CC
Common Stock as described above.
Conditions to Consummation of the Merger
The obligations of both CC and Flagship to consummate the Merger are
subject to satisfaction of the following conditions, among others: (i) the
Merger Agreement and the transactions contemplated thereby shall have been
approved by the stockholders of Flagship; (ii) all regulatory approvals required
for the consummation of the Merger and the resultant acquisition of Flagship by
Chittenden shall have been obtained; (iii) the Registration Statement relating
to the shares of CC Common Stock to be issued pursuant to the Merger Agreement
shall have become effective; and (iv) neither CC nor Flagship shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the Merger.
The obligation of CC to consummate the Merger is further subject to
additional conditions, including, without limitation, the following:
(a) There shall not have occurred any change in the properties or assets of
Flagship which, individually or in the aggregate, has, or, in the reasonable
opinion of CC, is reasonably likely to have a material adverse effect on the
ability of Flagship to conduct its business as presently conducted.
(b) Flagship shall have complied with and performed in all material
respects its obligations under the Merger Agreement, and its representations and
warranties in the Merger Agreement shall be true and correct in all material
respects at the Effective Time.
(c) CC shall have received the opinion of Piper & Marbury LLP, its special
counsel, as to certain tax aspects of the Merger.
(d) CC shall have received a favorable opinion of Arthur Andersen LLP that
the Merger qualifies as a "pooling of interests" for financial statement
purposes.
The obligation of Flagship to consummate the Merger is subject to
additional conditions, including, without limitation, the following:
(a) There shall not have occurred any change in the properties or assets of
CC or any of its subsidiaries which, individually or in the aggregate, has, or
is reasonably likely to have a material adverse effect on the ability of CC to
conduct its business as presently conducted.
(b) CC shall have complied with and performed in all material respects its
obligations under the Merger Agreement, and its representations and warranties
in the Merger Agreement shall be true and correct in all material respects at
the Effective Time.
(c) Flagship shall have received the opinion of Piper & Marbury LLP, CC's
special tax counsel and the opinion of Bingham, Dana & Gould, Flagship's
counsel, as to certain tax aspects of the Merger.
(d) Flagship shall have received the opinion of Sheshunoff as to the
fairness of the purchase price to Flagship's stockholders from a financial point
of view.
(e) The average closing price of CC Common Stock for the twenty (20)
consecutive trading days ending on the fifth trading day before the last
regulatory approval is obtained shall be at least $23.25 per share.
Regulatory Approvals Required
Consummation of the Merger is subject to, among other things, prior receipt
of all necessary regulatory approvals from state and federal authorities and
expiration of all required waiting periods. CC has filed an application (the
"FRB Application") for approval of the Federal Reserve Board under Section 3(a)
of the Bank Holding Company Act of 1956 (12 U.S.C. Section 1842), of the Merger
of Flagship with and into CAB.
CAB has filed an insurance application (the "FDIC Insurance Application")
for approval of the Federal Deposit Insurance Corporation ("FDIC") to grant CAB
deposit insurance. CAB also has filed an application (the "FDIC Application")
for approval of the FDIC of the merger of Flagship into and with CAB and for CAB
to acquire and operate the main and banking offices of Flagship located in
Worcester and Leominster, respectively, as banking offices of CAB, doing
business as "Flagship Bank and Trust Company," following consummation of the
Merger.
In addition to the FRB Application, FDIC Insurance Application and FDIC
Application, an application has been submitted to the Massachusetts Board for
approval under Massachusetts General Statutes Annotated to form a trust company
and CC has filed an application to acquire Flagship by virtue of Flagship's
merger into CAB. In addition, CAB is applying to the Massachusetts Commissioner
of Banks for approval to merge Flagship and CAB.
As of the date of this Proxy Statement and Prospectus, none of these
approvals have been received. There can be no assurance that such approvals
will be received, or as to the timing or conditions of such approvals, if any.
However, neither CC nor Flagship is aware of any reason why the pending
applications would not be approved.
Waiver and Amendment
Generally, before the Special Meeting, CC and Flagship can amend, extend
the time for performance under, or waive compliance of the other party with, any
of the terms or conditions of the Merger Agreement. After approval of the
Merger at the Special Meeting, Flagship and CC cannot amend the Merger Agreement
in any such manner which reduces or changes the form of consideration to be
delivered to the Flagship stockholders in connection with the Merger without
further stockholder approval. CC and Flagship cannot waive compliance with the
mutual closing conditions that (a) the Merger must be approved by the legally
required vote of Flagship's stockholders, (b) the Merger must have received all
requisite regulatory approvals, (c) the Registration Statement shall have become
effective, and (d) neither party be subject to a decree, order or injunction of
a court of competent jurisdiction which enjoins or prohibits the Merger.
Termination
The Merger Agreement may be terminated at any time before the Merger
becomes effective (i) by mutual written consent of CC and Flagship duly
authorized by their respective Boards of Directors; (ii) by CC or Flagship if
the Effective Time shall not have occurred on or prior to June 30, 1996; (iii)
by Flagship or CC if the Merger Agreement and the transactions contemplated
thereby are not approved by the legally required affirmative vote of the
stockholders of Flagship at the Special Meeting or at any adjournments thereof;
(iv) by Flagship or CC if any necessary regulatory approval is denied and the
time for appeal has run; or (v) by Flagship or CC if either discovers a
continuing material adverse condition which cannot be corrected with respect to
the other; provided neither Flagship nor CC shall be released or relieved from
any liabilities or damages arising out of its willful breach of any provision of
the Merger Agreement. CC may terminate the Merger Agreement, with the
authorization of its Board of Directors, if there shall have been any material
breach of any representation, warranty, covenant or agreement of Flagship under
the Merger Agreement and any such breach shall not have been remedied within 30
days after receipt by Flagship of notice in writing from CC specifying the
nature of such breach and requesting that it be remedied. Flagship may
terminate the Merger Agreement if there shall have been any material breach of
any representation, warranty, covenant or agreement of CC under the Merger
Agreement and such breach shall not have been remedied within 30 days after
receipt by CC of notice in writing from Flagship specifying the nature of such
breach and requesting that it be remedied.
Flagship may terminate the Merger Agreement after stockholder approval, by
giving three days' written notice, after the Determination Price is calculable,
of such election to CC, in the event that the Determination Price of the CC
Common Stock is less than $23.25.
Corporate Transactions
Flagship has agreed that during the term of the Merger Agreement it will
not solicit or encourage inquiries or proposals with respect to or, except to
the extent required for the discharge by the Flagship Board of Directors of
their fiduciary duties as determined upon written advice of counsel, furnish any
information or recommend or endorse any takeover proposal relating to or
participate in any negotiations or discussions concerning any acquisition or
purchase of all or a substantial portion of the assets or of a substantial
equity interest in, Flagship or any merger, consolidation or business
combination with Flagship other than as contemplated by the Merger Agreement.
Flagship further agreed that it will instruct its officers, directors,
employees, advisors and agents to comply with the above limitation on
solicitation activity. Such limitation does not prohibit Flagship or its Board
of Directors from making disclosures to Flagship's stockholders which, in the
judgment of the Board on written advice from outside counsel, may be required by
their fiduciary duty.
The foregoing provisions may have the effect of discouraging competing
offers from third parties to acquire or merge with Flagship, even if such offers
were to be at a higher price.
CC has agreed not to enter into any undertaking that might have a short
term material adverse effect on the price of CC's Common Stock without first
obtaining Flagship's consent, which consent shall not be unreasonably withheld.
Stock Option Agreement
Simultaneously with the execution of the Merger Agreement, on September 19,
1995, CC and Flagship entered into a Stock Option Agreement (the "Stock Option
Agreement"), a copy of which is attached hereto as Appendix D and incorporated
herein by reference. Pursuant to the Stock Option Agreement, Flagship granted
CC an option (the "Option") to purchase up to 359,939 (24.9% of the shares of
Flagship Common Stock that would be outstanding after such issuance) authorized
but unissued shares of Flagship Common Stock for $20.00 per share.
The Option becomes exercisable in whole or in part, after the occurrence of
one or more of the following events (each a "Triggering Event"):
(a) any person or group (as such terms are defined in the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder), other than CC or a wholly-owned subsidiary of CC,
acquires after September 19, 1995 beneficial ownership of or the right to
acquire such beneficial ownership or to vote at least 20 percent of the then
outstanding Flagship Common Stock, other than any person acquiring such
beneficial ownership by will or operation of law; or
(b) there shall be publicly announced prior to the meeting of Flagship's
stockholders contemplated by the Merger Agreement, any proposal by such a person
or group relating to (i) any merger, consolidation or acquisition of all or
substantially all of the assets of Flagship or other business combination
involving Flagship which Flagship's Board of Directors shall have authorized,
recommended or entered into, or (ii) a change in the ownership of 20 percent or
more of the Flagship Common Stock then outstanding and Flagship's stockholders
fail to adopt the Merger Agreement at such Special Meeting.
The Stock Option Agreement may have the effect of discouraging persons or
companies which might now or prior to the Effective Time be interested in
acquiring all or a significant portion of the outstanding shares of Flagship
Common Stock from considering such a transaction, even if such persons were to
pay a higher price per share than under the Merger Agreement.
The Option will expire on the earliest to occur of (i) one year after one
of the foregoing Triggering Events has occurred; (ii) immediately after the
Effective Time of the Merger; or (iii) the termination of the Merger Agreement
in accordance with its terms before the occurrence of a Triggering Event.
In the event of a change in the number of outstanding shares of Flagship
due to a stock dividend, split-up, merger, recapitalization, subdivision,
conversion, combination, exchange of shares or similar transaction, the type and
number of shares of Flagship Common Stock subject to the Option will be adjusted
appropriately so that CC shall receive on exercise of the Option the number and
class of shares or other securities or property that it would have held if the
Option had been exercised immediately before such event. Whenever the number of
shares subject to the Option is so adjusted, the exercise price of the Option
shall be adjusted by multiplying the original price by a fraction, the numerator
of which shall equal the number of shares subject to the Option before
adjustment and the denominator of which shall be the number of shares subject to
the Option after adjustment.
Upon the occurrence of a Triggering Event, CC may request Flagship to
prepare, file and keep current with respect to the Option and the shares of
Flagship Common Stock subject thereto a registration statement under the
Securities Act with the Commission if Flagship is legally required to sell the
shares subject to the Option under the Securities Act. Flagship is required to
use its best efforts to cause such registration statement to become effective
and then remain effective for at least 90 days. CC has the right to demand two
such registrations.
After the occurrence of a Triggering Event, CC may sell, assign or
otherwise transfer its rights and obligations under the Stock Option Agreement
to any person or group of persons, subject only to compliance with applicable
law.
Business Pending the Merger
Flagship agreed in the Merger Agreement that during the period of time from
September 19, 1995 to the Effective Time, it would conduct its business and
engage in transactions only in the usual, regular and ordinary course of
business, consistent with past practice, except as specifically agreed to by
Flagship and CC as set forth in schedule 4.2 to the Merger Agreement. The
Merger Agreement defines the permitted scope of Flagship's business under this
provision as "conducting its business in the usual, regular and ordinary course
consistent with past practice," and refraining from a series of activities
listed in the Merger Agreement, which include, without limitation, the
following:
(a) engaging or participating in any material transaction or incurring any
material liability out of the ordinary course of business.
(b) disposing of any assets, except in the ordinary course of business and
in an immaterial aggregate amount.
(c) declaring or paying any dividend other than the continuation of
Flagship's regular semi-annual cash dividend not to exceed $0.1525 per share and
a pro rata dividend prior to the Effective Date for any time period for which
Flagship's stockholders would not be entitled to receive a dividend as CC
stockholders in respect of the CC Common Stock.
(d) issuing additional shares of capital stock or securities convertible
into such shares or options, warrants or conversion rights to acquire such
shares of capital stock except in connection with the exercise of outstanding
options to purchase Flagship Common Stock.
(e) incurring additional debt obligations or other obligations in respect
of borrowed money except in the ordinary course of business consistent with past
practice.
(f) incurring or committing to capital expenditures in excess of $100,000.
Interests of Certain Persons in the Merger
Employment Agreement. One senior officer of Flagship has entered into an
employment agreement (the "Employment Agreement") at the request of CC which
will extend beyond the Effective Time. The Employment Agreement will not become
effective if the Merger is not consummated or the Merger Agreement is terminated
in accordance with its terms.
CC, by virtue of the Employment Agreement, has agreed to employ Donald J.
McGowan, President and Chief Executive Officer of Flagship after the
consummation of the Merger for his current salary of $200,000 for a period of
three years.
In addition to and as a part of the Employment Agreement, Mr. McGowan will
receive certain benefits in the event of a change of control which is similar to
agreements currently in force between CC and its senior officers. Under the
Employment Agreement, Mr. McGowan would be entitled to the following severance
payments if terminated under certain circumstances after a change of control of
CC: 100% of base salary for the calendar year ended prior to the year in which
the termination occurs or, upon his election if terminated by CC's successor, a
right to pursue his legal rights for damages for a breach of the Employment
Agreement.
The Employment Agreement defines a "change in control" as the acquisition
by a person or group of greater than 25% of the combined voting power of CC's
then outstanding common stock.
The Employment Agreement provides for certain severance benefits in an
instance where termination is due to death, provides for continuation of
benefits for up to three years from the Effective Date in the event of
disability, and provides for no special benefit in the event of retirement.
Further, no benefits are payable in instances of termination for cause, defined
as (i) the gross and willful failure of Mr. McGowan to perform a substantial
portion of his duties which continues for more than 30 days after notice, and
(ii) deliberate dishonesty with respect to CC or any subsidiary or affiliate
which materially and adversely affects CC or any subsidiary or affiliate, and
(iii) the conviction of a felony or his willful violation of any provision of
federal or state banking or securities laws.
In addition, Mr. McGowan is entitled to certain severance benefits in the
event he is terminated without cause within three years of the Effective Time or
he resigns due to a breach in the Employment Agreement by Flagship or CC. These
benefits include a continuation of his base salary, participation in benefit
plans, life insurance and club memberships for up to three years from the
Effective Date. However, during a period of three years following the Effective
Date, as long as there has been no change of control, Mr. McGowan will not
compete against CAB operating as "Flagship Bank and Trust Company" in Worcester
County, Massachusetts in any of the activities of CAB operating as "Flagship
Bank and Trust Company" conducted during Mr. McGowan's employment under the
Employment Agreement (i) in the lending, deposit or mortgage business or (ii) in
other products and/or services of Flagship as contributing 5% or more of the
gross revenue of Flagship for any fiscal quarter during such employment.
Deferred Compensation Agreement. On October 20, 1994, Donald J. McGowan,
President and Chief Executive Officer of Flagship, entered into a Deferred
Compensation Agreement with Flagship (the "Deferred Compensation Agreement"),
which provides Mr. McGowan with supplemental retirement benefits in addition to
social security and any other retirement benefits furnished by Flagship.
Pursuant to the Deferred Compensation Agreement, in the event of a "Change-
in-Control" (as defined in the Deferred Compensation Agreement) of Flagship, Mr.
McGowan will receive a benefit, in cash, in a single lump sum, in an amount
which is the actuarial present value of Mr. McGowan's normal retirement benefit
under the Deferred Compensation Agreement. The transactions contemplated by the
Merger Agreement will trigger a "Change-in-Control" of Flagship as defined in
the Deferred Compensation Agreement and will result in the receipt of this
benefit by Mr. McGowan upon the consummation of such transactions. It is
currently anticipated that the amount of the cash benefit to be received by Mr.
McGowan under this Deferred Compensation Agreement will be approximately
$1,305,000.
Management Severance Pay Plan. CC has agreed in discussions preceding the
signing of the Merger Agreement that rights of Flagship's senior executives
other than Mr. McGowan under Flagship's Senior Management Change in Control
Severance Pay Plan will continue unamended after the Merger and that the Merger
constitutes a "change in control" for purposes of such plan.
Indemnification. The Merger Agreement requires CC to indemnify and hold
harmless, to the extent permitted by law, each director and officer, and each
former director and officer, of Flagship with respect to actions or failures to
act which occurred on or prior to the date on which the Merger is consummated,
upon the same terms and conditions as each such person would be entitled to be
indemnified by CC. The Merger Agreement also provides that CC will use its best
efforts to cause continuation of coverage under the current director and officer
liability insurance for a period of six years after the Effective Time.
Stock Options. All rights with respect to Flagship Common Stock pursuant
to stock options granted by Flagship prior to the date of the Merger Agreement
shall be converted into an option to purchase shares of CC Common Stock in an
amount and at an exercise price determined as provided below and in the Merger
Agreement (and otherwise subject to the terms of Flagship's stock option plan).
CC's Common Stock covered by these converted Flagship options will be registered
for resale by the holders of such options from the Effective Time.
The number of shares of CC Common Stock to be subject to the new options
shall be equal to the product of the number of shares of Flagship Common Stock
subject to the original option times the Per Share Consideration, provided that
any fractional shares of CC Common Stock resulting from such multiplication
shall be rounded down to the nearest share.
The beneficial ownership of Flagship shares will increase due to certain
options which will vest upon consummation of the Merger. See "Beneficial
Ownership of Flagship Common Stock."
The exercise price per share of these converted Flagship options shall be
equal to the exercise price per share of Flagship common stock under the
original option divided by the Per Share Consideration, provided that such
exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" as defined in Section 4.22 of the Code shall be and is
intended to be effected in a manner which is consistent with Section 4.24(a) of
the Code, the duration and other terms of the new options shall be the same as
the original option except that all references to Flagship shall be deemed to be
references to CC.
Employee Matters
CC has agreed in the Merger Agreement that the current employment benefits
including, without limitation, the benefits provided under the Restated 1988
Stock Option Plan and related agreements, the Executive Incentive Plan, the
Senior Management Change in Control Severance Pay Plan, the 401(k) retirement
plan, as well as other employee benefits, shall be unaffected by the Merger and
such agreements, plans and benefits shall be honored and assumed by CC and
carried forward by CC, subject to CC's discretion to revise such benefits in a
manner consistent with CC's strategic plan in effect from time to time.
Management and Operations after the Merger
At the Effective Time, the separate corporate existence of Flagship shall
cease, and the surviving corporation will be CAB doing business as "Flagship
Bank and Trust Company" and the name CAB shall cease to exist. The newly formed
"Flagship Bank and Trust Company", BWM and CTC will be direct subsidiaries of
CC.
It is anticipated that the management, including the Board of the new
"Flagship", immediately after the Effective Time will continue largely as
before. The Merger Agreement provides that CC intends to keep the Board of the
new "Flagship" separate from that of CC and to name, in CC's discretion, up to
two additional directors who may be employees of CC or a subsidiary.
Rights of Flagship Dissenting Stockholders
Any Flagship stockholder who elects to exercise his or her rights of
dissent and who complies with the procedures set forth in Sections 85 through
98, inclusive, of Chapter 156B of the Massachusetts Business Corporation Law
("MBCL"), attached hereto as Appendix C, shall be entitled to receive cash for
the fair value of those shares for which such stockholder exercises his or her
dissenter rights. Stockholders contemplating the exercise of dissenters' rights
should carefully review Appendix C containing the pertinent provisions of the
MBCL, Chapter 156B, Sections 85 through 98, inclusive. The following, qualified
in its entirety by the provisions set forth in Appendix C, is a summary of the
steps which must be taken for the effective exercise of dissenters' rights:
(a) Written Objection. Any stockholder electing to exercise the right of
dissent must file with Flagship, prior to or at the Flagship Special Meeting, a
written objection to the proposed Merger stating said stockholder's intention to
demand payment for his or her shares if the proposed Merger is approved.
(b) Not Vote in Favor of the Merger. Shares for which dissenters' rights
are sought must not be voted in favor of the Merger.
(c) Notice of Effectiveness of Action. If the Merger is approved by the
Flagship stockholders at the Special Meeting, CAB, as the survivor of the
Merger, is required, within ten (10) days of the Effective Time of the Merger,
to send to each dissenting stockholder of Flagship who properly filed a written
objection thereto and whose shares were not voted in favor of the approval of
such Merger, a notice (the "Company Notice") that the Merger has become
effective.
(d) Written Demand. Each dissenting stockholder must, within twenty (20)
days after the date on which such stockholder receives the Company Notice, make
written demand on CAB that it pay such stockholder the fair value of his or her
shares. Any stockholder failing to make demand within the twenty (20) day
period shall be bound by the terms of the Merger Agreement if the Merger
Agreement and transaction is approved by the requisite number of Flagship
stockholders. Any stockholder making such demand shall thereafter be entitled
only to payment of such shares and shall not be entitled to vote or to exercise
any other rights of a stockholder. No further notice will be given of the time
periods within which a dissenting stockholder must give notice of his or her
intention to exercise his or her dissenters' rights.
UNLESS THE AFOREMENTIONED REQUIREMENTS ARE STRICTLY MET, SUCH SHARES MAY LOSE
ANY DISSENTERS' RIGHTS.
(e) Payment. If within thirty (30) days after the Effective Time of the
Merger, the fair value of such shares is agreed upon between any such dissenting
stockholder and CAB, payment therefor shall be made within thirty (30) days
after the expiration of the period during which demand could be made. Upon
payment of the agreed value, the dissenting stockholder shall cease to have any
interest in such shares. If CAB and a dissenting stockholder do not agree on
the fair value of the dissenting shares within thirty (30) days, CAB or the
stockholder may, within four (4) months of the expiration of the thirty (30) day
period, file a bill of equity in the Superior Court in the county where Flagship
has its principal office in the Commonwealth of Massachusetts to determine the
fair value of such shares.
(f) Fair Value. If the dissenting stockholder and CAB do not agree on the
fair value of the dissenting shares and an action as described above is
commenced, the fair value of a dissenter's share will be determined as of the
day prior to the date on which the vote was taken approving the proposed Merger,
excluding any appreciation or depreciation in anticipation of the Merger.
Any Flagship stockholder who desires to exercise his or her rights to
dissent should carefully review the MBCL, Chapter 156B, Sections 86 through 98,
inclusive, set forth in Appendix C and is urged to consult such stockholder's
legal advisor before exercising or attempting to exercise such rights.
The foregoing summary of the applicable provisions of the MBCL, Chapter
156B, Sections 86 through 98, inclusive, is not intended to be a complete
statement of such provisions and is qualified in its entirety by reference to
such Sections, the full texts of which are attached as Appendix C to this Proxy
Statement and Prospectus.
Certain Federal Income Tax Consequences
Neither CC nor Flagship has requested or will receive an advance ruling
from the Internal Revenue Service as to the tax consequences of the Merger.
Consummation of the Merger is conditioned on the delivery of an opinion of Piper
& Marbury LLP, special counsel to CC, to CC and Flagship, and the delivery of an
opinion of Bingham, Dana & Gould, counsel to Flagship, to Flagship, each
concluding that for Federal income tax purposes, under current law, assuming
that the Merger and related transactions will take place as described in the
Merger Agreement and certain related instruments described therein (including
the Plan of Merger) and relying upon certain representations presented by one or
more officers of each of CC and Flagship, the Merger will constitute a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code. The Merger Agreement provides that this condition may be waived by
either CC or Flagship. However, it is unlikely that the Merger will be
consummated if this condition is not satisfied. If the Merger constitutes such
a reorganization, the following would be the material Federal income tax
consequences of the Merger:
(a) No gain or loss will be recognized by Flagship, CC or CAB by reason of
the Merger.
(b) No gain or loss will be recognized by a Flagship stockholder upon the
exchange of his or her Flagship Common Stock for CC Common Stock other than as a
result of a cash payment made in lieu of a fractional share or payment to a
Flagship stockholder who exercises dissenters' rights.
(c) The basis of the CC Common Stock received by a stockholder who
exchanges his or her Flagship Common Stock for CC Common Stock will be the same
as the basis of the Flagship Common Stock surrendered in exchange therefor
(subject to any adjustments required by the receipt of cash in lieu of a
fractional share interest of CC Common Stock).
(d) The holding period for tax purposes of the CC Common Stock received by
a Flagship stockholder will include the period during which the Flagship Common
Stock surrendered in exchange therefor was held (provided that such Flagship
Common Stock was held by such Flagship stockholder as a capital asset at the
Effective Time of the Merger).
(e) Cash, if any, received by a Flagship stockholder in lieu of a
fractional share interest of CC Common Stock will be treated as having been
received as a distribution in full payment in exchange for the fractional share
interest of CC Common Stock which he or she would otherwise be entitled to
receive and will qualify as capital gain or loss (assuming the Flagship Common
Stock was a capital asset in such stockholder's hands at the Effective Time of
the Merger).
(f) Cash which a Flagship dissenting stockholder receives as payment for
his or her shares of Flagship Common Stock will be capital gain or loss to the
extent that the amount received varies from the dissenting stockholder's
adjusted basis in the Flagship Common Stock (assuming the Flagship Common Stock
was a capital asset in such stockholder's hands at the Effective Time of the
Merger and shares of CC Common Stock owned by others are not attributed to such
stockholder under certain attribution of ownership rules).
The foregoing is only a general description of certain anticipated Federal
income tax consequences of the Merger without regard to the particular facts and
circumstances or the tax posture of each stockholder of Flagship. It does not
discuss all of the consequences that may be relevant to Flagship stockholders
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, exempt organizations or foreign persons). The summary
set forth above does not purport to be a complete analysis of all potential tax
effects of the transactions contemplated by the Merger Agreement or the Merger
itself. No information is provided herein with respect to the tax consequences,
if any, of the Merger under state, local or foreign tax laws. Flagship
stockholders should consult their own tax advisors with respect to the specific
tax consequences of the Merger to them, including the application of state,
local and foreign tax laws.
Accounting Treatment
It is intended that the Merger will be accounted for as a "pooling of
interests" for financial statement purposes, that such accounting treatment is
in accordance with generally accepted accounting principles and in accordance
with Accounting Principles Board Opinion No. 16, "Business Combinations," as
amended ("APB No. 16") and the consummation of the Merger is conditioned upon
the receipt by CC and Flagship of an opinion by Arthur Andersen LLP that the
Merger qualifies for such "pooling of interests" treatment. Under this method
of accounting, the recorded amount of assets and liabilities of CC and Flagship
will be combined at the Effective Time and carried forward at their previously
recorded amounts and the stockholders' equity accounts of CC and Flagship will
be combined on CC's consolidated balance sheet. Income and other financial
statements of CC issued after the Effective Time will be restated retroactively
to reflect the consolidated operations of CC and Flagship as if CC and Flagship
have always been combined. The exercise of dissenters' rights by holders of
more than 10% of the Flagship Common Stock could prevent qualification for such
"pooling of interests" treatment.
The unaudited pro forma condensed combined financial information contained
in this Proxy Statement and Prospectus has been prepared using the pooling of
interests accounting method to account for the Merger. See "SELECTED HISTORICAL
AND PRO FORMA FINANCIAL DATA", "THE MERGER - ACCOUNTING TREATMENT" and "PRO
FORMA FINANCIAL DATA."
Resale of CC Common Stock Received by Flagship Stockholders
The shares of CC Common Stock issuable to stockholders of Flagship upon
consummation of the Merger have been registered under the Securities Act. Such
shares may be traded freely without restriction by those stockholders who are
not deemed to be "Affiliates" of CC or Flagship. An "Affiliate" is generally
defined as a person (usually executive officers and directors) who controls, is
controlled by, or is under common control with, CC or Flagship at the time of
the Special Meeting or CC at or after the Effective Time of the Merger.
Shares of CC Common Stock received by those stockholders of Flagship who
are deemed to be "affiliates" of Flagship at the time of the Special Meeting may
be resold without registration under the Securities Act as provided for by Rule
145 under the Securities Act or as otherwise permitted under the Securities Act.
This Proxy Statement and Prospectus does not cover any resales of CC Common
Stock received by persons who are deemed to be "Affiliates" of Flagship.
Flagship has agreed to use its best efforts to cause each director,
executive officer and other person who is an "affiliate" of Flagship to deliver
to CC, as soon as practicable after the date of the Merger Agreement and before
the date of the Flagship stockholder vote to approve the Merger Agreement, a
written agreement in a form agreed upon by the parties and attached as Exhibit C
to the Merger Agreement, providing that such "affiliate" will not sell, pledge,
transfer or otherwise dispose of the CC Common Stock to be received by such
"affiliate" in the Merger, except in compliance with applicable securities laws
and within applicable time frames.
Expenses
The Merger Agreement provides that, generally, all legal and other costs
and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party which incurred
them. The costs and expenses of printing and mailing this Proxy Statement and
Prospectus and the fee for registration under the Securities Act of shares of CC
Common Stock to be issued upon conversion of Flagship Common Stock are to be
borne by CC.
Certain Differences in Rights of Stockholders
The rights of Flagship stockholders are governed by the Articles of
Organization of Flagship (the "Flagship Articles"), the By Laws of Flagship (the
"Flagship Bylaws") and the laws of the Commonwealth of Massachusetts. The
rights of CC stockholders are governed by the Articles of Incorporation of CC,
as amended and restated, (the "CC Articles"), the Bylaws of CC (the "CC Bylaws")
and the laws of the State of Vermont. After the Merger becomes effective, the
rights of Flagship stockholders who become CC stockholders will be governed by
the CC Articles and the CC Bylaws. In most respects, the rights of Flagship
stockholders and CC stockholders are similar. See "BUSINESS OF CC - Description
of CC Capital Stock." While it is not practical to describe all changes in the
rights of Flagship stockholders that will result from the difference between the
Flagship Articles and Bylaws and the CC Articles and Bylaws, the following is a
summary of the material differences.
Significant Differences Between the Corporation Laws of Massachusetts and
Vermont
Appraisal Rights. Massachusetts grants appraisal rights in more
circumstances than does Vermont. Unlike Vermont, Massachusetts grants appraisal
rights to stockholders when the corporation sells all or substantially all of
its assets or when the corporation adopts any amendment to its Articles of
Organization which "adversely affects" the rights of a stockholder. Both
Vermont and Massachusetts provide for appraisal rights in the event of a merger
or consolidation.
Calling Stockholders' Meetings. Under Massachusetts law, a special meeting
of stockholders may be called by the board of directors or the president and by
the clerk upon the written request of the holders of at least 10% of the
outstanding shares entitled to vote at such meeting. In the case of
corporations with a class of stock registered under the Exchange Act, a special
meeting of stockholders may be called by the president or the board of directors
and by the clerk upon the written application of the holders of at least 40% of
the outstanding shares entitled to vote at the meeting. Under Vermont law, a
special meeting of stockholders may be called by the board of directors, any
person authorized to do so in the articles of incorporation or the bylaws, or by
the secretary upon written request of the holders of at least 10% of all votes
entitled to be cast on any issue.
Cumulative Voting for Directors. Unlike Massachusetts corporate law,
Vermont law permits cumulative voting for directors, if provided in the articles
of incorporation. CC's Articles and Bylaws do not provide for cumulative
voting.
Stockholder Inspection Rights. Stockholder inspection rights are more
extensive in Vermont, extending to books and records of the corporation, whereas
in Massachusetts, statutory inspection rights only apply to the articles of
organization, bylaws, stock transfer records and records of the meetings of
incorporators and stockholders.
Stockholder Approval for Certain Mergers. Under Vermont law, the surviving
corporation need not obtain stockholder approval of a merger if the certificate
of incorporation of the surviving corporation is not changed and any stock
issued by the surviving corporation in the merger does not exceed 20% of its
total shares. Under Massachusetts law, such a merger would require approval by
the stockholders of the surviving corporation.
Indemnification and Exculpation Provisions. Under both Vermont and
Massachusetts law, a corporation may indemnify officers and directors against
certain liabilities and expenses. However, Vermont law, but not Massachusetts
law, requires a corporation to indemnify directors and officers against expenses
(including attorneys' fees) reasonably incurred in connection with litigation,
to the extent that the director or officer has been successful on the merits or
otherwise in defense of the litigation, unless limited by its articles of
incorporation. CC's Articles have no such latter limitation. Vermont law is
also more specific than Massachusetts law as to the scope of permissible
indemnification in a number of respects, including the propriety of making
advances to reimburse litigation expenses (including attorneys' fees) incurred
by an officer or director prior to final disposition of the litigation.
However, Massachusetts law permits a corporation to adopt a provision
eliminating, subject to certain limitations, personal liability of the directors
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
Removal of Directors. Under Vermont and Massachusetts law, except as
otherwise provided in a corporation's articles of organization or bylaws,
directors may be removed from office with or without cause by the holders of a
majority of the shares entitled to vote in the election of directors or with
cause by a majority of the directors then in office. Unlike Massachusetts law,
Vermont law does not permit directors to remove other directors. Massachusetts
law provides that a director may be removed for cause only after a reasonable
notice and opportunity to be heard before the body proposing removal. There is
no comparable provision in the Vermont law.
Under Vermont law, a director may be removed by judicial proceeding
commenced by either the corporation or holders of 10% of the voting stock if the
court finds that the director engaged in fraudulent or dishonest conduct
relating to the corporation, or in a gross abuse of authority or discretion
relating to the corporation and removal is in the best interest of the
Corporation. There is no comparable provision in Massachusetts law.
Interested Director Transactions. Vermont law provides that a transaction
between a corporation and one of its directors or an entity in which a director
has an interest shall not be void or voidable because of such fact, and sets
forth the criteria by which such a transaction will be upheld. Massachusetts
law has no comparable provision.
Sale of Assets; Merger. Massachusetts law requires a two-thirds (2/3) vote
of the shares of each class of stock outstanding and entitled to vote thereon to
authorize a sale, lease or exchange of all or substantially all of a
corporation's assets or a merger or consolidation to which the corporation is a
party, except that the articles of organization can provide for a greater or
lesser (but not less than a majority) vote. Vermont law requires the vote of
only the holders of a majority of the outstanding shares entitled to vote to
approve such transactions, although the certificate of incorporation may require
a higher vote, as do the CC Articles relating to certain "Related" business
combinations.
Certain Business Combinations. The Articles of CC provide that certain
"Business Combinations" (as defined therein) require the affirmative vote of at
least two-thirds of the "Continuing Directors" (as defined therein), rather than
the otherwise required vote of a majority of the Board of Directors, together
with the affirmative vote of the holders of two-thirds of the outstanding shares
of CC Common Stock. The Articles of CC also contains a so-called "fair price"
provision wherein certain "Related Persons" (as defined therein) are required to
pay either (i) the highest price per share paid by such Related Person within
the two-year period immediately prior to the proposal of the Business
Combination or, if higher, the price paid in the transaction in which the
Related Person became a Related Person, or (ii) the fair market value on the
"Proposal Date" (as defined therein), unless the holders of at least 80 percent
of the outstanding shares entitled to vote thereon, exclusive of the shares
owned by any Related Person, vote to accept a different price. The Articles of
Flagship do not contain a similar provision.
The CC provisions may have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of CC.
Charter Amendments. Under Massachusetts law, certain amendments to the
articles of organization require a two-thirds vote of each class of stock
outstanding and entitled to vote thereon, unless the articles of organization
provide for a greater or lesser (but not less than a majority) vote. Under
Vermont law, amendments to the certificate of incorporation require a majority
vote unless the certificate of incorporation requires a higher vote, as do the
CC Articles, in certain cases.
Dividends. Massachusetts does not specify the sources out of which
dividends must be paid, nor does it forbid the impairment of capital. Rather,
the law imposes liability on the directors if, at the time the Board of
Directors authorizes any distribution, such distribution violates the articles
of organization of the corporation or if the corporation is then or is thereby
rendered insolvent. Vermont does not specify the sources out of which dividends
must be paid but it does specify an indebtedness test and an asset-liabilities
test.
Significant Differences Between the Charters and Bylaws of Flagship and CC
The provisions of the Flagship Articles and Bylaws differ from those of the
CC Articles and Bylaws in certain material respects, as described below:
Authorized Stock. The CC Articles authorize CC to issue up to 30,200,000
shares of capital stock, of which 30,000,000 are CC Common Stock and 200,000 are
CC Preferred Stock. As of December 20, 1995, CC had not issued any shares of CC
Preferred Stock. No holder of CC Common Stock has any preemptive rights to
purchase or subscribe for any shares of capital stock of other securities which
may be issued by CC.
The Flagship Articles authorize Flagship to issue up to 5,010,000 shares of
capital stock, of which 5,000,000 are Flagship Common Stock. As of December 20,
1995, Flagship had issued and outstanding 1,xxx,xxx shares of Flagship Common
Stock. No holder of Flagship Common Stock has any preemptive rights to purchase
or subscribe for any shares of capital stock or other securities which may be
issued by Flagship.
Size and Classification of Board of Directors. The CC Articles provide for
a classified Board of Directors consisting of three classes of directors, with
directors of each class elected by the stockholders to serve for staggered
three-year terms. Only one class of directors may be elected by the CC
stockholders at each annual meeting, with the remaining directors (in the other
classes) continuing with their respective three-year terms. The CC Articles
requires that the respective classes of directors be as nearly equal in size as
possible. Consequently, the Board of Directors of CC currently consists of one
class of 3 and two classes of 4 members, for a total number of directors equal
to 11. Flagship also has a staggered board which consists of two classes of 3
and one class of 2 members, for a total number of directors equal to 8.
Although CC's provision for a classified Board was designed to facilitate
continuity, stability and experienced leadership, the classified board
significantly extends the time required to make a change in control of the Board
and, therefore, may tend to discourage a potential takeover. For information
concerning the current directors of CC and Flagship, see "BUSINESS OF CC -
Directors and Executive Officers of CC."
Director Nominations and Other Stockholder Matters. The CC Bylaws provide
that director nominations may be made only by the Board of Directors although
any stockholder entitled to vote in the election of directors may make a
proposal concerning the corporate affairs by submitting the proposal in writing
to the Secretary by the second Friday in November. However, the Bylaws of
Flagship permit stockholders to nominate directors pursuant to timely notice in
writing to the Clerk and by complying with other requirements set forth in the
Flagship Bylaws.
Both CC and Flagship Bylaws provide indemnification for each respective
director to the fullest extent permitted by Vermont and Massachusetts law,
respectively, for certain expenses and liabilities arising out of such
individual's actions as a director, but provides no such indemnification for any
director's willful misconduct in the performance of his or her duties as a
director.
The foregoing discussion of certain similarities and material differences
between the laws of Massachusetts and Vermont generally and between rights of
Flagship stockholders and the rights of CC stockholders under their respective
charter documents and Bylaws is only a summary of certain laws and provisions
and does not purport to be a complete description of such similarities and
differences, and is qualified in its entirety by reference to the full text of
the Massachusetts and Vermont statutes and the charter documents and Bylaws of
Flagship and CC.
BUSINESS OF CC
General
CC, a Vermont corporation organized in 1971, is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended, and its main
office is located in Burlington, Vermont. Assets of CC were $1.5 billion at
September 30, 1995. CC owns 100 percent of the stock of CTC and BWM. CC has no
other active subsidiaries/1/ and engages in no activities other than holding the
stock of CTC and BWM.
CTC was chartered by the Vermont legislature as a commercial bank in 1904
and is the largest bank in Vermont, based on total deposits of approximately
$1,115,000,000 and total assets of $1,280,000,000 at September 30, 1995. CTC
has its principal office in Burlington, Vermont and operates from 40 locations
throughout Vermont.
CTC offers a wide range of personal and commercial banking services,
including the acceptance of demand, savings, and time deposits; making secured
and unsecured loans; issuing letters of credit; and offering fee based services.
In addition, CTC offers a wide range of trust and trust-related services,
including services as executor, trustee, administrator, custodian and guardian.
CTC lending services include making real estate, commercial, industrial,
agricultural and consumer loans. CTC also offers data processing services
consisting primarily of payroll and automated clearing house for several outside
clients. CTC provides financial and investment counseling to municipalities
and school districts within its service area and also provides central
depository, lending, payroll and other banking services for such customers. CTC
also provides safe deposit facilities, MasterCard and VISA credit card services.
Over 90 percent of CTC's loans are made to individuals and businesses located in
Vermont.
CTC competes on the local and the regional levels with other commercial
banks and financial institutions for all types of deposits, loans and trust
accounts. Competitors include metropolitan banks and financial institutions
based in southern New England and New York, many of which have greater financial
resources.
In the retail market for financial services, competitors include other
banks, credit unions, finance companies, and mortgage loan companies.
In the personal and commercial trust business, competitors include mutual
funds, insurance companies, and investment advisory firms.
On April 26, 1993, CC acquired VerBanc Financial Corp., the holding company
of Bellows Falls Trust Company, a Vermont-chartered, FDIC-insured commercial
bank with total assets of approximately $73 million, based in Bellows Falls,
Vermont with branch offices in Brattleboro, Putney and Londonderry, Vermont.
Bellows Falls Trust Company merged into CTC upon consummation of that
transaction.
On March 17, 1995, CC acquired BWM, an FDIC-insured, Massachusetts-
chartered, trust company headquartered in Springfield, Massachusetts with branch
offices in Amherst, Eastfield and Holyoke, Massachusetts. BWM has approximately
$240 million in total assets and operates independently of CTC.
For further discussion of the business of CC, see its Annual Report on Form
10-K incorporated herein by reference.
__________________________
/1/ CAB was formed for the purpose of consummating the Merger.
Description of CC Capital Stock
Common Stock
The following description of the capital stock of CC does not purport to be
complete and is subject, in all respects, to applicable Vermont law and to the
provisions of the Articles of CC. The following description is qualified by
reference to the CC Articles, a copy of which is incorporated by reference as an
exhibit to the Registration Statement of which this Proxy Statement and
Prospectus is a part.
General. As of December 20, 1995, CC Common Stock consisted of 30,000,000
authorized shares, $1.00 par value per share, of which 8,xxx,000 shares were
issued and outstanding and held by approximately 2,xxx stockholders (exclusive
of treasury shares). CC Common Stock is traded on NASDAQ-NMS. The transfer
agent and registrar for CC Common Stock is Bank of Boston.
Shares of CC Common Stock may be issued from time to time, in such amount
and proportions and for such consideration as may be fixed by the Board of
Directors of CC. No holder of CC Common Stock has any preemptive or
preferential rights to purchase or to subscribe for any shares of capital stock
or other securities which may be issued by CC. CC Common Stock has no
redemption or sinking fund provisions applicable thereto and has no conversion
rights.
The outstanding shares of CC Common Stock are fully paid and non-
assessable.
Liquidation. In the event of any liquidation, dissolution or winding up of
CC, whether voluntary or involuntary, the holders of CC Common Stock are
entitled to receive, on a share-for-share basis, any assets or funds of CC which
are distributable to the holders of CC Common Stock upon such events, subject to
the prior rights of creditors of CC and the holders of outstanding shares of CC
Preferred Stock, if any.
Voting. The holders of CC Common Stock are entitled to one vote for each
share in all matters voted upon by the stockholders of CC. The shares of CC
Common Stock have noncumulative voting rights; consequently, the holders of a
majority in interest of CC Common Stock can conceivably elect all of the
directors of CC and, in such event, the holders of the remaining shares voting
for election of directors would not be able to elect any person or persons to
the Board of Directors of CC.
Dividends. When and if dividends, payable as cash, stock or other
property, are declared by the Board of Directors of CC out of funds legally
available therefor, the holders of CC Common Stock are entitled to share
equally, share for share, in such dividends. The payment of dividends on CC
Common Stock is subject to certain bank regulatory restrictions.
Preferred Stock
General. Under the CC Articles, the Board of Directors of CC is
authorized, without further stockholder action, to provide for the issuance of
up to 200,000 shares of CC Preferred Stock, $100.00 par value per share, in one
or more series, with such designations or titles; dividend rates, special or
relative rights in the event of liquidation, distribution or sale of assets or
dissolution or winding up of CC; any sinking fund provisions; any redemption or
purchase account provision; any conversion provisions; and any voting rights
thereof, as shall be set forth as and when established by the Board of Directors
of CC.
As of December 20, 1995, CC had not issued any shares of CC Preferred
Stock.
Upon consummation of the Merger, approximately 9,600,000 shares of CC will
be issued and outstanding, subject to certain adjustments described in "THE
MERGER - Terms of the Merger; Consideration to be Received by Flagship
Stockholders," and assuming no exercise of dissenters' rights.
BUSINESS OF FLAGSHIP
General. Flagship is an FDIC-insured, Massachusetts trust company which
commenced banking operations in December, 1987. As of September 30, 1995,
Flagship had total assets of $265,099,000, total loans of $160,934,000 and total
deposits of $212,581,000. Flagship's main banking office is located at 306 Main
Street, Worcester, Massachusetts. Flagship also has three branch offices in
Worcester at 491 Shrewsbury Street, 4 Mower Street, and 75 Gold Star Boulevard.
In addition, Flagship opened a branch in the City of Leominster, Massachusetts,
at 75 Main Street, earlier this year. For further discussion of the business of
Flagship, see its Business Description attached hereto as Appendix F.
Flagship provides full service commercial and retail banking services to
customers, particularly smaller businesses and professionals, within the City of
Worcester and its contiguous communities as well as the City of Leominster and
its surrounding communities. Flagship's deposit gathering and lending
activities are conducted primarily in these communities. Flagship's officers
and directors have business and personal ties to the cities of Worcester and
Leominster and their surrounding communities. These ties have helped attract
customers to Flagship and the quality of the services Flagship offers has
assisted in retaining these customers as well as attracting additional
customers.
As a full-service commercial bank, Flagship offers to businesses and
consumers checking accounts, NOW and savings accounts, money market accounts,
certificates of deposit, and other deposit services such as ATM cards, Express
Line telephone banking and cash management services.
Deposits are Flagship's primary source of funds for investment. Flagship
also originates and services residential real estate, home equity and consumer
loans and provides commercial loans to small and medium size businesses through
conventional or Small Business Administration ("SBA") financing. Flagship has
developed many innovative programs in connection with its SBA lending and has
attained the status of a "Preferred Lender" in the SBA program. Flagship ranked
second to a large Boston-based bank in SBA loan originations in Massachusetts in
1994. Refer to an additional Businesss Description attached hereto as Appendix
F.
Market Price of and Dividends on Flagship Common Stock
There is no established trading market for Flagship Common Stock. Flagship
is aware of several transactions involving the sale of Flagship Common Stock
over the last two fiscal years and the current fiscal year to date. However, as
such sales have occurred in privately negotiated transactions, Flagship
generally is not aware of the sale price.
There were approximately (Not Available) stockholders of record of Flagship
Common Stock as of the Record Date.
During the last three years, Flagship has regularly declared semi-annual
cash dividends of $0.13 to $0.1525 per share.
SUPERVISION AND REGULATION
CC, CTC, BWM and Flagship are subject to extensive regulation under federal and
state banking laws and regulations. The following discussion of certain of the
material elements of the regulatory framework applicable to banks and bank
holding companies is not intended to be complete and is qualified in its
entirety by the text of the relevant state and federal statutes and regulations.
A change in the applicable laws or regulations may have a material effect on the
business of CC, CTC, BWM, and/or Flagship.
Regulation of CC
General. As a bank holding company, CC is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Under the BHC Act, bank holding companies generally may not acquire
ownership or control of more than 5% of any class of voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. In addition, bank holding
companies are generally prohibited under the BHC Act from engaging in non-
banking activities, subject to certain exceptions. As a bank holding company,
CC's activities and those of its non-bank subsidiaries are limited generally to
the business of banking and activities determined by the Federal Reserve Board
to be so closely related to banking as to be a proper incident thereto. The
Federal Reserve Board has authority to issue cease and desist orders and assess
civil money penalties against bank holding companies and their non-bank
subsidiaries, officers, directors and other institution-affiliated parties, and
to remove officers, directors and other institution-affiliated parties to
terminate or prevent unsafe or unsound banking practices or violations of laws
or regulations.
Interstate Acquisitions. Prior to September 29, 1995, under the BHC Act a
bank holding company was permitted to acquire a bank in another state only if
the law of the state in which the bank to be acquired was located specifically
authorized such acquisition of an in-state bank by an out-of-state bank holding
company. (As described below under "Recent Banking Legislation - Interstate
Banking and Branching", the BHC Act has recently been amended, effective
September 29, 1995, to remove this prohibition.) Even prior to this amendment
to the BHC Act, state legislation enacted in recent years substantially lessened
prior legislative restrictions on geographic expansion by bank holding companies
from and into Massachusetts and Vermont. For example, under nationwide
reciprocal interstate banking legislation adopted by both states which became
effective in 1990, bank holding companies whose subsidiaries' banking operations
were principally conducted in any state outside Massachusetts or Vermont were
authorized to acquire Massachusetts or Vermont banking organizations, provided
that such companies' home states afforded Massachusetts or Vermont banking
organizations reciprocal rights to acquire banks in such states.
Dividends. The Federal Reserve Board has authority to prohibit bank
holding companies from paying dividends if such payment would be an unsafe or
unsound practice. The Federal Reserve Board has indicated generally that it may
be an unsound practice for bank holding companies to pay dividends unless the
bank holding company's net income over the preceding year is sufficient to fund
the dividends and the expected rate of earnings retention is consistent with the
organization's capital needs, asset quality, and overall financial condition.
CC's ability to pay dividends is dependent upon the flow of dividend income to
it from CTC, which may be affected or limited by regulatory restrictions imposed
by federal or state bank regulatory agencies. See "- Regulation of CTC, BWM and
Flagship - Dividends."
Certain Transactions by Bank Holding Companies with Their Affiliates.
There are various legal restrictions on the extent to which bank holding
companies, such as CC, and their non-bank subsidiaries may borrow, obtain credit
from or otherwise engage in "covered transactions" with their insured depository
institution subsidiaries. Such borrowings and other covered transactions by an
insured depository institution subsidiary (and its subsidiaries) with its non-
depository institution affiliates are limited to the following amounts: (a) in
the case of any one such affiliate, the aggregate amount of covered transactions
of the insured depository institution and its subsidiaries cannot exceed 10% of
the capital stock and surplus of the insured depository institution; and (b) in
the case of all affiliates, the aggregate amount of covered transactions of the
insured depository institution and its subsidiaries cannot exceed 20% of the
capital stock and surplus of the insured depository institution. "Covered
transactions" are defined by statute for these purposes to include a loan or
extension of credit to an affiliate, a purchase of or investment in securities
issued by an affiliate, a purchase of assets from an affiliate unless exempted
by the Federal Reserve Board, the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any person or
company, or the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate. Covered transactions are also subject to certain
collateral security requirements. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tying arrangements in
connection with any extension of credit, lease or sale of property of any kind,
or furnishing of any service.
Holding Company Support of Subsidiary Banks. Under Federal Reserve Board
policy, CC is expected to act as a source of financial strength to its
subsidiary banks and to commit resources to support such subsidiaries. This
support of its subsidiary banks may be required at times when, absent such
Federal Reserve Board policy, CC might not otherwise be inclined to provide it.
In addition, any capital loans by a bank holding company to any of its
subsidiary banks are subordinate in right of payment to deposits and certain
other indebtedness of such subsidiary banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Liability of Commonly Controlled Depository Institutions. Under the
Federal Deposit Insurance Act, as amended ("FDI Act"), an FDIC-insured
depository institution, such as CTC or Flagship, can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989 in connection with (i) the "default" of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to any
commonly controlled depository institution in "danger of default." For these
purposes, the term "default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur
without Federal regulatory assistance.
Regulation of CTC, BWM and Flagship
General. As FDIC-insured state-chartered banks, CTC, BWM and Flagship are
subject to supervision of and regulation by the Commissioner of Banking,
Insurance and Securities of the State of Vermont, in connection with CTC, and
the Commissioner of Banks of the Commonwealth of Massachusetts in connection
with BWM and Flagship (collectively, the "Commissioners") and, for all three
banks, by the FDIC. This supervision and regulation is for the protection of
depositors, the BIF (as hereinafter defined), and consumers, and is not for the
protection of CC's and Flagship's stockholders. The prior approval of the FDIC
and the Commissioners is required for CTC, BWM or Flagship to establish or
relocate an additional branch office, assume deposits, or engage in any merger,
consolidation or purchase or sale of all or substantially all of the assets of
any bank or savings association.
Examinations and Supervision. The FDIC and the Commissioners regularly
examine the operations of CTC, BWM and Flagship, including (but not limited to)
their capital adequacy, reserves, loans, investments, earnings, liquidity,
compliance with laws and regulations, record of performance under the Community
Reinvestment Act and management practices. In addition, CTC, BWM and Flagship
are required to furnish quarterly and annual reports of income and condition to
the FDIC and periodic reports to the Commissioners. The enforcement authority
of the FDIC includes the power to impose civil money penalties, terminate
insurance coverage, remove officers and directors and issue cease-and-desist
orders to prevent unsafe or unsound practices or violations of laws or
regulations. In addition, under recent federal banking legislation, the FDIC
has authority to impose additional restrictions and requirements with respect to
banks that do not satisfy applicable regulatory capital requirements. See "-
Recent Banking Legislation - Prompt Corrective Action" below.
Dividends. The principal source of CC's revenue is dividends from CTC, its
bank subsidiary. Payment of dividends by CTC, BWM and Flagship are subject to
certain Vermont and Massachusetts banking law restrictions. Payment of
dividends by CTC is subject to Vermont banking law restrictions which require
that, except when surplus and paid-in capital together amount to 10% or more of
deposits and other liabilities (not including surplus, paid-in capital, capital
notes and debentures, and funds held in a fiduciary capacity), at least one-
tenth of its net profits must be set aside annually and added to surplus. For a
discussion of other restrictions on payment of dividends by CTC, see "Market
Price of and Dividends on CC Common Stock."
The FDIC has authority to prevent CTC, BWM and Flagship from paying
dividends if such payment would constitute an unsafe or unsound banking practice
or reduce their respective bank's capital below safe and sound levels. In
addition, recently enacted federal legislation prohibits FDIC-insured depository
institutions from paying dividends or making capital distributions that would
cause the institution to fail to meet minimum capital requirements. See "-
Recent Banking Legislation - Prompt Corrective Action" below.
Affiliate Transactions. CTC is subject to restrictions imposed by federal
law on extensions of credit to, purchases of assets from, and certain other
transactions with, affiliates, and on investments in stock or other securities
issued by affiliates. Such restrictions prevent CTC from making loans to
affiliates unless the loans are secured by collateral in specified amounts and
have terms at least as favorable to the bank as the terms of comparable
transactions between the bank and non-affiliates. Further, federal and Vermont
laws significantly restrict extensions of credit by CTC to directors, executive
officers and principal stockholders and related interests of such persons.
Deposit Insurance. CTC's and Flagship's deposits are insured by the Bank
Insurance Fund ("BIF") of the FDIC to the legal maximum of $100,000 for each
insured depositor. The Federal Deposit Insurance Act provides that the FDIC
shall set deposit insurance assessment rates on a semi-annual basis at a level
sufficient to increase the ratio of BIF reserves to BIF-insured deposits to at
least 1.25% over a 15-year period commencing in 1991, and to maintain that
ratio. Although the recently-established framework of risk-based insurance
assessments accomplished this increase in May 1995, and the FDIC has made a
substantial reduction in the assessment rate schedule, the BIF insurance
assessments may be increased in the future if necessary to maintain BIF reserves
at the required level. In addition, certain proposed legislation to
recapitalize the Savings Association Insurance Fund ("SAIF"), which insures the
deposits of savings associations and certain savings banks, may result in
increased BIF assessments. See "-Recent Banking Legislation - Risk-Based
Deposit Insurance Assessments" below.
Federal Reserve Board Policies. The monetary policies and regulations of
the Federal Reserve Board have had a significant effect on the operating results
of banks in the past and are expected to continue to do so in the future.
Federal Reserve Board Policies affect the levels of bank earnings on loans and
investments and the levels of interest paid on bank deposits through the Federal
Reserve System's open-market operations in United States government securities,
regulation of the discount rate on bank borrowings from Federal Reserve Banks
and regulation of non-earning reserve requirements applicable to bank deposit
account balances.
Consumer Protection Regulation; Bank Secrecy Act. Other aspects of the
lending and deposit business of CTC and Flagship that are subject to regulation
by the FDIC and the Commissioners include disclosure requirements with respect
to interest, payment and other terms of consumer and residential mortgage loans
and disclosure of interest and fees and other terms of and the availability of
funds for withdrawal from consumer deposit accounts. In addition, CTC and
Flagship are subject to federal and state laws and regulations prohibiting
certain forms of discrimination in credit transactions, and imposing certain
record keeping, reporting and disclosure requirements with respect to
residential mortgage loan applications. In addition, CTC and Flagship are
subject to federal laws establishing certain record keeping, customer
identification, and reporting requirements with respect to certain large cash
transactions, sales of travelers checks or other monetary instruments and the
international transportation of cash or monetary instruments.
Capital Requirements
General. The FDIC has established guidelines with respect to the
maintenance of appropriate levels of capital by FDIC-insured banks. The Federal
Reserve Board has established substantially identical guidelines with respect to
the maintenance of appropriate levels of capital, on a consolidated basis, by
bank holding companies. If a banking organization's capital levels fall below
the minimum requirements established by such guidelines, a bank or bank holding
company will be expected to develop and implement a plan acceptable to the FDIC
or the Federal Reserve Board, respectively, to achieve adequate levels of
capital within a reasonable period, and may be denied approval to acquire or
establish additional banks or non-bank businesses, merge with other institutions
or open branch facilities until such capital levels are achieved. Recently
enacted Federal legislation requires federal bank regulators to take "prompt
corrective action" with respect to insured depository institutions that fail to
satisfy minimum capital requirements and imposes significant restrictions on
such institutions. See "- Recent Banking Legislation - Prompt Corrective
Action" below.
Leverage Capital Ratio. The regulations of the FDIC require FDIC-insured
banks to maintain a minimum "Leverage Capital Ratio" or "Tier 1 Capital" (as
defined in the Risk-Based Capital Guidelines discussed in the following
paragraphs) to Total Assets of 3.0%. The regulations of the FDIC state that
only banks with the highest federal bank regulatory examination rating will be
permitted to operate at or near such minimum level of capital. All other banks,
including Flagship and CTC, are expected to maintain an additional margin of
capital, equal to at least 1% to 2% of Total Assets, above the minimum ratio.
Any bank experiencing or anticipating significant growth is expected to maintain
capital well above the minimum levels. The Federal Reserve Board's guidelines
impose substantially similar leverage capital requirements on bank holding
companies on a consolidated basis.
Risk-Based Capital Requirements. The regulations of the FDIC also require
FDIC-insured banks to maintain minimum capital levels measured as a percentage
of such banks' risk-adjusted assets. A bank's qualifying total capital ("Total
Capital") for this purpose may include two components - "Core" (Tier 1) Capital
and "Supplementary" (Tier 2) Capital. Core Capital consists primarily of common
stockholders' equity, which generally includes common stock, related surplus and
retained earnings, certain non-cumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, and (subject to certain limitations) mortgage servicing rights and
purchased credit card relationships, less all other intangible assets (primarily
goodwill). Supplementary Capital elements include, subject to certain
limitations, a portion of the allowance for losses on loans and leases,
perpetual preferred stock that does not qualify for inclusion in Tier 1 capital,
long-term preferred stock with an original maturity of at least 20 years and
related surplus, certain forms of perpetual debt and mandatory convertible
securities, and certain forms of subordinated debt and intermediate-term
preferred stock.
The risk-based capital rules of the FDIC and the Federal Reserve Board
assign a bank's balance sheet assets and the credit equivalent amounts of the
bank's off-balance sheet obligations to one of four risk categories, weighted at
0%, 20%, 50% or 100%, respectively. Applying these risk-weights to each
category of the bank's balance sheet assets and to credit the equivalent amounts
of the bank's off-balance sheet obligations and summing the totals results in
the amount of the bank's total Risk-Adjusted Assets for purposes of the risk-
based capital requirements. Risk-Adjusted Assets can either exceed or be less
than reported balance sheet assets, depending on the risk profile of the banking
organization. Risk-Adjusted Assets for institutions such as CTC will generally
be less than reported balance sheet assets because its retail banking activities
include proportionally more residential mortgage loans with a lower risk
weighing and relatively smaller off-balance sheet obligations.
Effective as of December 31, 1992, the risk-based capital regulations
require all banks to maintain a minimum ratio of Total Capital to Risk-Adjusted
Assets of 8.0%, of which at least one-half (4.0%) must be Core (Tier 1) Capital.
For the purpose of calculating these ratios: (i) a banking organization's
Supplementary Capital eligible for inclusion in Total Capital is limited to no
more than 100% of Core Capital; and (ii) the aggregate amount of certain types
of Supplementary Capital eligible for inclusion in Total Capital is further
limited. For example, the regulations limit the portion of the allowance for
loan losses eligible for inclusion in Total Capital to 1.25% of Risk-Adjusted
Assets. The Federal Reserve Board has established substantially identical risk-
based capital requirements which are applied to bank holding companies on a
consolidated basis.
Effective September 1, 1995, the FDIC amended its risk-based capital
regulation to provide explicitly for consideration of interest rate risk in the
FDIC's overall evaluation of a bank's capital adequacy. The intended effect of
the amendment is to insure that banks effectively measure and monitor their
interest rate risk, and that they maintain capital adequate for that risk. A
bank deemed by the FDIC to have excessive interest rate risk exposure may be
required by the FDIC to maintain additional capital (that is, capital in excess
of the minimum ratios discussed above). Both CC and Flagship believe that this
amendment will not have a material adverse effect on them.
At December 31, 1994, CC's consolidated Total and Tier 1 Risk-Based Capital
Ratios were 12.82% and 11.46%, respectively, and its Leverage Capital Ratio was
8.41%. As of September 30, 1995, CC's consolidated Total and Tier 1 Risk-Based
Capital Ratios were 12.43% and 11.06%, respectively, and its Leverage Capital
Ratio was 8.14%. CC's consolidated Total and Tier 1 Risk-Based Capital Ratios
at December 31, 1993 were 12.41% and 11.05%, respectively, and its Leverage
Capital Ratio was 8.13%.
At December 31, 1994, Flagship's Total and Tier 1 Risk-Based Capital Ratios
were 12.16% and 10.91%, respectively, and its Leverage Capital Ratio was 7.03%.
As of September 30, 1995, Flagship's Total and Tier 1 Risk-Based Capital Ratios
were 11.75% and 10.50%, respectively, and its Leverage Capital Ratio was 7.13%.
Flagship's Total and Tier 1 Risk-Based Capital Ratios at December 31, 1993 were
11.23% and 9.98%, respectively, and its Leverage Capital Ratio was 6.82%.
Based on the above figures and accompanying discussion, both CC and
Flagship exceed all regulatory capital requirements on an historical as well as
on a pro forma basis.
Recent Banking Legislation
General. On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. FDICIA extensively revised the
regulatory and funding provisions of the FDI Act and made revisions to several
federal banking statutes. In addition, there has been certain other recent
banking legislation. Certain of these changes are summarized below.
Prompt Corrective Action. Among other things, FDICIA requires the federal
banking regulators to take "prompt corrective action" with respect to, and
imposes significant restrictions on, any bank that fails to satisfy its
applicable minimum capital requirements. FDICIA establishes five capital
categories consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Under applicable regulations, a bank that has a Total Risk-
Based Capital Ratio of 10.0% or greater, a Tier 1 Risk-Based Capital Ratio of
6.0% or greater and a Leverage Capital Ratio of 5.0% or greater, and is not
subject to any written agreement, order, capital directive or prompt corrective
action directive to meet and maintain a specific capital level for any capital
measure is deemed to be "well capitalized." A bank that has a Total Risk-Based
Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or
greater and a Leverage Capital Ratio of 4.0% or greater and does not meet the
definition of a well capitalized bank is considered to be "adequately
capitalized." A bank that has a Total Risk-Based Capital Ratio of less than
8.0% or has a Tier 1 Risk-Based Capital Ratio that is less than 4.0% or
generally a Leverage Capital Ratio of less than 4.0% is considered
"undercapitalized." A bank that has a Total Risk-Based Capital Ratio of less
than 6.0%, or a Tier 1 Risk-Based Capital Ratio that is less than 3.0% or a
Leverage Capital Ratio that is less than 3.0% is considered to be "significantly
undercapitalized," and a bank that has a ratio of tangible equity to total
assets equal to or less than 2% is deemed to be "critically undercapitalized."
A bank may be deemed to be in a capital category lower than is indicated by its
actual capital position if it is determined to be in an unsafe or unsound
condition or receives an unsatisfactory examination rating. At September 30,
1995, CTC's and Flagship's ratios of tangible equity to total assets as
calculated under the prompt corrective action rule were 8.14% and 7.13%,
respectively. FDICIA generally prohibits a bank from making capital
distributions (including payment of dividends) or paying management fees to
controlling stockholders or their affiliates if, after such payment, the bank
would be undercapitalized.
Under FDICIA and the applicable implementing regulations, an
undercapitalized bank will be (i) subject to increased monitoring by the FDIC;
(ii) required to submit to the FDIC an acceptable capital restoration plan
(guaranteed, subject to certain limits, by the bank's holding company) within 45
days; (iii) subject to strict asset growth limitations; and (iv) required to
obtain prior regulatory approval for certain acquisitions, transactions not in
the ordinary course of business, and entry into new lines of business. In
addition to the foregoing, the FDIC may issue a "prompt corrective action
directive" to any undercapitalized institution. Such a directive may require
sale or recapitalization of the bank, impose additional restrictions on
transactions between the bank and its affiliates, limit interest rates paid by
the bank on deposits, limit asset growth and other activities, require
divestiture of the subsidiaries, require replacement of directors and officers,
and restrict capital distributions by the bank's parent holding company.
In addition to the foregoing, a significantly undercapitalized institution
may not award bonuses or increases in compensation to its senior executive
officers until it has submitted an acceptable capital restoration plan and
received approval from the FDIC.
Not later than 90 days after an institution becomes critically
undercapitalized, the appropriate federal banking agency for the institution
must appoint a receiver or, with the concurrence of the FDIC, a conservator,
unless the agency, with the concurrence of the FDIC, determines that the
purposes of the prompt corrective action provisions would be better served by
another course of action. FDICIA requires that any alternative determination be
"documented" and reassessed on a periodic basis. Notwithstanding the foregoing,
a receiver must be appointed after 270 days unless the appropriate federal
banking agency and the FDIC certify that the institution is viable and not
expected to fail.
Risk-Based Deposit Insurance Assessments. Effective January 1, 1993, a
transitional risk-based structure was implemented by the FDIC pursuant to FDICIA
and the average assessment rate paid by Savings Association Insurance Fund-
insured and BIF-insured institutions was increased. Under the rule implementing
the transitional system, the FDIC assigned an institution to one of three
capital categories consisting of (1) well capitalized, (2) adequately
capitalized, or (3) undercapitalized, and one of three supervisory categories.
An institution's assessment rate depended on the capital category and
supervisory category to which it was assigned. Under the transitional system,
there were nine assessment risk classifications (i.e., combinations of capital
categories and supervisory subgroups within each capital group) to which the
differing assessment rates were applied. Assessment rates ranged from 0.23% of
domestic deposits for an institution in the lowest risk category (i.e., well-
capitalized and healthy from a supervisory standpoint), to 0.31% of domestic
deposits for institutions in the highest risk category (i.e., undercapitalized
and unhealthy from a supervisory standpoint). The risk classification to which
an institution is assigned by the FDIC is confidential and may not be disclosed.
On June 17, 1993, the FDIC adopted a final rule establishing a new risk-
based system that was implemented beginning with the semi-annual assessment
period commencing on January 1, 1994, as required under FDICIA. Except for
limited changes, the structure of the new risk-based system is substantially the
same as the structure of the transitional system it replaced and (until
recently) retained the same range of assessment rates. Under the FDIC rule
implementing the new risk-based system, an institution's deposit insurance
assessment rate is determined by assigning the institution to a capital category
and a supervisory subgroup to determine which one of the nine risk
classification categories is applicable, in substantially the same manner as for
the transitional system discussed above. The FDIC is authorized to raise the
assessment rates in certain circumstances. If the FDIC determines to increase
the assessment rates for all institutions, institutions in all risk categories
could be affected. The FDIC has exercised this authority several times in the
past and may raise BIF insurance premiums again in the future. If such action
is taken by the FDIC, it could have an adverse effect on the earnings of CC and
Flagship, the extent of which is not currently quantifiable.
On August 8, 1995, in view of the successful recapitalization of the BIF,
the FDIC lowered the assessment rate schedule for BIF-insured institutions from
a range of 0.23% to 0.31% of domestic deposits to a range of 0.04% to 0.31% of
domestic deposits, with intermediate rates of 0.07%, 0.14%, 0.21% and 0.28%.
The FDIC has estimated that approximately 90% of BIF-insured institutions
qualify for the lowest rate of 0.04%. The insurance assessment rate for CTC is
now 0.04%, and for Flagship is now 0.04%. This reduction in the assessment rate
schedule was made retroactive to June 1, 1995 (the FDIC having determined that
the BIF achieved the statutorily-required reserve ratio of 1.25% on May 31,
1995), and on September 15, 1995 the FDIC paid refunds (reflecting the new rate
schedule) to banks which overpaid their BIF assessments for the period June 1,
1995 through September 30, 1995. CTC received a refund (plus interest) totaling
$780,000, and Flagship received a refund (plus interest) totaling $123,000.
On November 14, 1995, the FDIC again lowered the assessment rate schedule
for BIF-insured institutions, effective for the semiannual assessment period
beginning January 1, 1996, from a range of 0.04% to 0.31% of domestic deposits
to a range of the statutory annual minimum assessment of $2,000 per institution
(regardless of size) to 0.27% of domestic deposits, with intermediate rates of
0.03%, 0.10%, 0.17% and 0.24%. The FDIC indicated that it took this action in
view of the historically high reserve ratio of the BIF (approximately 1.30% of
insured deposits), the general health of the banking industry, the low projected
losses to the BIF, and the strength of the economy. The FDIC has estimated that
approximately 92% of BIF-insured institutions will qualify for the minimum
annual assessment of $2,000, and it is expected that CTC, BWM and Flagship will
qualify for the minimum annual assessment under this new assessment rate
schedule. The new assessment rate schedule does not reflect the possible impact
upon assessment rates of the proposed legislation to recapitalize the SAIF,
discussed below.
Although the BIF has now been recapitalized, the SAIF remains seriously
undercapitalized, and the Congress is currently considering legislation to
recapitalize the SAIF. Among other things, this proposed legislation would, if
enacted into law, (1) require BIF-insured institutions to pay most of the annual
interest on the Financing Corporation ("FICO") bonds issued in 1987 to begin
funding the resolution of the problems in the savings and loan industry, which
may result in an increase of 0.025% (or more) of domestic deposits in the
assessment rates applicable to BIF-insured institutions, and (2) following the
recapitalization of the SAIF, merge the SAIF into the BIF, resulting in the
assumption by the BIF of the risk of loss from the possible failure of
institutions now insured by the SAIF, and the possibility of higher BIF
assessments to cover such losses or to establish special reserves (not counted
toward the statutorily-required reserve ratio) against anticipated losses. At
the end of October 1995, different versions of such legislation had been
approved by both the House of Representatives and the Senate as parts of budget
reconciliation bills. A House-Senate conference committee is attempting to
resolve the differences between these two bills (including the provisions
relating to the recapitalization of the SAIF). Although the passage of some
form of legislation to recapitalize the SAIF appears likely in the near future,
the ultimate form of such legislation, including the timing and amounts of any
payments to be made thereunder by BIF-insured institutions, and the effect (if
any) of such legislation on possible future losses of the BIF or the insurance
assessment rate schedule for BIF-insured institutions, can not be determined at
this time.
Brokered Deposits and Pass-Through Deposit Insurance Limitations. Under
FDICIA, a bank cannot accept brokered deposits unless it either (i) is "Well
Capitalized" or (ii) is "Adequately Capitalized" and has received a written
waiver from the FDIC. For this purpose, "Well Capitalized" and "Adequately
Capitalized" have the same definitions as in the Prompt Corrective Action
regulations. See "- Prompt Corrective Action" above. Banks that are not in the
"Well Capitalized" category are subject to certain limits on the rates of
interest they may offer on any deposits (whether or not obtained through a
third-party deposit broker). Pass-through insurance coverage is not available
for deposits of certain employee benefits plans in banks that do not satisfy the
requirements for acceptance of brokered deposits, except that pass-through
insurance coverage will be provided for employee benefit plan deposits in
institutions which at the time of acceptance of the deposit meet all applicable
regulatory capital requirements and send written notice to their depositors that
their funds are eligible for pass-through deposit insurance. Although eligible
to do so, CTC does not accept brokered deposits.
Conservatorship and Receivership Amendments. FDICIA authorizes the FDIC to
appoint itself conservator or receiver for a state-chartered bank under certain
circumstances and expands the grounds for appointment of a conservator or
receiver for an insured depository institution to include (i) consent to such
action by the board of directors of the institution; (ii) cessation of the
institution's status as an insured depository institution; (iii) the institution
is undercapitalized and has no reasonable prospect of becoming adequately
capitalized, or fails to become adequately capitalized when required to do so,
or fails to timely submit an acceptable capital plan, or materially fails to
implement an acceptable capital plan; and (iv) the institution is critically
undercapitalized or otherwise has substantially insufficient capital. FDICIA
provides that an institution's directors shall not be liable to its stockholders
or creditors for acquiescing in or consenting to the appointment of the FDIC as
receiver or conservator for, or as a supervisor in the acquisition of, the
institution.
Real Estate Lending Standards. FDICIA requires the federal bank regulatory
agencies to adopt uniform real estate lending standards. The FDIC has adopted
implementing regulations which establish supervisory limitations on Loan-to-
Value ("LTV") ratios in real estate loans by FDIC-insured banks. The
regulations require FDIC-insured banks to establish LTV ratio limitations within
or below the prescribed uniform range of supervisory limits.
Standards for Safety and Soundness. FDICIA requires the federal bank
regulatory agencies to prescribe, by regulation, standards for all insured
depository institutions and depository institution holding companies relating
to: (i) internal controls, information systems and internal audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
(v) asset growth; and (vi) compensation, fees and benefits. The compensation
standards would prohibit employment contracts, compensation or benefit
arrangements, stock option plans, fee arrangements or other compensatory
arrangements that would provide "excessive" compensation, fees or benefits, or
that could lead to material financial loss. In addition, the federal bank
regulatory agencies are required by FDICIA to prescribe standards specifying;
(i) maximum classified assets to capital ratios; (ii) minimum earnings
sufficient to absorb losses without impairing capital; and (iii) to the extent
feasible, a minimum ratio of market value to book value for publicly-traded
shares of depository institutions and depository institution holding companies.
The FDIC has issued regulations implementing certain of these provisions.
Activities and Investments of Insured State Banks. FDICIA provides that
FDIC-insured state banks such as CTC and Flagship may not engage as a principal,
directly or through a subsidiary, in any activity that is not permissible for a
national bank unless the FDIC determines that the activity does not pose a
significant risk to the BIF, and the bank is in compliance with its applicable
capital standards. In addition, an insured state bank may not acquire or
retain, directly or through a subsidiary, any equity investment of a type, or in
an amount, that is not permissible for a national bank.
Subject to certain limited exceptions, the foregoing provisions of FDICIA
prohibit insured state banks such as CTC and Flagship or any subsidiary of such
insured state banks from retaining or acquiring equity investments. However,
under an exception in the statute, an insured state bank such as CTC and
Flagship that (i) is located in a state such as Vermont or Massachusetts which
authorized, as of September 30, 1991, state banks to invest in common or
preferred stock listed on a national securities exchange ("listed stock") or
shares of an investment company registered under the Investment Company Act of
1940 ("registered shares") and (ii) during the period beginning September 30,
1990 and ending on November 26, 1991 made or maintained investments in listed
stocks and registered shares, may retain whatever listed stock or registered
shares it lawfully acquired or held prior to December 19, 1991 and may continue
to acquire listed stock or registered shares which may not exceed, taken
together in the aggregate, 100% of the bank's Tier 1 Capital. In order to
acquire or retain any listed stock or registered shares under this exception,
the bank must file a one-time notice with the FDIC containing specified
information, and the FDIC must determine that acquiring or retaining the listed
stock or registered shares will not pose a significant risk to BIF. Any such
approval may be subject to whatever conditions or restrictions the FDIC
determines to be necessary or appropriate and will terminate with respect to
further acquisitions of listed stock or registered shares if the bank or its
holding company experiences a change in control and in certain other
circumstances. CTC filed the one-time notice with the FDIC and the FDIC did not
object.
Insured state banks are required to divest any equity investments made
impermissible by FDICIA including any listed stock and registered shares for
which FDIC approval is not obtained, as quickly as prudently possible but in no
event later than December 19, 1996, and to submit a plan for such divestiture to
the FDIC.
Consumer Protection Provisions. FDICIA also includes provisions requiring
advance notice to regulators and customers for any proposed branch closing and
authorizing (subject to future appropriation of the necessary funds) reduced
insurance assessments for institutions offering "lifeline" banking accounts or
engaged in lending in distressed communities. FDICIA also includes provisions
requiring depository institutions to make additional and uniform disclosures to
depositors with respect to the rates of interest, fees and other terms
applicable to consumer deposit accounts.
Depositor Priority Statute. Effective August 10, 1993, the FDI Act was
amended to provide that, in the liquidation or other resolution by any receiver
of a bank insured by the FDIC, the claims of depositors have priority over the
general claims of other creditors. Hence, in the event of the liquidation or
other resolution of a banking subsidiary of CC, the general claims of CC as
creditor of such banking subsidiary would be subordinate to the claims of the
depositors of such banking subsidiary, even if the claims of CC were not by
their terms so subordinated. In addition, this statute may, in certain
circumstances, increase the costs to banks of obtaining funds through nondeposit
liabilities.
Interstate Banking and Branching. On September 29, 1994, the President of
the United States signed in to law the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle-Neal Act"). Beginning September 29,
1995, an adequately capitalized and managed bank holding company may (with
Federal Reserve Board approval) acquire control of banks outside its principal
state of operations, without regard to whether such acquisitions are permissible
under state law. States may, however, limit the eligibility of banks to be
acquired by an out-of-state bank holding company to banks in existence for a
minimum period of time (not in excess of five years). No bank holding company
may make an acquisition outside its principal state of operations which would
result in it controlling more than 10% of the total amount of deposits of all
insured depository institutions in the United States, or 30% or more of the
total deposits of insured depository institutions in any state (unless such
limit is waived, or a more restrictive or permissible limit is established, by a
particular state). In addition, beginning June 1, 1997, banks may branch across
state lines either by merging with banks in other states or by establishing new
branches in other states. The date relating to interstate branching through
mergers may be accelerated by any state, and such mergers may be prohibited by
any state. The provision relating to establishing new branches in another state
requires a state's specific approval. The Vermont Commissioner made
recommendations to the Vermont legislature in November, 1995 that Vermont should
enact laws and regulations on interstate branching in response to the Riegle-
Neal Act. In her report to the legislature, the Vermont Commissioner
recommended that the legislature adopt legislation to accelerate the effective
date of interstate branching through mergers to July 1, 1996 (that is, to "opt-
in early") by permitting out-of-state banks to acquire Vermont banks in
existence for at least five years, or branches in existence for at least one
year, subject (prior to July 1, 1997) to the reciprocity requirements that banks
from another state may so branch through mergers into Vermont only if Vermont
banks may so branch through mergers into that other state by acquiring banks or
branches in that state. The Vermont Commissioner recommended that the
legislature not adopt legislation permitting interstate branching through the
establishment of new branches (so called "de novo branching"). No prediction
can be made whether the Vermont legislature will enact legislation to implement
the recommendations of the Vermont Commissioner, or other legislation relating
to interstate branching. Since 1990, Massachusetts has had nationwide
reciprocal interstate banking legislation permitting out-of-state banks to
conduct banking operations in that state both by mergers and by establishing new
banks, subject to the reciprocity requirements that banks from another state may
acquire banks in Massachusetts only if Massachusetts banks may conduct banking
operations in that state. CC is unable to predict the ultimate impact of this
new interstate banking legislation on it or its competitors.
The United States Congress has periodically considered and adopted
legislation which has resulted in and could result in further regulation or
deregulation of both banks and other financial institutions. Such legislation
could place CC, CTC, BWM or Flagship in more direct competition with other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any
additional legislation will be enacted or as to the effect of such legislation
on the business of CC, CTC, BWM or Flagship.
EXPERTS
The consolidated financial statements of CC and subsidiaries as of December
31, 1994 and 1993, and for each of the years then ended, incorporated by
reference in this Proxy Statement and Prospectus and elsewhere in the
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
The consolidated statements of income, changes in stockholders' equity and
cash flows of CC and subsidiaries for the year ended December 31, 1992, have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Flagship included in this Proxy
Statement and Prospectus and elsewhere in the Registration Statement, to the
extent and for the periods indicated in their report, have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements of BWM included in this Proxy Statement and
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their report, have been audited by Coopers and Lybrand
L.L.P., independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
VALIDITY OF CC COMMON STOCK
The validity of the CC Common Stock offered in connection with the Merger
will be passed upon by F. Sheldon Prentice, Esq., Secretary of CC. Certain
federal income tax consequences of the Merger and other legal matters in
connection with the Merger will be passed upon by Piper & Marbury LLP, New York,
New York and Baltimore, Maryland, special counsel to CC.
PRO FORMA FINANCIAL DATA
The unaudited pro forma condensed consolidated balance sheet has been
prepared to reflect the Merger of Flagship with and into CAB, a wholly-owned
subsidiary of CC, using the "pooling of interests" method of accounting assuming
the merger had occurred on September 30, 1995. Under the "pooling of interests"
method of accounting, the recorded amount of assets and liabilities of CC and
Flagship will be combined at the Effective Time and carried forward at their
previously recorded amounts and the stockholders' equity accounts of CC and
Flagship will be combined on CC's consolidated balance sheet. Income and other
financial statements of CC issued after the Effective Time will be restated
retroactively to reflect the consolidated operations of CC and Flagship as if CC
and Flagship have always been combined.
The unaudited pro forma condensed statements of operations present the
results of operations of CC and Flagship for the nine months ended September 30,
1995 and for the years ended December 31, 1994, 1993 and 1992, assuming the
merger had been effective on January 1, 1992. See "THE MERGER - Accounting
Treatment." The pro forma financial statements reflect the exchange of Flagship
shares of Common Stock for CC Common Stock in connection with the Merger at 1.2
shares of CC for each share of Flagship. This unaudited pro forma financial
data should be read in conjunction with the consolidated historical financial
statements of Flagship and CC, including the respective notes thereto, which are
delivered with and/or incorporated by reference in this Proxy Statement and
Prospectus. See "INCORPORATION OF DOCUMENTS BY REFERENCE."
The unaudited pro forma condensed statements of operations for the nine
months ended September 30, 1995 and the year ended December 31, 1994 include the
results of operations of BWM assuming the acquisition of BWM had occurred at
January 1, 1994. Because the BWM transaction was consummated March 17, 1995,
the BWM results of operations after that date are included in the CC historical
income statement data for the nine months ended September 30, 1995.
The pro forma financial data are for information purposes only and are not
necessarily indicative of the results of future operations of the merged entity
or the actual results that would have been achieved had the Merger been
consummated prior to the periods indicated. Moreover, the pro forma condensed
financial statements reflect preliminary pro forma adjustments made to combine
Flagship with CC utilizing the "pooling of interests" method of accounting. The
actual adjustments will be made as of the Effective Time of the Merger and may
differ from those reflected in the pro forma financial statements.
CHITTENDEN CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
September 30, 1995
(Dollars in Thousands)
(Unaudited)
CC Flagship Pro Forma Pro
(Historical) (Historical) Adjustments Forma
DR(CR)
ASSETS
Cash and Cash Equivalents 151632 12495 - 164127
Investment Securities
Available for Sale 258991 48977 - 307968
Investment Securities Held
for Investment 9747 35386 - 45133
Loans 1049790 160934 - 1210724
Allowance for Loan Losses -24536 -3062 - -27598
Net Loans 1025254 157872 - 1183126
Premises and Equipment 18600 6356 - 24956
Intangibles 11481 - - 11481
Other Assets 47103 4013 - 51116
Total Assets 1522808 265099 - 1787907
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Total Deposits 1305416 212581 - 1517998
Short-Term Borrowings 60922 31109 - 92031
Other Liabilities 25541 3532 - 29072
Total Liabilities 1391879 247222 - 1639101
Stockholders' Equity: 3134 (1)
Common Stock-Par Value 8542 3134 -1303 (1) 9845
Surplus 58982 10856 -3134 (1) 71547
1303 (1)
122 (1)
Retained Earnings 68008 4036 - 72044
Security Valuation Allowance,
Net of Taxes -561 -27 - -588
Treasury Stock, at Cost -3967 -122 -122 (1) -3967
Unearned Portion of Employee
Restricted Stock -75 - - -75
Total Stockholders' Equity 130929 17877 - 148806
Total Liabilities and 1522808 265099 _ 1787907
Stockholders' Equity
See Notes to Pro Forma Condensed Financial Statements
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1995
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro
Pro Forma
Forma CC-
CC Flagship Adjustments Flagship
(Historical) (Historical) DR(CR) Subtotal
Interest Income:
Interest and Fees on Loans 71057 10939 - 81996
Interest and Dividends on
Securities 12430 3865 - 16295
Other 1360 159 - 1519
Total Interest Income 84847 14963 - 99810
Interest Expense:
Deposits 34704 3947 - 38651
Other 2056 1026 - 3082
Total Interest Expense 36760 4973 - 41733
Net Interest Income Before
Provision for Possible
Loan Losses 48087 9990 - 58077
Provision for Possible
Loan Losses 2750 600 - 3350
Net Interest Income After
Provision for Possible
Loan Losses 45337 9390 - 54727
Noninterest Income 21773 839 - 22612
Noninterest Expenses 44208 7052 -204 (2) 51056
Income (Loss) Before Income
Taxes 22902 3177 -204 26283
Provision (Benefit) for Income
Taxes 7414 1177 - 8591
Net Income (Loss) 15488 2000 -204 17692
Weighted Average Common
and Common Equivalent
Shares Outstanding 8263179 9646347
Earnings Per Share
Fully Diluted 1.87 1.83
Primary 1.88 1.84
See Notes to Pro Forma Condensed Financial Statements
Purchase
Accounting
BWM Adjustments Pro
(Historical) DR(CR)(5) Forma
Interest Income:
Interest and Fees on Loans 3185 -26 85207
Interest and Dividends on
Securities 503 - 16798
Other - - 1519
Total Interest Income 3688 -26 103524
Interest Expense:
Deposits 1272 -384 39539
Other 277 - 3359
Total Interest Expense 1549 -384 42898
Net Interest Income Before
Provision for Possible
Loan Losses 2139 -410 60626
Provision for Possible
Loan Losses 1200 - 4550
Net Interest Income After
Provision for Possible
Loan Losses 939 -410 56076
Noninterest Income 76 - 22688
Noninterest Expenses 1730 173 52959
Income (Loss) Before Income
Taxes -715 -237 25805
Provision (Benefit) for Income
Taxes -243 132 8480
Net Income (Loss) -472 -105 17325
Weighted Average Common
and Common Equivalent
Shares Outstanding 9864717 (7)
Earnings Per Share
Fully Diluted 1.76
Primary 1.76
See Notes to Pro Forma Condensed Financial Statements
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro Forma
CC-
CC Flagship Flagship BWM
(Historical) (Historical) Subtotal(Historical)
Interest Income:
Interest and Fees on Loans 71055 11257 82312 13218
Interest and Dividends on
Securities 12993 4425 17418 2174
Other 882 687 1569 19
Total Interest Income 84930 16369 101299 15411
Interest Expense:
Deposits 29225 4210 33435 5625
Other 1800 726 2526 303
Total Interest Expense 31025 4936 35961 5928
Net Interest Income Before
Provision for Possible
Loan Losses 53905 11433 65338 9483
Provision for Possible
Loan Losses 4300 1200 5500 1410
Net Interest Income After
Provision for Possible
Loan Losses 49605 10233 59838 8073
Noninterest Income 23525 1583 25108 568
Noninterest Expenses 49867 7818 57685 6235
Income Before Income Taxes 23263 3998 27261 2406
Provision (Benefit) for Income
Taxes 7726 1498 9224 992
Net Income 15537 2500 18037 1414
Weighted Average Common
and Common Equivalent
Shares Outstanding 7879826 9178346
Earnings Per Share
Fully Diluted 1.97 1.97
Primary 1.97 1.97
See Notes to Pro Forma Condensed Financial Statements
Purchase
Accounting
Adjustments Pro
DR(CR)(6) Forma
Interest Income:
Interest and Fees on Loans -551 96081
Interest and Dividends on
Securities - 19592
Other - 1588
Total Interest Income -551 117261
Interest Expense:
Deposits 686 39746
Other - 2829
Total Interest Expense 686 42575
Net Interest Income Before
Provision for Possible
Loan Losses 135 74686
Provision for Possible
Loan Losses - 6910
Net Interest Income After
Provision for Possible
Loan Losses 135 67776
Noninterest Income - 25676
Noninterest Expenses 1228 65148
Income Before Income Taxes 1363 28304
Provision (Benefit) for Income
Taxes -383 9833
Net Income 980 18471
Weighted Average Common
and Common Equivalent
Shares Outstanding 9962752 (7)
Earnings Per Share
Fully Diluted 1.85
Primary 1.85
See Notes to Pro Forma Condensed Financial Statements
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1993
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro Forma
CC Flagship Adjustments Pro
(Historical) (Historical) DR(CR) Forma
Interest Income:
Interest and Fees on Loans 69979 10054 - 80033
Interest and Dividends on
Securities 9557 3691 - 13248
Other 267 341 - 608
Total Interest Income 79803 14086 - 93889
Interest Expense:
Deposits 27870 4285 - 32155
Other 1704 536 - 2240
Total Interest Expense 29574 4821 - 34395
Net Interest Income Before
Provision for Possible Loan
Losses 50229 9265 - 59494
Provision for Possible Loan
Losses 6600 1535 - 8135
Net Interest Income After
Provision for Loan Losses 43629 7730 - 51359
Noninterest Income 24308 2268 - 26576
Noninterest Expenses 51097 7426 - 58523
Income Before Income Taxes 16840 2572 - 19412
Provision for Income Taxes 5243 667 - 5910
Income Before Cumulative
Effect of Change in
Accounting Principle 11597 1905 - 13502
Cumulative Effect of Change
in Accounting Principle -575 - -575 (4) -
Net Income 11022 1905 -575 13502
Weighted Average Common and
Common Equivalent Shares
Outstanding 7759357 9051637
Earnings Per Share
Before Cumulative Effect of
Change in Accounting
Principle 1.50
Cumulative Effect of Change
in Accounting Principle -.08
Fully Diluted 1.42 1.43
Primary 1.42 1.43
See Notes to Pro Forma Condensed Financial Statements
CHITTENDEN CORPORATION
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1992
(Dollars in Thousands, Except Share Data)
(Unaudited)
Pro Forma
CC Flagship Adjustments Pro
(Historical) (Historical) DR(CR) Forma
Interest Income:
Interest and Fees on Loans 75086 11838 - 86924
Interest and Dividends on
Securities 11361 2778 - 14139
Other 537 277 - 814
Total Interest Income 86984 14893 - 101877
Interest Expense:
Deposits 38911 5648 - 44559
Other 2389 473 - 2862
Total Interest Expense 41300 6121 - 47421
Net Interest Income Before
Provision for Possible
Loan Losses 45684 8772 - 54456
Provision for Possible Loan
Losses 7513 3583 - 11096
Net Interest Income After
Provision for Loan Losses 38171 5189 - 43360
Noninterest Income 21073 1913 - 22986
Noninterest Expenses 49582 5888 - 55470
Income Before Income Taxes 9662 1214 - 10876
Provision for Income Taxes 2444 13 - 2457
Net Income 7218 1201 - 8419
Weighted Average Common and
Common Equivalent Shares
Outstanding 7743227 9062709
Earnings Per Share
Fully Diluted 0.94 0.93
Primary 0.94 0.93
See Notes to Pro Forma Condensed Financial Statements
CHITTENDEN CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
Notes related to the merger of CC and Flagship:
NOTE 1.
To adjust the stockholders' equity accounts for the conversion of each
share of Flagship common stock into 1.2 shares of Chittenden common stock.
Flagship shares 1,085,600
*1.2
---------
Chittenden shares 1,302,720
=========
NOTE 2.
To record the reversal of professional and other costs incurred in
connection with the merger included in the historical amounts for the nine
months ended September 30, 1995.
NOTE 3.
The Pro Forma Statements of Operations do not reflect one-time transaction-
related expenses for legal and professional fees related to the merger of
Chittenden and Flagship expected to total approximately $710,000 or the
one-time expense for the acceleration of a supplemental employee retirement
plan totalling approximately $1.1 million. These one-time expenses are not
expected to be deductible for income tax purposes.
NOTE 4.
To reflect elimination of nonrecurring cumulative effect of change in
accounting principle resulting from CC's adoption of SFAS No. 109,
Accounting for Income Taxes, during 1993.
NOTES RELATED TO THE MERGER OF CC AND BWM:
On March 17, 1995, the Company acquired all of the outstanding shares of
the common stock of BWM. CC issued 784,406 shares at a price of $18.20;
408,594 of the shares issued were treasury stock. The total cash outlay,
including payments made with respect to outstanding stock options and
warrants issued by BWM, was $12.1 million. This transaction has been
accounted for as a purchase and, accordingly the consolidated financial
statements of CC include BWM and its operations since the date of
acquisition.
In accordance with the purchase method of accounting, the purchase price
was allocated to assets acquired and liabilities assumed based on estimates
of fair value at the date of acquisition. The excess of purchase price
over the fair value of assets acquired, including an identifiable core
deposit intangible asset of approximately $5,021,000, has been recorded as
goodwill of approximately $7,123,000. Goodwill is being amortized on a
straight-line basis over 15 years; the core deposit intangible is being
amortized on an accelerated basis over 10 years.
The purchase accounting adjustments shown in Note 5 reflect the purchase
accounting entries which would have been recorded during the nine months
ended September 30, 1995 had the acquisition of BWM occurred on January 1,
1994, net of the actual purchase accounting entries recorded in CC's
historical results of operations since the March 17, 1995 acquisition date.
The purchase accounting adjustments shown in Note 6 reflect the purchase
accounting entries which would have been recorded during the year ended
December 31, 1994 had the acquisition of BWM occurred on January 1, 1994.
NOTE 5.
To record purchase accounting adjustments for the nine months ended
September 30, 1995:
000's
------
Accretion of fair value adjustment - loans $ 26
Amortization of fair value adjustment - deposits 384
Amortization of core deposit intangible (104)
Amortization of goodwill ( 69)
Income tax effect (132)
------
$ 105
======
NOTE 6.
To record purchase accounting adjustments for the year ended December 31,
1994:
000's
-----
Accretion of fair value adjustment - loans $ 551
Amortization of fair value adjustment - deposits (686)
Amortization of core deposit intangible (753)
Amortization of goodwill (475)
Income tax effect 383
-----
$(980)
======
NOTE 7.
The Pro Forma weighted average common and common equivalent shares
outstanding as of September 30, 1995 and December 31, 1994 include an
additional 218,370 and 784,406 shares respectively to reflect the
acquisition of BWM as of January 1, 1994. The 1995 CC weighted average
common and common equivalent shares outstanding include the issuance of the
784,406 shares from the March 17, 1995 acquisition date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As permitted by the Vermont Business Corporation Law ("VBCL"), Article Six,
Section I of CC's Bylaws provides for indemnification of directors and
officers of CC as follows:
CC shall indemnify (A) its directors to the full extent
provided by the general laws of the State of Vermont now or
hereafter in force, including the advance of expenses under
the procedures provided by such laws; and (B) its officers
and employees to the same extent it shall indemnify its
directors.
CC's Bylaws also contain indemnification procedures which implement
indemnification. The VBCL permits a corporation to indemnify its directors
and officers, among others, against judgements, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities, unless it is established that (a) the
act or omission of the director or officer was material to the matter
giving rise to such proceeding and (i) was committed in bad faith or (ii)
was the result of active and deliberate dishonestly, (b) the director or
officer actually received an improper personal benefit in money, property
or services, or (c) in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the action or omission was
unlawful. CC also maintains directors and officers liability insurance.
The VBCL permits the charter of a Vermont corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent
that (i) the person actually received an improper benefit or profit in
money, property or services or (ii) a judgement or other final adjudication
is entered in a proceeding based on a finding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. CC's
Articles do not contain a provision providing for elimination of the
liability of its directors or officers to CC or its stockholders for money
damages to the fullest extent permitted by Vermont law.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Reorganization dated as of September 19, 1995 by
and among Chittenden Corporation, Chittenden Acquisition Bank and
Flagship Bank and Trust Company.*
2.2 Stock Option Agreement dated as of September 19, 1995 by and between
Chittenden Corporation and Flagship Bank and Trust Company.**
3.1 Articles of Incorporation of Chittenden Corporation.***
3.2 Bylaws of Chittenden Corporation.***
4 Form of Common Stock Certificate.***
5 Opinion and Consent of F. Sheldon Prentice, Esquire, regarding
liability.****
8 Opinions of Piper & Marbury LLP and Bingham, Dana & Gould
regarding tax matters.****
10 Not Applicable
11 Statement regarding computation of per share earnings.***
21 Subsidiaries of Chittenden Corporation.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Piper & Marbury LLP and Bingham, Dana & Gould (included in
Exhibit 8).****
24 Power of Attorney.
(b) Financial Statement Schedules. Not Applicable.
(c) Opinion of Financial Advisor.
Furnished as Appendix B to the Proxy Statement/Prospectus.
- -------------------------------------------------------
* Included as Appendix A to the Proxy Statement/Prospectus.
** Included as Appendix D to the Proxy Statement/Prospectus.
*** Previously filed with the Commission as exhibits to, and incorporated
herein by reference from, the registrant's Annual Report on Form 10-K
for fiscal year ended December 31, 1993 (File No.0-7974).
**** To be filed by amendment.
Item 22. Undertakings.
A. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of Form S-4, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
B. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
C. 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 1933 Act and will be
governed by the final adjudication of such issue.
D. 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;
(2) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(3) 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.
(4) 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.
(5) 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.
(6) 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.
E. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
F. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
G. The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act 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.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
CHITTENDEN CORPORATION
----------------------
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
(a) Exhibits.
2.1 Agreement and Plan of Reorganization dated as of September 19,
1995 by and among Chittenden Corporation, Chittenden Acquisition
Bank and Flagship Bank and Trust Company.*
2.2 Stock Option Agreement dated as of September 19, 1995 by and
between Chittenden Corporation and Flagship Bank and Trust
Company.**
3.1 Articles of Incorporation of Chittenden Corporation.***
3.2 Bylaws of Chittenden Corporation.***
4 Form of Common Stock Certificate.***
5 Opinion and Consent of F. Sheldon Prentice, Esquire
regarding legality.****
8 Opinions of Piper & Marbury LLP and Bingham, Dana & Gould
regarding tax matters.****
10 Not Applicable.
11 Statement regarding computation of per share earnings.***
21 Subsidiaries of Chittenden Corporation.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Piper & Marbury LLP and Bingham, Dana & Gould
(included in Exhibit 8).****
24 Power of Attorney.
(b) Financial Statement Schedules. Not Applicable.
(c) Opinion of Financial Advisor.
Furnished as Appendix B to the Proxy Statement/Prospectus.
- -----------------------------------------------------------------
* Included as Appendix A to the Proxy Statement/Prospectus.
** Included as Appendix D to the Proxy Statement/Prospectus.
*** Previously filed with the Commission as exhibits to, and incorporated
herein by reference from, the registrant's Annual Report on Form 10-K
for fiscal year ended December 31, 1993 (File No.0-7974).
**** To be filed by amendment.
<PAGE>
CHITTENDEN CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Officers and Directors
of Chittenden Corporation, hereby constitute and appoint Paul A. Perrault and
Nancy Rowden Brock and each of them, the true and lawful agents and attorney-in-
fact of the undersigned with full power and authority in said agents and
attorneys-in-fact, and in any one or more of them, to sign for the undersigned
and in their respective names as Officers and as Directors of the Corporation a
Registration Statement of Form S-4, or other appropriate form, of the
Corporation to be filed with the Securities and Exchange Commission, Washington,
D.C., under the Securities Act of 1933, as amended, and any amendment or
amendments to such Registration Statement, relating to a proposed issue of
shares of Common Stock of the Corporation; hereby ratifying and confirming all
acts taken by such agents and attorneys-in-fact, or any one or more of them, as
herein authorized.
Dated: November 15, 1995
Name Title
--------- -----------
s/ Paul A. Perrault President, Chief Executive Officer
and Director
s/ Nancy Rowden Brock Treasurer and Chief Financial Officer
s/ Barbara W. Snelling Director and Chair of the Board
Frederic H. Bertrand Director
s/ David M. Boardman Director
Paul J. Carrara Director
Robert E. Cummings, Jr. Director
s/ Lyn Hutton Director
s/ Philip A. Kolvoord Director
s/ James C. Pizzagalli Director
s/ Pall D. Spera Director
s/ Martel D. Wilson, Jr. Director
<PAGE>
EXHIBIT 21 OF ITEM 21
Subsidiaries of Chittenden Corporation
1. Chittenden Trust Company, Vermont, d/b/a Chittenden Bank
2. Chittenden Acquisition Bank, Massachusetts, d/b/a Flagship Bank and Trust
Company, is a bank in formation to effectuate the acquisition of Flagship
Bank and Trust Company
3. The Bank of Western Massachusetts, Massachusetts
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated as of
September 19, 1995, by and between Chittenden Corporation, a Vermont corporation
(the "Purchaser"), and Flagship Bank and Trust Company, a Massachusetts bank
(the "Company").
W I T N E S S E T H:
WHEREAS, the Purchaser is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act").
WHEREAS, the Purchaser and the Company have reached an agreement to combine
their companies through a merger (the "Merger") of the Company into Chittenden
Acquisition Bank, a Massachusetts trust company to be formed ("Newco"), as a
wholly-owned subsidiary of the Purchaser, in a transaction qualifying as a
pooling of interests under applicable accounting rules and a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Purchaser and the Company
wish to enter into a definitive agreement setting forth the terms and conditions
of the Merger.
WHEREAS, the Purchaser is unwilling to enter into this Agreement and the
transactions contemplated hereby unless the Company simultaneously enters into a
Stock Option Agreement.
WHEREAS, the Purchaser and the Company desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the covenants,
agreements, representations and warranties hereinafter contained, the Purchaser
and the Company hereby agree as follows:
I.
MERGER OF NEWCO AND THE COMPANY
Subject to the terms and conditions of this Agreement, the Plan of Merger
("Merger Agreement") attached as Exhibit A and the Stock Option Agreement
attached as Exhibit B, the Purchaser and the Company agree to effect the
following transactions at the Closing:
1.1. CONDITIONS. The Purchaser and the Company will deliver to the other
appropriate evidence of the satisfaction of the conditions to their respective
obligations hereunder.
1.2. MERGER AND ACQUISITION. Upon the filing of the Articles of Merger with
the Secretary of the Commonwealth of Massachusetts on the date of the Closing
(the "Effective Date"), the Company will be merged with and into Newco pursuant
to the provisions and with the effect provided in the Business Corporation Law
and banking law of the Commonwealth of Massachusetts. Newco shall be the
surviving corporation in the merger and shall continue the banking business
authorized to be conducted under Massachusetts law under the name of Flagship
Bank and Trust Company. Upon the consummation of the Merger, the surviving
corporation shall thenceforth be responsible and liable for all the liabilities,
obligations and penalties of each of the corporations so merged.
1.3. STATUS OF SHARES. As a result of the Merger, each share of the common
stock of Newco theretofore authorized (whether issued or unissued) shall remain
unchanged and shall be deemed to be shares of the common stock of Newco as the
surviving corporation. Accordingly, each of the shares of common stock of Newco
issued and outstanding on the date of the Closing shall continue to be and
remain issued and outstanding shares of common stock of Newco as the surviving
corporation without any action on the part of the holders of any such shares of
stock.
1.4. CONVERSION OF THE COMPANY'S SHARES. As a result of the Merger and
without any action by the holders thereof, each share of Company Common Stock
issued and outstanding immediately prior to the Merger (excluding shares held by
the Company as treasury stock, if any, which shares shall be cancelled and
extinguished and excluding shares held by dissenting stockholders), and all
rights in respect thereof, shall be converted into 1.2 shares of fully paid and
non-assessable Common Stock of the Purchaser, par value $1.00 per share (the
"Purchaser Common Stock"). The number of shares expressed in the preceding
sentence shall sometimes hereafter be referred to as the "Per Share
Consideration".
From and after the Closing, each certificate which theretofore represented
shares of Company Common Stock shall evidence ownership of shares of Purchaser
Common Stock on the basis hereinabove set forth, and the conversion shall be
complete and effective at the Closing without regard to the date or dates on
which outstanding certificates representing converted shares of Company Common
Stock may be surrendered for exchange for certificates representing shares of
Purchaser Common Stock.
1.5. CONVERSION OF COMPANY STOCK OPTIONS. Except the Stock Option Agreement
and as described in Schedule 1.5 hereto, as of the date of this Agreement there
are no validly issued and outstanding options to purchase shares of Company
Stock, and no other options, rights, warrants, scrip or similar rights to
purchase shares of Company Common Stock (collectively, the "Company Stock
Options") are (or have been) issued and outstanding by the Company. Without any
action by the holders thereof, each Company Stock Option which shall be
outstanding at the Effective Time of the Merger shall thereafter be exercisable
solely to purchase a number of shares of Purchaser Common Stock in the manner
provided in the Merger Agreement.
1.6. DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of the Company's Common Stock which are issued and outstanding
immediately prior to the Closing and which are held by stockholders of the
Company who did not vote in favor of the Merger and who comply with all of the
relevant provisions of Sections 86 through 98 of the Massachusetts Business
Corporation Law ("MBCL") (the "Dissenting Shares") shall not be converted
into or be exchangeable for the right to receive the Per Share Consideration,
unless and until such holders shall have failed to perfect or shall have
effectively withdrawn or lost their dissenters' rights under the MBCL. If any
such holder so loses such rights, such shares shall thereupon be deemed
converted into and become exchangeable for the right to receive, as of the
Closing, the Per Share Consideration without any interest thereon. If the holder
of any such shares shall become entitled to receive payment therefor pursuant to
this Paragraph or applicable law, such payment shall be made by the Purchaser.
The Company shall give the Purchaser (i) prompt notice of any Dissenting
Shares, withdrawals of Dissenting Shares or any other instruments served
pursuant to Sections 86 through 98 of the MBCL received by the Company, and (ii)
the opportunity to direct all negotiations and proceedings with respect to
Dissenting Shares. The Company will not voluntarily make any payment with
respect to any Dissenting Shares and will not, except with the prior written
consent of the Purchaser, settle or offer to settle any Dissenting Shares.
1.7. FRACTIONAL SHARES. No fractional shares of Purchaser Common Stock will
be issued in connection with the Merger. As a mechanical device for rounding
fractional interests to whole shares, in any case where the conversion ratio
provided for in Section 1.4 indicates that any holder of Company Common Stock
would otherwise be entitled to delivery of a fractional share of Purchaser
Common Stock, such holder shall be entitled to receive a cash payment with
respect to such fraction of a share to which such holder otherwise would be
entitled. Such cash payment shall be equal to the product obtained by
multiplying the fraction of a share to which the holder thereof otherwise would
be entitled by the average closing price of Purchaser Common Stock on the NASDAQ
NMS for the twenty (20) consecutive trading days ending on the fifth trading day
prior to the date of receipt of the last regulatory approval regarding the
transaction contemplated by this Agreement (the "Determination Price").
1.8. SURRENDER OF CERTIFICATES. On the date of the Closing, the Purchaser
will deliver to the exchange agent designated for the Merger (the "Exchange
Agent") (i) certificates representing the number of shares of Purchaser Common
Stock that will be required for delivery to the stockholders of the Company
pursuant to the Merger, (ii) the appropriate amount of cash to be held in trust
by the Exchange Agent and will take such further action as may be necessary in
order that certificates for shares of Purchaser Common Stock and any fractional
share cash consideration may be delivered to the stockholders of the Company.
As promptly as practicable after the Closing, each holder of an outstanding
certificate or certificates theretofore representing shares of Company Common
Stock shall surrender the same to the Exchange Agent and such holder shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of whole shares of Purchaser Common Stock into which the
shares of Company Common Stock were converted as a result of the Merger.
Dividends or other distributions payable after the Closing to holders of record
after such date in respect of such shares of Purchaser Common Stock resulting
from the exchange of Company Common Stock shall not be paid to holders thereof
until certificates are surrendered for exchange as aforesaid, but, upon
surrender, there shall be paid to the holders of Purchaser Common Stock issued
in exchange for Company Common Stock the amount of dividends or other
distributions which shall have become payable to the Purchaser's stockholders of
record after the date of the Closing, without interest.
1.9. ISSUANCE OF SHARES IN ANOTHER NAME. If any certificate for shares of
Purchaser Common Stock is to be issued in a name other than the exact name in
which the certificate surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that the certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange pay to the Exchange Agent any transfer or other
taxes required by reason thereof or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
1.10. COMPANY TRANSFER BOOKS CLOSED AND STOCK DELISTED. On the date of the
Closing, the stock transfer books of the Company shall be deemed closed, and no
transfer of shares of the Company shall be made thereafter. The Company shall
notify the transfer agent and registrar for the shares of Company Common Stock,
at least ten (10) days before the anticipated date of the Closing, that no
transfer of shares will be made after that date. In anticipation of the date
of Closing, the Company shall do all such things necessary to cause trading in
its shares to be terminated simultaneously with the date of Closing.
1.11. ADJUSTMENTS. If after the date of this Agreement and prior to the date
of the Closing the Purchaser shall declare a stock dividend upon, or subdivide,
split up, reclassify or combine Purchaser Common Stock, and the record date for
such action shall occur prior to the date of the Closing, then upon the
effectiveness of the Merger the number of shares of Purchaser Common Stock to be
delivered for each share of Company Common Stock shall be adjusted so that each
holder of shares of Company Common Stock shall be entitled to receive such
number of shares of Purchaser Common Stock that it would own, or be entitled to
own, if the date of the Closing had occurred immediately prior to the occurrence
of the record date for such event.
1.12. NON-FINANCIAL ISSUES. It is understood between the parties that,
consistent with the Purchaser's current strategic plan, the Purchaser intends to
retain the current members of the Company's Board of Directors and to name, in
its discretion, two additional Directors to the Company, who may be employees of
the Purchaser or its subsidiaries.
It is further understood that the Purchaser intends to continue the Company's
current employment policies and benefits, subject to the Purchaser's discretion
to revise such policies and benefits in a manner consistent with the Purchaser's
employment policies and benefit programs in effect from time to time.
1.13. LOCK-UP. On the date of this Agreement, the Company shall grant to the
Purchaser options for the purchase of 359,939 shares of the Company's Common
Stock at $20.00 per share ("Lock-up Options") upon the terms and conditions set
forth in the Stock Option Agreement.
1.14. CLOSING. The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of the Company beginning at
10:00 a.m., or at such other time and place as may be agreed upon by the
Purchaser and the Company, on such date, following three business days' notice
to the Company, as shall be agreed upon by all parties, which date shall not be
later than the 5th business day after (i) the last required approval of
governmental authorities is granted and any related waiting periods expire, (ii)
the lifting, discharge or dismissal of any stay of any such governmental
approval or of any injunction against the Merger and (iii) the day on which all
conditions to the consummation of the Merger have been fulfilled or waived in
accordance with this Agreement. In accordance with Section 10.1 of this
Agreement, this Agreement may be terminated at the election of either party if
Closing does not occur on or before June 30, 1996.
1.15. ADDITIONAL ACTIONS. If, at any time after the Closing, the Purchaser
or the Company shall consider or be advised that any further deeds, assignments
or assurances in law or any other acts are necessary or desirable to (i) vest,
perfect or confirm, of record or otherwise, in the Purchaser or the Company its
rights, title or interest in, to or under any of the rights, properties or
assets of Newco, or (ii) otherwise carry out the purposes of this Agreement,
Newco and its officers and directors shall be deemed to have granted to the
Purchaser and the Company an irrevocable power of attorney to execute and
deliver all such deeds, assignments or assurances in law or any other acts as
are necessary or desirable to (i) vest, perfect or confirm, of record or
otherwise, in the Purchaser or the Company its right, title or interest in, to
or under any of the rights, properties or assets of Newco or (ii) otherwise
carry out the purposes of this Agreement.
1.16. COMPANY'S RIGHT TO TERMINATE TRANSACTION. The Company shall have the
right to terminate the transaction if the Determination Price is less than
$23.25; provided, however, the Company must notify the Purchaser in writing
within three business days after the Determination Price is calculable that it
intends to exercise the termination right in this Section.
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
2.1. ORGANIZATION AND STANDING. The Company is a trust company duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has full corporate power and authority to
carry on its business as it is now being conducted and to own or hold under
lease the properties and assets it now owns or holds under lease. The Company
owns three subsidiaries, Admiral Properties, Inc., Flagship Securities
Corporation and Flagship Real Estate Corporation. Any reference to the Company
is intended, when applicable, to include all three such subsidiaries. The
Company is duly qualified to do business in all jurisdictions where the
character of its property or the nature of its respective activities makes such
qualification necessary except where the failure to so qualify could not
reasonably be expected to have a material adverse effect on the business or
financial condition of the Company.
2.2. CAPITALIZATION OF THE COMPANY. The Company's entire authorized capital
stock consists of 5,000,000 shares of Common Stock, par value $2.815 per share
(the "Company Common Stock"), of which 1,113,144 shares are issued and 1,085,600
shares are outstanding; and 10,000 shares of Preferred Stock, par value, $1.00
per share, of which no shares are issued and outstanding. All such issued and
outstanding shares of Company Common Stock have been duly and validly issued and
are fully paid and non-assessable, free of any preemptive rights.
Except as indicated in SCHEDULE 1.5 and SECTION 1.5 to this Agreement, the
Company is not a party to or bound by any options, warrants, calls, contracts,
commitments or rights of any character relating to any issued or unissued
capital stock or any other security issued or to be issued by it. None of the
shares of capital stock of the Company has been issued in violation of the
preemptive rights of any person.
2.3. FINANCIAL STATEMENTS: FDIC DOCUMENTS; CORPORATE RECORDS. The Company
has delivered to the Purchaser copies of the Company's audited financial
statements for the fiscal years ended December 31, 1992, 1993 and 1994 and the
Company's financial statements (unaudited) for the 6 months ended June 30, 1995
(collectively, the "Company Financial Statements"). The Company Financial
Statements are true and complete in all material respects, have been prepared in
accordance with generally accepted accounting principles applicable to financial
institutions, applied on a consistent basis throughout the periods covered by
such statements (except as may be stated in the explanatory notes to such
statements and, in the case of unaudited statements, except for normal recurring
year-end adjustments), and present fairly the financial position, results of
operations, changes in stockholders' equity and cash flows of the Company at the
dates of such statements and for the periods covered thereby. The Company is
not required to file any reports with the Federal Deposit Insurance Corporation
(the "FDIC") pursuant to the Securities and Exchange Act of 1934. The minute
books of the Company contain accurate records of all corporate actions of its
stockholders and Board of Directors (including, for the last three years,
committees of its Board of Directors) in accordance with good business
practices.
2.4. NO UNDISCLOSED LIABILITIES. Except as and to the extent reflected or
reserved against in the balance sheets included within the Company Financial
Statements referred to in SECTION 2.3 of this Agreement, at the date of such
statements, the Company had no material liabilities or obligations (whether
accrued or absolute).
2.5. ABSENCE OF CERTAIN CHANGES, EVENTS OR CONDITIONS. Since December 31,
1994, there has not been any change in the Company's financial position, results
of operations, assets, liabilities, net worth or business, other than changes in
the ordinary course of business which have not been materially adverse and since
December 31, 1994 the Company has not experienced any event or condition of any
character (whether or not covered by insurance) which could reasonably be
expected to materially adversely affect its properties, businesses, financial
positions, results of operations, or net worth.
2.6. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. The
Company has good and marketable title to all its properties and assets, real and
personal (including those reflected in the Company Financial Statements, except
as sold or otherwise disposed of in the ordinary course of business since the
date thereof), in each case free and clear of all liens, encumbrances, charges,
defaults or equitable interests, except (i) those reflected in the Company
Financial Statements or in the notes to such Company Financial Statements,
(ii) the lien of current taxes not yet due and payable, (iii) pledges to secure
deposits and other liens incurred in the ordinary course of banking business and
(iv) such imperfections of title, easements and encumbrances, if any, as are not
substantial in character, amount or extent, and do not materially detract from
the value, or interfere with the present or anticipated business use, of the
properties subject thereto or affected thereby, or impair business operations.
The Company has not received any notice of violation of any applicable zoning
laws, orders, regulations, or requirements relating to its operations or its
properties which has not been complied with, nor any proposed changes in any
such laws, orders or regulations which might have a material adverse effect on
its business. The Company has no knowledge of any threatened or impending
condemnation of any properties of the Company by any governmental authority.
All leases pursuant to which the Company, as lessee, leases real and personal
property are valid and enforceable in accordance with their respective terms.
2.7. LOANS. Except as reflected on SCHEDULE 2.7, to the best of the
Company's knowledge and upon reasonable belief, each loan reflected as an asset
in the Company Financial Statements, (i) is evidenced by notes, agreements or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights and to
general equitable principles. Except as reflected in SCHEDULE 2.7, as of the
date of this Agreement, the Company is not a party to any loan, including any
loan guaranty, with any director, executive officer or 5% stockholder of the
Company or any person, corporation or enterprise controlling, controlled by or
under common control with any of the foregoing. All loans and extensions of
credit which are classified as Insider Transactions by Regulation O of the
Federal Reserve Board have been made by the Company in an arms-length manner
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and do not involve more than normal risk of collectability or present other
unfavorable features. Except as disclosed on SCHEDULE 2.7, all loans and
participations sold by the Company have been sold without recourse. The Company
has disclosed to the Purchaser in writing prior to the date hereof the amount of
all loans, leases, and other extensions of credit that it has classified
internally as "Other Loans Specially Mentioned," "Special Mention,"
"Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit Risk
Assets," "Watch List Assets," or words of similar import, and it shall promptly
after the end of each quarter after the date hereof and on the Closing inform
the Purchaser of the amount of each such classification.
2.8. ALLOWANCE FOR LOAN LOSSES; OTHER REAL ESTATE OWNED. To the best of the
Company's knowledge and upon reasonable belief, the allowance for loan losses
reflected in the Company Financial Statements as of their respective dates, is
adequate under the requirements of generally accepted accounting principles
applicable to financial institutions and all regulatory requirements applicable
to financial institutions. The other real estate owned ("OREO") and insubstance
foreclosures included in any of the Company's non-performing assets are carried
net of reserves at the lower of cost or fair value based on current independent
appraisals or current management appraisals.
2.9. TAX MATTERS.
(a) The Company has timely filed federal income tax returns for each
year through 1994 and has timely filed, or caused to be filed, all other
material federal, state, local and foreign tax returns (including, without
limitation, estimated tax returns, withholding tax returns and FICA and FUTA
returns) required to be filed with respect to the Company. All taxes reported
as due on such tax returns have been paid and, as of the Closing, all material
taxes due in respect of any subsequent periods ending on or prior to the Closing
will have been paid or adequate reserves will have been established as reflected
in the Company Financial Statements for the payment thereof. Except as reflected
in SCHEDULE 2.9, no audit examination or deficiency or refund litigation with
respect to such returns is pending. The Company will not have any material
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established as reflected in the Company Financial Statements.
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by the Company are complete and accurate in all material respects.
The Company is not delinquent in the payment of any tax, assessment or
governmental charge (other than any such tax, assessment or charge being
disputed in good faith), and has not requested any extension of time within
which to file any tax returns in respect of any fiscal year or portion thereof
which have not been filed, except as reflected in SCHEDULE 2.9. No deficiencies
for any tax, assessment or governmental charge have been proposed, asserted or
assessed (tentatively or otherwise) in writing against the Company which have
not been settled and paid or otherwise resolved. There are currently no
agreements in effect with respect to the Company to extend the period of
limitations for the assessment or collection of any tax.
(c) The Company has timely filed all material tax returns required to
have been filed under, and has timely complied in all material respects with the
requirements of, SECTIONS 1441-1446, 3406 and 6031-6060 of the Code and the
regulations thereunder and any comparable state, foreign and local laws.
(d) There are no material proposed additional taxes, interest or
penalties with respect to any year examined or not yet examined.
2.10. LITIGATION, ETC. Except as described on SCHEDULE 2.10, and other than
in the normal course of business, there is no litigation, proceeding or
governmental investigation pending or, to the knowledge of the Company,
threatened or in prospect, against or relating to the Company, its respective
properties or businesses, or the transactions contemplated by this Agreement.
Except as disclosed on SCHEDULE 2.10, there are no actions, suits or
proceedings instituted, pending or, to the knowledge of the Company and each of
its directors and executive officers, threatened against any present or former
director or officer of the Company that might give rise to a claim for
indemnification as contemplated by SECTION 7.11 hereof, and the Company is aware
of no reasonable basis for any such action, suit or proceeding. Except as
disclosed on SCHEDULE 2.10, the Company is not subject to or bound by any order
of any court, regulatory commission, board or administrative body entered in any
proceeding to which it is a party or of which it has knowledge.
2.11. COMPLIANCE WITH LAWS.
(a) The Company is in compliance in all material respects with all
statutes, regulations and ordinances which are material to the conduct of its
business, and except as disclosed on SCHEDULE 2.11, the Company has not received
notification from any agency or department of federal, state or local government
(i) asserting a material violation of any such statute or regulation,
(ii) threatening to revoke any license, franchise, permit or government
authorization or (iii) restricting or in any way limiting its operations.
Except as disclosed in SCHEDULE 2.11, the Company is not subject to any
regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment, and it has not received any
communication requesting that it enter into any of the foregoing.
(b) The Company has all governmental licenses, permits, approvals and other
authorizations, and has made all filings and registrations, which are necessary
in order to enable it to own or lease its properties and assets and to conduct
its businesses as they are now being conducted. SCHEDULE 2.11 fairly and
accurately summarizes or lists all material licenses, permits, approvals,
authorizations and regulatory matters relating to the business of the Company.
2.12. LABOR MATTERS. No labor dispute, strike, work stoppage, employee
action or labor relations problem of any kind has occurred or currently is
pending or, to the knowledge of the Company, threatened. The Company is not the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike, other labor
dispute or organizational effort involving the Company pending or threatened.
2.13. INFORMATION FOR PROXY STATEMENT. The information and data provided and
to be provided by the Company for use in the Registration Statement and Proxy
Statement referred to in Article VIII, when such Registration Statement and
Proxy Statement becomes effective and at the time of mailing of such
Registration Statement and Proxy Statement to the stockholders of the Company,
(i) shall comply in all material respects with the applicable provisions of
the Securities Act of 1933, as amended (the "Securities Act") and the Exchange
Act and (ii) will not contain any untrue statement of a material fact and will
not omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
2.14. NO CONFLICT WITH OTHER DOCUMENTS. Except as described in SCHEDULE 2.14
and assuming satisfaction of the condition set forth in Section 9.8, as a result
of obtaining all necessary consents and approvals neither the execution and
delivery of this Agreement nor the carrying out of the transactions contemplated
hereby will result in any violation, termination or modification of, or be in
conflict with, the Company's charter documents or by-laws, any terms of any
material contract or other instrument to which the Company is a party, or any
material judgment, decree or order applicable to the Company, or result in the
creation of any lien, charge or encumbrance upon any of the properties or assets
of the Company.
2.15. AUTHORITY. The execution, delivery and performance of this Agreement
by the Company have been duly authorized by its Board of Directors, and this
Agreement is a valid, legally binding and enforceable obligation of the Company.
Upon the satisfaction of all conditions contained herein and the filing of the
Merger Agreement with the appropriate authorities, this Agreement will result in
the valid, binding and enforceable statutory merger of the Company and Newco and
the acquisition of the Company by Purchaser. Under the Company's charter
documents and applicable law (a) the affirmative vote of the holders of at
least 723,733 shares (66 2/3%) of the outstanding shares of Company Common Stock
is required and sufficient for the approval by the Company's stockholders of the
transactions contemplated by this Agreement and (b) statutory appraisal rights
will be available to the Company's stockholders in connection with the Merger.
2.16. CONTRACTS.
(a) Except as disclosed on SCHEDULE 2.16, the Company is not a party
to, or is not bound by, any oral or written:
(i) "material contract" as such term is defined in Item 601(b)(10)
of Regulation S-K promulgated by the SEC;
(ii) consulting agreement not terminable on 30 days' or less
notice involving the payment of more than $50,000.00 per annum, in the case of
any such agreement;
(iii) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction of the nature contemplated by this
Agreement;
(iv) agreement with respect to any officer providing any term of
employment or compensation guarantee extending for a period longer than one year
or for a payment in excess of $50,000.00;
(v) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan, restricted stock plan
or stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(vi) agreement containing covenants that limit its ability to
compete in any line of business or with any person or entity, or that involve
any restriction on the geographic area in which, or method by which, it may
carry on its business (other than as may be required by law or any regulatory
agency);
(vii) agreement, contract or understanding, other than this
Agreement, regarding the capital stock of the Company or committing to dispose
of some or all of the stock or substantially all of the assets of the Company;
or
(viii) collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization.
(b) To the best of the Company's knowledge and upon reasonable belief,
each of the contracts, nstruments and other documents described in SCHEDULE 2.16
is valid and in full force and effect, and a true and complete copy thereof has
been delivered to the Purchaser.
(c) The Company is not in default under any material agreement,
commitment, arrangement, lease, insurance policy or other instrument whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that, with the lapse of time and
giving of notice or both, would constitute such a default.
(d) Since December 31, 1994, the Company has not incurred or paid any
obligation or liability that would be material to the Company, except
obligations incurred or paid in connection with transactions in the ordinary
course of business consistent with past practices and except as disclosed on
SCHEDULE 2.16.
2.17. PENSION AND EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed on SCHEDULE 2.17, there are no plans in effect
for pension, profit sharing, deferred compensation, severance pay, bonuses,
stock options, stock purchases, warrants or any other form of retirement or
deferred benefit, or for any health, accident or other welfare plan, in which
any employee of the Company is entitled to participate. The Company previously
has delivered to the Purchaser true and complete copies of each of the plans
listed or referred to on SCHEDULE 2.17 (collectively the "Plans"), all
trust agreements, insurance contracts, investment management agreements and
other similar documents currently in effect with respect to the Plans, and all
summary plan descriptions currently in effect with respect to the Plans. Each
of the Plans is in full force and effect without amendment or modification and
has been operated in all material respects in accordance with its terms.
Through the date of the Closing, there will be no material change in the
operations of the Plans or in the documents constituting or affecting the Plans.
All required governmental filings have been made with respect to the Plans.
There are no pending investigations or proceedings concerning the Plans before
the Internal Revenue Service (the "IRS"), the Department of Labor or the Pension
Benefit Guaranty Corporation. There are no pending or, to the knowledge of the
Company, threatened claims by or disputes with any participants in the Plans,
concerning the Plans, other than benefit claims by participants made in the
normal course of operating the Plans. The Company has no knowledge of any facts
which could give rise to claims against the Plans or against any fiduciary of
any Plan other than benefit claims by participants expected in the normal course
of operating the Plans. Neither the Company nor, to the best of the Company's
knowledge, information and belief, any other fiduciary of any Plan has given
notice to its fiduciary liability insurer of any claims or potential claims
against it with respect to any Plan. True and correct copies of the
annual reports of the Plans, if any, filed with the Department of Labor and the
IRS for the 1992, 1993 and 1994 fiscal years, and all financial statements of
the Plans, if any, for the fiscal years ended December 31, 1992, 1993 and 1994
previously have been delivered to the Purchaser. The Company has not engaged in
any "prohibited transaction" as defined in Section 406(a) and (b) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or as defined in Section 4975 of the Code, with respect to any Plan for which
any exemption granted by or pursuant to Section 408 of ERISA or Section 4975 is
not available.
(b) Each of the Plans which is intended to qualify under Section 401
of the Code is designated on SCHEDULE 2.17 as being a qualified plan (the Plans
so designated being hereinafter referred to as the "Qualified Plans"). Each
Qualified Plan has been determined by the IRS to qualify under Section 401(a) of
the Code. True and correct copies of all determination letters from the IRS with
respect to the Qualified Plans which were issued after the effective date of
ERISA previously have been delivered to the Purchaser.
2.18. INSURANCE. Except as disclosed on SCHEDULE 2.18, the Company currently
maintains insurance in amounts reasonably necessary for its operations and
similar in scope and coverage to that maintained by other entities similarly
situated. Except as disclosed on SCHEDULE 2.18, the Company has not received
any notice of a premium increase or cancellation with respect to any of its
insurance policies or bonds, and within the last three years, the Company has
not been refused any insurance coverage sought or applied for, and the Company
has no reason to believe that existing insurance coverage cannot be renewed as
and when the same shall expire, upon terms and conditions as favorable as those
presently in effect, other than possible increases in premiums or unavailability
in coverage that have not resulted from any extraordinary loss experience of the
Company contemplated hereby.
2.19. REPURCHASE AGREEMENTS. With respect to all agreements pursuant to
which the Company has purchased securities subject to an agreement to resell, if
any, the Company has a valid, perfected first lien or security interest in the
government securities or other collateral securing the repurchase agreement,
and, as of the date hereof, the value of such collateral equals or exceeds the
amount of the debt secured thereby.
2.20. DEPOSIT INSURANCE. The deposits of the Company are insured by the
Federal Deposit Insurance Corporation in accordance with the Federal Deposit
Insurance Act, as amended ("FDIA"), and the Company has paid all assessments and
filed all reports required by the FDIA.
2.21. ENVIRONMENTAL LIABILITY.
(a)(i) The Company,its Participation Facilities and its Loan Properties
(each as defined below) are, and have been, in substantial compliance with all
Environmental Laws (as defined below), except where non-compliance would, either
individually or in the aggregate, not have a material adverse effect on the
Company.
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, or, to the Company's knowledge, any
investigation or proceeding pending or threatened before any court, governmental
agency or board or other forum against the Company or any Participation Facility
(x) for alleged noncompliance (including by any predecessor) with, or liability
under, any Environmental Law or (y) relating to the release into the environment
of any Hazardous Material (as defined below), whether or not occurring at or on
a site owned, leased or operated by the Company or any Participation Facility
except as to such matters which, either individually or in aggregate, would not
have a material adverse effect on the Company;
(iii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened before any court, governmental agency or board or other forum
relating to or against any Loan Property (or the Company in respect of such Loan
Property) relating to (x) alleged noncompliance (including by any predecessor)
with, or liability under, any Environmental Law or (y) liability for the
release into the environment of any Hazardous Material or oil, whether or not
occurring at or on a site owned, leased or operated by any Loan Property, except
as to such matters which, either individually or in the aggregate, would not
have a material adverse effect on the Company;
(iv) There is no reasonable basis for any suit, claim, action,
demand, executive or administrative order, directive or proceeding of a type
described in SECTION 2.21(a)(ii) or (iii).
(v) The properties currently or formerly owned or operated
(including, without limitation, in a fiduciary capacity) by the Company
(including, without limitation, soil, groundwater or surface water on, under or
adjacent to the properties, and buildings thereon) do not contain any Hazardous
Material in violation of applicable Environmental Law, other than as may have
been set forth in the environmental reports previously provided to the
Purchaser, and except in amounts which, either individually or in the aggregate,
would not have a material adverse effect on the Company (provided, however, that
with respect to properties formerly owned or operated by the Company, such
representation is limited to the period the Company owned or operated such
properties);
(vi) The Company has not received any written notice, demand
letter, executive or administrative order, directive or written request for
information from any federal, state, local or foreign governmental entity or any
third party indicating that it may be in violation of, or liable under, any
Environmental Law;
(vii) There are no underground storage tanks ("USTs") on, in or
under, and no USTs have been closed or removed from, any properties or
Participation Facility which are or have been in the Company's ownership, other
than as may have been set forth in the environmental reports previously provided
to the Purchaser, except USTs which are in compliance with Environmental Laws or
with respect to which any noncompliance would not result in a material adverse
effect on the Company;
(viii) During the period of (l) The Company's ownership or
operation (including without limitation in a fiduciary capacity) of any of its
current properties; (m) the Company's participation in the management of any
Participation Facility, or (n) to the Company's knowledge, the Company's holding
of a security interest in a Loan Property,there has been no release of Hazardous
Material in, on, under or affecting such properties, except as permitted under
applicable Environmental Law and except for releases which, either individually
or in the aggregate, would not have a material adverse effect on the Company;
and
(ix) The only Loan Properties or Participation Facilities in
which the Company, or any Subsidiary, participates in management are those
described in SCHEDULE 2.21.
(b) The following definitions apply for purposes of this SECTION 2.21:
(v) "Loan Property" means any property in which the Company holds a security
interest, and where required by the context, includes the owner or operator of
such property, but only with respect to such property; (w) "Participation
Facility" means any facility in which the Company participates in the management
(including all property held as trustee or in any other fiduciary capacity) and,
where required by the context, includes the owner or operator of such property,
but only with respect to such property; (x) "Environmental Law" means (i) any
federal, state or local law, statute, ordinance, rule, regulation, code,license,
permit, authorization, approval, consent, legal doctrine, order, directive,
executive or administrative order, judgment, decree, injunction, requirement, or
agreement with any governmental entity relating to the protection, preservation
or restoration of the environment or of health and human safety, in each case as
amended and as now in effect; including, without limitation, the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act,the Federal Water Pollution Control
Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto),the Federal Solid Waste Disposal and the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, the Federal
Hazardous Materials Transportation Act, or any so-called "Superfund" or
"Superlien" law enacted by any state having jurisdiction over any Loan
Property or Participation Facility, each as amended and as now or hereafter in
effect, and (y) "Hazardous Material" means any substance which is or could be
detrimental to human health or safety to the environment, currently or hereafter
listed, defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether by type
or by quantity. Hazardous Material includes, without limitation, any toxic
waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous
waste, special waste, industrial substance, oil or petroleum or any derivative
or by-product thereof, radon, radioactive material,asbestos,asbestos-containing
material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl,
any of which is regulated by, or subject to regulation under, any Environmental
Law.
2.22. NO PENDING TRANSACTIONS. Except for the transactions contemplated by
this Agreement, the Company is not and will not become a party to or bound by or
the subject of any agreement, undertaking or commitment (i) to merge or
consolidate with, or acquire all or substantially all of the property and assets
of, any other corporation, entity or person or (ii) to sell, lease or exchange
all or substantially all of its property and assets to any other corporation,
entity or person.
2.23. TRANSACTIONS WITH AFFILIATES. Except as disclosed on SCHEDULE 2.23,
the Company is not a party to any transaction (other than the employment
agreements set forth in SCHEDULE 2.16) with any (i) current or former officer or
director of the Company, or (ii) any parent, spouse, child, brother, sister or
other family relations of any such officer or director or (iii) any corporation
or partnership of which any such officer or director or any such family
relations is an officer, director, partner or greater than 5% stockholder
(based on percentage ownership of voting stock) or (iv) any "affiliate" or
"associate" of any such persons or entities (as such terms are defined in the
rules and regulations promulgated under the Securities Act), including, without
limitation, any transaction involving a contract, agreement or other arrangement
providing for the employment of, furnishing of materials, products or services
by, rental of real or personal property from, or otherwise requiring payments
to, any such person or entity.
2.24. BROKERS AND FINDERS. Neither the Company, nor any of their respective
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions (other than legal
and accounting fees) in connection with the transactions contemplated herein,
except for the Company's retention of KPMG Peat Marwick LLP to perform certain
financial advisory services and Alex Sheshunoff & Company to provide a fairness
opinion.
2.25. AGREEMENTS WITH BANKING AUTHORITIES. Except as disclosed on
SCHEDULE 2.25, the Company is not a party to any commitment, letter, written
agreement, memorandum of understanding or order to cease and desist with any
federal or state governmental authority charged with the supervision or
regulation of banks or bank holding companies or engaged in the insurance of
bank deposits which in any manner restricts the conduct of its business, or
in any manner relates to its capital adequacy, credit policies, management or
overall safety and soundness or such entity's ability to perform its obligations
hereunder or consummate the transactions contemplated hereby.
2.26. DISCLOSURE. No representation or warranty made by the Company in this
Agreement and no statement contained in a certificate, schedule, list or other
instrument or document specified in or delivered pursuant to this Agreement,
whether heretofore furnished to the Purchaser or hereafter required to be
furnished to the Purchaser, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
the statements contained herein or therein not misleading.
III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.1. ORGANIZATION AND STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Vermont and
has full corporate power and authority to carry on its business as it is now
being conducted and to own or hold under lease the properties and assets it
now owns or holds under lease. Copies of the entire charter and by-laws of the
Purchaser will be delivered to the Company, and such documents are complete and
correct and in full force and effect as of the date of this Agreement. The
Purchaser is registered as a bank holding company under the Bank Holding Company
Act. The Purchaser wholly owns Chittenden Trust Company, a Vermont-chartered,
F.D.I.C.-insured commercial bank and The Bank of Western Massachusetts, a
Massachusetts-chartered, F.D.I.C.- insured trust company. The Purchaser is duly
qualified to do business and is in good standing as a foreign corporation in all
jurisdictions where the character of its properties or the nature of its
activities makes such qualification necessary except where the failure to so
qualify could not be expected to have a material adverse effect on the business
or financial condition of the Purchaser and its subsidiaries on a consolidated
basis.
3.2. NEWCO.
(i) Newco will be a trust company duly organized under Chapter 172 of
the Massachusetts general laws, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts. All of the outstanding shares of
capital stock of Newco will be validly issued, fully paid and nonassessable and
owned directly by the Purchaser free and clear of any lien, charge or other
encumbrance.
(ii) Newco will have the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Newco and the consummation of the
transactions contemplated hereby will be duly and validly authorized by all
necessary corporate actions in respect thereof on the part of Newco. This
Agreement will be a valid and binding obligation of Newco, enforceable in
accordance with its terms.
3.3. CAPITALIZATION. The Purchaser's entire authorized capital stock
consists of 200,000 shares of Preferred Stock, par value $100.00 per share, of
which no shares are issued and outstanding, and 30,000,000 shares of Common
Stock, par value $1.00 per share (the "Purchaser Common Stock"), of which
approximately 8,487,016 shares are outstanding, and 293,934 shares are held in
the Purchaser's treasury. All issued and outstanding shares of Purchaser Common
Stock have been duly and validly issued and are fully paid and non-assessable,
free of any preemptive rights. SCHEDULE 3.3 lists Purchaser Options, which
schedule accurately sets forth the exercise price and date of grant of each
Purchase Option and the number of shares of Purchaser Common Stock which each
Purchaser Option represents. Each Purchaser Option is valid and in full force
and effect. Except as indicated above and set forth on Schedule 3.3, the
Purchaser is not a party to or bound by any options, calls, warrants or
subscriptions of any character relating to any issued or unissued stock or any
other equity security issued or to be issued by it.
3.4. FINANCIAL STATEMENTS. The Purchaser has delivered to the Company
copies of the Purchaser's audited consolidated financial statements for the
fiscal years ended December 31, 1992, 1993 and 1994 and the Purchaser's
consolidated financial statements (unaudited) for the 6 months ended June 30,
1995 (the "Purchaser Financial Statements"). The Purchaser Financial Statements
are true and complete in all material respects, have been prepared in accordance
with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis throughout the periods covered by
such statements (except as may be stated in the explanatory notes to such
statements and, in the case of unaudited statements, except for normal recurring
year-end adjustments), and present fairly the consolidated financial position,
consolidated results of operations, changes in stockholders' equity and cash
flows of the Purchaser at the dates of such statements and for the periods
covered thereby. The Purchaser also will deliver to the Company copies of its
Form 10-K's, Form 8-K's, Form 10-Q's, proxy statements and other periodic
reports filed with the SEC pursuant to the Exchange Act in respect of or during
the three years and 6 months ended June 30, 1995 which are the material
documents that the Purchaser was required to file with the SEC during such
period, and such reports were filed in a timely manner and complied in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder.
3.5. NO UNDISCLOSED LIABILITIES. Except as and to the extent reflected or
reserved against in the consolidated balance sheets included within the
Purchaser Financial Statements, at the dates of such statements, the Purchaser
and its consolidated subsidiaries had no material liabilities or obligations
(whether accrued or absolute).
3.6. ABSENCE OF CERTAIN CHANGES, EVENTS OR CONDITIONS. Since December 31,
1994, there has not been any change in the Purchaser's consolidated financial
position, consolidated results of operations, assets, liabilities, net worth or
business, other than the Purchaser's acquisition of The Bank of Western
Massachusetts and changes in the ordinary course of business which have not been
materially adverse. Since December 31, 1994, the Purchaser has not experienced
any event or condition of any character (whether or not covered by insurance)
which has materially adversely affected or will so affect its properties,
business, financial position, results of operations, or net worth on a
consolidated basis.
3.7. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES, ETC. The
Purchaser has good and marketable title to all its properties and assets,
real and personal (including those reflected in the Purchaser Financial
Statements, except as sold or otherwise disposed of in the ordinary course of
business since the date thereof), in each case free and clear of all liens,
encumbrances, charges, defaults or equitable interests, except (i) those
reflected in the Purchaser Financial Statements or in the notes to such
Purchaser Financial Statements, (ii) the lien of current taxes not yet due and
payable, (iii) pledges to secure deposits and other liens incurred in the
ordinary course of banking business and (iv) such imperfections of title,
easements and encumbrances, if any, as are not substantial in character, amount
or extent, and do not materially detract from the value, or interfere with the
present or anticipated business use of the properties subject thereto or
affected thereby, or impair business operations. The Purchaser has not received
any notice of violation of any applicable zoning laws, orders, regulations, or
requirements relating to its operations or its properties which has not been
complied with, nor any proposed changes in any such laws, order or regulations
which might have a material adverse effect on its business. The Purchaser has
no knowledge of any threatened or impending condemnation of any properties of
the Purchaser by any governmental authority. All leases pursuant to which the
Purchaser, as lessee, leases real and personal property are valid and
enforceable in accordance with their respective terms.
3.8. LITIGATION, ETC. Except as described in SCHEDULE 3.8, and other than
in the normal course of business, there is no litigation, proceeding or
governmental investigation pending or, to the knowledge of the Purchaser,
threatened or in prospect against or relating to the Purchaser or its
consolidated subsidiaries, their respective properties or businesses, or the
transactions contemplated by this Agreement. Except as disclosed on
SCHEDULE 3.8, neither the Purchaser nor any of its consolidated subsidiaries is
subject to or bound by any order of any court, regulatory commission, board or
administrative body entered in any proceeding to which it is a party or of which
it has knowledge.
3.9. LOANS. To the best of the Purchaser's knowledge and upon reasonable
belief, each loan reflected as an asset in the Purchaser Financial Statements,
(i) is evidenced by notes, agreements or other evidences of indebtedness which
are true, genuine and what they purport to be, (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles. All loans and
extensions of credit which are classified as Insider Transactions by Regulation
O of the Federal Reserve Board have been made by the Purchaser in an arms-length
manner made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and do not involve more than normal risk of collectability or
present other unfavorable features.
3.10. ALLOWANCE FOR LOAN LOSSES; OTHER REAL ESTATE OWNED. To the best of the
Purchaser's knowledge and upon reasonable belief, the allowance for loan losses
reflected in the Purchaser Financial Statements as of their respective dates, is
adequate under the requirements of generally accepted accounting principles
applicable to financial institutions and all regulatory requirements applicable
to financial institutions. The other real estate owned ("OREO") and insubstance
foreclosures included in any of the Purchaser's non-performing assets are
carried net of reserves at the lower of cost or fair value based on current
independent appraisals or current management appraisals.
3.11. TAX MATTERS.
(a) The Purchaser has timely filed federal income tax returns for each
year through 1994 and has timely filed, or caused to be filed,all other material
federal, state, local and foreign tax returns (including, without limitation,
estimated tax returns, withholding tax returns and FICA and FUTA returns)
required to be filed with respect to the Purchaser. All taxes reported as due
on such tax returns have been paid and, as of the Closing, all material taxes
due in respect of any subsequent periods ending on or prior to the Closing will
have been paid or adequate reserves will have been established as reflected
in the Purchaser Financial Statements for the payment thereof. No audit
examination or deficiency or refund litigation with respect to such return is
pending. The Purchaser will not have any material liability for any such taxes
in excess of the amounts so paid or reserves or accruals so established as
reflected in the Purchaser Financial Statements.
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by the Purchaser are complete and accurate in all material
respects. The Purchaser is not delinquent in the payment of any tax, assessment
or governmental charge (other than any such tax assessment or charge being
disputed in good faith), and has not requested any extension of time within
which to file any tax returns in respect of any fiscal year or portion thereof
which have not been filed. No deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
otherwise) in writing against the Purchaser which have not been settled and paid
or otherwise resolved. There are currently no agreements in effect with respect
to the Purchaser to extend the period of limitations for the assessment or
collection of any tax.
(c) The Purchaser has timely filed all material tax returns required to
have been filed under, and has timely complied in all material respects with the
requirements of, Sections 1441-1446, 3406 and 6031-6060 of the Code and the
regulations thereunder and any comparable state, foreign and local laws.
(d) There are no material proposed additional taxes, interest or
penalties with respect to any year examined or not yet examined.
3.12. COMPLIANCE. The Purchaser and its consolidated subsidiaries have all
licenses, permits, approvals and other authorizations, and have made all
necessary filings and registrations which are necessary in order to enable them
to own or lease its properties and assets and to conduct their businesses as
they are now being conducted. The Purchaser and its consolidated subsidiaries
are in compliance in all material respects with all applicable laws, regulations
and ordinances which are material to the business of the Purchaser and its
subsidiaries taken as a whole. The Purchaser and its consolidated subsidiaries
have not received notification from any agency or department of federal, state
or local government (i) asserting a material violation of any such statute or
regulation, (ii) threatening to revoke any license, franchise, or permit or
government authorization or (iii) restricting or in any way limiting its
operations. Neither the Purchaser nor any of its consolidated subsidiaries
is subject to any regulatory, or supervisory cease and desist order, agreement,
directive, memorandum of understanding or commitment and it has not received any
communication requesting that it enter into any of the foregoing.
3.13. LABOR MATTERS. No labor dispute, strike, work stoppage, employee
action or labor relations problem of any kind has occurred or currently is
pending or, to the knowledge of the Purchaser, threatened. The Purchaser is not
the subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike, other labor
dispute or organizational effort involving the Purchaser pending or threatened.
3.14. DEPOSIT INSURANCE. The deposits of the Purchaser are insured by the
Federal Deposit Insurance Corporation in accordance with the Federal Deposit
Insurance Act, as amended ("FDIA"), and the Purchaser has paid all assessments
and filed all reports required by the FDIA.
3.15. ENVIRONMENTAL LIABILITY. The Purchaser, its consolidated subsidiaries,
its Participation Facilities and its Loan Properties are, and have been, in
substantial compliance with all Environmental Laws (as defined in Section 2.21),
except where non-compliance would, either individually or in the aggregate, not
have a material adverse effect on the Purchaser.
(i) The Purchaser, its Participation Facilities and its Loan
Properties (each as defined below) are, and have been, in substantial compliance
with all Environmental Laws (as defined below), except where non-compliance
would, either individually or in the aggregate, not have a material adverse
effect on the Purchaser.
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, or, to the Purchaser's knowledge, any
investigation or proceeding pending or threatened before any court, governmental
agency or board or other forum against the Purchaser or any Participation
Facility (x) for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the release into the
environment of any Hazardous Material (as defined below), whether or not
occurring at or on a site owned, leased or operated by the Purchaser or any
Participation Facility except as to such matters which, either individually or
in aggregate, would not have a material adverse effect on the Purchaser;
(iii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened before any court, governmental agency or board or other forum
relating to or against any Loan Property (or the Purchaser in respect of such
Loan Property) relating to (x) alleged noncompliance (including by any
predecessor) with, or liability under, any Environmental Law or (y) liability
for the release into the environment of any Hazardous Material or oil, whether
or not occurring at or on a site owned, leased or operated by any Loan Property,
except as to such matters which, either individually or in the aggregate, would
not have a material adverse effect on the Purchaser;
(iv) There is no reasonable basis for any suit, claim, action,
demand, executive or administrative order, directive or proceeding of a type
described in SECTION 2.21(a)(ii) or (iii).
(v) The properties currently or formerly owned or operated
(including, without limitation, in a fiduciary capacity) by the Purchaser
(including, without limitation, soil, groundwater or surface water on, under or
adjacent to the properties, and buildings thereon) do not contain any Hazardous
Material in violation of applicable Environmental Law, and except in amounts
which, either individually or in the aggregate, would not have a material
adverse effect on the Purchaser (provided, however, that with respect to
properties formerly owned or operated by the Purchaser such representation is
limited to the period the Purchaser owned or operated such properties);
(vi) The Purchaser has not received any written notice, demand
letter, executive or administrative order, directive or written request for
information from any federal, state, local or foreign governmental entity or any
third party indicating that it may be in violation of, or liable under, any
Environmental Law;
(vii) There are no underground storage tanks ("USTs") on, in or
under, and no USTs have been closed or removed from, any properties or
Participation Facility which are or have been in the Purchaser's ownership
except USTs which are in compliance with Environmental Laws or with respect to
which any noncompliance would not result in a material adverse effect on the
Purchaser;
(viii) During the period of (l) The Purchaser's ownership or
operation (including without limitation in a fiduciary capacity) of any of its
current properties; (m) the Purchaser's participation in the management of any
Participation Facility, or (n) to the Purchaser's knowledge, the Purchaser's
holding of a security interest in a Loan Property, there has been no release of
Hazardous Material in, on, under or affecting such properties, except as
permitted under applicable Environmental Law and except for releases which,
either individually or in the aggregate, would not have a material adverse
effect on the Purchaser; and
(ix) The only Loan Properties or Participation Facilities in which
the Purchaser, or any Subsidiary, participates in management are those described
in SCHEDULE 3.15.
3.16. INFORMATION FOR PROXY STATEMENT. The information and data provided and
to be provided by the Purchaser for use in the Registration Statement and Proxy
Statement or Joint Proxy Statement,if required, when such Registration Statement
and Proxy Statement becomes effective and at the time of mailing such
Registration Statement and Proxy Statement to the stockholders of the Company
and, if required, to the Purchaser, (i) shall comply in all material respects
with the applicable provisions of the Securities Act and the Exchange Act
and (ii) will not contain any untrue statement of a material fact and will not
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
3.17. NO CONFLICT WITH OTHER DOCUMENTS. Assuming satisfaction of the
conditions set forth in Section 9.1, as a result of obtaining all necessary
consents and approvals, neither the execution and delivery of this Agreement nor
the carrying out of the transactions contemplated hereby will result in any
violation, termination or modification of, or be in conflict with, the
Purchaser's charter or by-laws, any terms of any material contract or
other instrument to which the Purchaser or any of its subsidiaries is a party,
or any material judgment, decree or order applicable to the Purchaser or any of
its subsidiaries, or result in the creation of any lien, charge or encumbrance
upon any of their properties or assets.
3.18. AUTHORITY. The execution, delivery and performance of this Agreement
by the Purchaser has been duly authorized by its Board of Directors, and this
Agreement is a valid, legally binding and enforceable obligation of the
Purchaser. Upon the satisfaction of all other conditions herein and the filing
of the Merger Agreement with all appropriate authorities, this Agreement will
result in the valid, legally binding and enforceable statutory merger of the
Company and Newco and the acquisition of the Company by the Purchaser.
3.19. VALIDITY OF COMMON STOCK. The shares of Purchaser Common Stock to be
issued or delivered by the Purchaser in connection with the Merger have been
duly authorized for issue and will, when issued and delivered as provided in
this Agreement, be duly and validly issued, fully paid and non-assessable.
3.20. BROKERS AND FINDERS. Neither the Purchaser nor any subsidiary thereof,
nor any of their respective officers, directors or employees, has employed any
broker, finder or financial advisor or incurred any liability for any fees or
commissions (other than legal and accounting fees) in connection with the
transactions contemplated herein, except for the Purchaser's retention of M.A.
Schapiro & Co., Inc. to perform certain financial advisory services.
3.21. CONSENTS AND APPROVALS. Except for (i) the filing of applications and
notices, as applicable with the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended and Bank Merger Act and the approval of such
applications and notices, (ii) the filing of applications with the F.D.I.C.
under the Bank Merger Act and approval of such applications, (iii) state banking
approvals, (iv) the filing with the SEC of a proxy statement and the S-4, (v)
the approval of this agreement by Purchaser as the sole stockholder of Newco,
(vi) the filing of Articles of Merger with the Secretary of State of the
Commonwealth of Massachusetts, (vii) such filings and approvals as are required
to be made or obtained under securities or blue sky laws of various states in
connection with the issuance of the shares of Purchaser Common Stock pursuant to
this Agreement; (viii) such filings, authorizations or approvals as may be set
forth in Section 3.21 of the Purchaser Disclosure Schedule, no consents or
approvals of or filings or registrations with any governmental entity or any
third party are necessary in connection with (1) the execution and delivery by
Purchaser and Newco of this Agreement, (2) the consummation by Purchaser and
Newco of the Merger and other transactions contemplated hereby, (3) the
execution and delivery by Newco of the Merger Agreement and (4) consummation of
transactions contemplated by the Merger Agreement. The affirmative vote of the
holders of the shares of Purchaser Common Stock is not required to approve this
Agreement or the transactions contemplated hereby. Purchaser hereby represents
to Company that it has no reason to believe that it would be unable to obtain
each and every required consent and approval referred to in this SECTION 3.21.
The Purchaser will endeavor to obtain such consents and approvals so that the
transactions contemplated by this Agreement and the Merger Agreement may be
consummated on or prior to February 28, 1996.
3.22. SEC REPORTS. Purchaser has previously made available to Company an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1990 by
Purchaser with the SEC pursuant to the Securities Act or the Exchange Act (the
"Purchaser Reports") and (b) communication mailed by Purchaser to its
shareholders since January 1, 1990, and no such registration statement,
prospectus, report, schedule, proxy statement or communication contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed to modify information
as of an earlier date. Purchaser has timely filed all Purchaser Reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all Purchaser Reports complied
in all material respects with the published rules and regulations of the SEC
with respect thereto.
3.23. AGREEMENTS WITH BANKING AUTHORITIES. The Purchaser is not a party to
any commitment, letter, written agreement, memorandum of understanding or order
to cease and desist with any federal or state governmental authority charged
with the supervision or regulation of banks or bank holding companies or engaged
in the insurance of bank deposits which in any manner restricts the conduct of
its business, or in any manner relates to its capital adequacy, credit policies,
management or overall safety and soundness or such entity's ability to perform
its obligations hereunder or consummate the transactions contemplated hereby.
3.24. DISCLOSURE. No representation or warranty made by the Purchaser in
this Agreement and no statement contained in a certificate, schedule, list or
other instrument or document specified in or delivered pursuant to this
Agreement, whether heretofore furnished to the Company or hereafter required to
be furnished to the Company, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
the statements contained herein or therein not misleading.
IV.
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE MERGER. Except as set
forth in the Company Disclosure Schedule, from the date of this Agreement to the
Closing, the Company shall (i) conduct its business in the usual, regular and
ordinary course consistent with past practice, (ii) use its best efforts to
maintain and preserve intact its business organization, assets, leases,
properties, employees and advantageous business relationships and retain the
services of its officers and key employees and (iii) intentionally take no
action which would materially adversely affect or delay its ability to obtain
any necessary approvals, consents or waivers of any governmental authority
required for the transactions contemplated hereby or to perform its covenants
and agreements on a timely basis under this Agreement.
4.2. FORBEARANCES. Except as set forth in the Company's Disclosure Schedule,
from the date of this Agreement to the Closing, the Company shall not without
the prior written approval of the Purchaser, which approval shall not be
unreasonably withheld;
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness of the Company; it
being understood and agreed that incurrence of indebtedness in the ordinary
course of business shall include, without limitation, the creation of deposit
liabilities, purchases of federal funds, Federal Home Loan Bank short - and long
term advances, sales of certificates of deposit and entering into repurchase and
reverse repurchase agreements), assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or make any loan or advance other than in the
ordinary course of business consistent with past practice;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend other than the continuation of the Company's regular
semi-annual cash dividend not to exceed $0.1525 per share and a pro rata
dividend prior to the Closing for any time period for which the Company's
stockholders would not be entitled to receive a dividend as holders of Purchaser
Common Stock, or make any other distribution on, or directly or indirectly
redeem, repurchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
capital stock, or grant any stock appreciation rights or grant any individual,
corporation or other entity any right to acquire any shares of its capital stock
or issue any additional shares of capital stock except upon exercise of Company
Stock Options outstanding on the date hereof, or any securities or obligations
convertible into or exchangeable for any shares of its capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity, other
than a direct or indirect wholly owned Subsidiary, or cancel, release or assign
any indebtedness to any such person or any claims held by any such person,
except in the ordinary course of business consistent with past practices,
including, without limitation, sales of Small Business Administration loans,
FMHA loans and mortgages in the secondary mortgage market or pursuant to
contracts or agreements in force at the date of this Agreement;
(d) except for transactions in the ordinary course of business, make
any material investment either by purchase of stock or securities, contributions
to capital, property transfers, or purchases of any property or assets of any
other individual, corporation or other entity, other than a wholly owned
Subsidiary thereof, in excess of $100,000;
(e) except for transactions in the ordinary course of business
consistent with past practice, enter into or terminate any material contract or
agreement, or make any change in any of its material leases or contracts, other
than renewals of contracts and leases without material adverse changes of terms;
(f) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by any
existing plan or agreement to any such employees, or become a party to, amend or
commit itself to any pension, retirement, profit-sharing, stock option, stock
purchase, savings, bonus, deferred compensation, consulting, bonus or other
employee benefit, incentive or welfare contract, plan or agreement or employment
agreement with or for the benefit of any employee other than in the ordinary
course of business consistent with past practice or accelerate the vesting of
any stock options or other stock-based compensation;
(g) settle any claim, action or proceeding involving money damages,
except in the ordinary course of business consistent with past practice;
(h) change its lending, investment, asset liability management,
litigation, real estate valuation or other material banking policies in any
material respect except as may be required by appropriate regulators or changes
in applicable law and regulations.
(i) amend its charter or its by-laws;
(j) take any action that is reasonably likely to have a material
adverse effect on the financial condition, results of operations or business of
the Company; or
(k) issue any options or warrants between the date hereof and the
Closing.
V.
REGULATORY APPROVALS
5.1. MUTUAL COOPERATION. The Purchaser and the Company shall cooperate in
the preparation and submission of applications to the appropriate authorities
for approval of the Merger, including but not limited to the Securities and
Exchange Commission, Federal Reserve Board, Federal Deposit Insurance
Corporation, Banking Commissioner of the Commonwealth of Massachusetts and the
Board of Bank Incorporation of the Commonwealth of Massachusetts.
VI.
COVENANTS OF THE COMPANY
The Company covenants to the Purchaser that:
6.1. BEST EFFORTS. The Company shall use best efforts in good faith to take
or cause to be taken all action necessary or desirable under this Agreement on
its part as promptly as practicable so as to permit the consummation of the
Merger and the transactions contemplated hereby as promptly as practicable and
to cooperate fully with the Purchaser to that end.
6.2. REGISTRATION STATEMENT AND PROXY STATEMENT. The Company will cooperate
with the Purchaser in the preparation of the Registration Statement and Proxy
Statement with respect to the Purchaser Common Stock to be issued in the Merger
and the solicitation of proxies of the stockholders of the Company to seek
stockholder approval for the Merger and the transactions contemplated by this
Agreement.
6.3. INFORMATION. The Company will keep the Purchaser advised of all
material developments relevant to its business and to consummation of the Merger
and the transactions contemplated herein. The Company will give to the Purchaser
and to the Purchaser's officers, accountants, counsel and other representatives
full access, during normal business hours throughout the period prior to the
Closing, to all the properties, books, contracts, commitments and records of the
Company. The Company will furnish to the Purchaser during such period all such
information concerning the Company and its business and properties as the
Purchaser may reasonably request. No information provided by the Company
pursuant to this SECTION 6. 3 shall affect or be deemed to modify any
representation or warranty made by, or the conditions to the obligations to
consummate the Merger, of the Company.
6.4. CONFIDENTIALITY. The Company shall, and shall cause its respective
directors, officers, attorneys, agents or advisors to, maintain the
confidentiality of all information obtained from the Purchaser or any of its
subsidiaries pursuant to SECTION 7.5, which information is not otherwise
publicly disclosed by the Purchaser or any of its subsidiaries. This covenant
with respect to confidentiality shall survive any termination of this Agreement
pursuant to Article X hereof. In the event of termination of this Agreement,
the Company shall return to the Purchaser or destroy and certify the destruction
of all information previously furnished by the Purchaser to the Company in
connection with the transactions contemplated by this Agreement.
6.5. MEETING OF STOCKHOLDERS. The Company will duly call and convene a
meeting of its stockholders to act upon the transactions contemplated by this
Agreement as soon as practicable, but not later than May 31, 1996, and the Board
of Directors of the Company will, except to the extent legally required to do
otherwise for the discharge by it of its fiduciary duties as determined upon
written advice of counsel, recommend that the holders of the Company Common
Stock vote in favor of and approve the Merger and the transactions contemplated
thereby. The Company will solicit the proxies of its stockholders to vote on the
transactions contemplated by this Agreement and, except as otherwise required
by its fiduciary duties, will use its best efforts to obtain any vote of the
Company's stockholders necessary for the approval and adoption of this Agreement
and the transactions contemplated hereby. Except as otherwise required by law,
the Company will not call and convene a meeting of its stockholders to consider
or vote on any matter inconsistent with the consummation of the transactions
contemplated by this Agreement.
6.6. NOTICE OF LITIGATION. The Company will provide written notice to the
Purchaser of any litigation, proceeding or governmental investigation which
arises, or to the knowledge of the Company, is threatened or in prospect, which
is reasonably foreseen as exposing the Company to cost or liability in excess of
$100,000, after the date of this Agreement and prior to the Closing, against or
relating to the Company, its properties or businesses, or the transactions
contemplated by this Agreement, setting forth in such notice the facts and
circumstances currently available to the Company with respect to such litigation
proceeding or investigation.
6.7. PRESS RELEASES. The Company will not, unless approved by the Purchaser
hereto in advance, which approval shall not be unreasonably withheld, issue any
press release or written statement for general circulation or other written
public disclosure relating to the transactions contemplated hereby, except as
otherwise required by law, it being contemplated that the Purchaser and the
Company will issue a joint press release announcing the Merger and the
transactions contemplated by this Agreement.
6.8. CORPORATE TRANSACTIONS. The Company shall not solicit or encourage
inquiries or proposals with respect to or, except to the extent required for the
discharge by the Board of Directors of the Company of their fiduciary duties as
determined upon written advice of counsel, furnish any information or recommend
or endorse any takeover proposal relating to or participate in any negotiations
or discussions concerning any acquisition or purchase of all or a substantial
portion of the assets or of a substantial equity interest in, the Company or
any merger, consolidation or business combination with the Company other than as
contemplated by this Agreement. The Company shall notify the Purchaser
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated with it; shall immediately cease any negotiations or
discussions existing at the date hereof concerning the foregoing and request
the return to it of any information furnished by it to such party or shall
instruct such party to destroy such information pursuant to the operable
confidentiality letters; and shall instruct its employees, officers, directors,
agents, advisors and affiliates to comply with the above.
6.9. TAKEOVER STATUTES. No "fair price," "moratorium," "control share
acquisition" or other form of antitakeover statute or regulation or any similar
provision of the Company's charter is applicable to the transactions
contemplated by this Agreement and, if any such statute, regulation or
provisions shall become applicable to the transactions contemplated by
this Agreement, the Company and the members of its Board of Directors shall
grant such approvals and take such actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute or regulation or provision on the transactions
contemplated hereby.
6.10. PRESERVATION OF TAX-FREE TREATMENT. Neither the Purchaser nor the
Company shall intentionally take or cause to be taken, omit to take or cause to
be taken, before the Closing, any action which would disqualify the Merger as a
"tax-free reorganization" within the meaning of Section 368 of the Code or
adversely affect the "pooling of interests" treatment of the Merger. The
Company's obligations hereto with respect to "pooling of interests" survives the
Closing.
6.11. AFFILIATES. The Company shall use its best efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act and for purposes of qualifying the Merger
for "pooling of interests" accounting treatment) to deliver to the Purchaser, as
soon as practicable after the date of this Agreement, and prior to the date of
the shareholders meeting called by the Company to approve this Agreement a
written agreement in the form of Exhibit C hereto providing that such person
will not sell, pledge, transfer or otherwise dispose of any shares of Purchaser
Common Stock to be received by such "affiliates" in the Merger: (a) in the case
of shares of Purchaser Common Stock to be received by "affiliates" of the
Company in the Merger, except in compliance with the applicable provisions of
the Securities Act, and the rules and regulations thereunder; and (b) during the
period commencing thirty (30) days prior to the Merger and ending at the time of
publication of financial results covering at least thirty (30) days of combined
operations of Purchaser and Company.
VII.
COVENANTS OF THE PURCHASER
The Purchaser covenants to the Company that:
7.1. BEST EFFORTS. The Purchaser shall use best efforts in good faith to
take or cause to be taken all action necessary or desirable under this Agreement
on its part as promptly as practicable so as to permit the consummation of the
Merger and the transactions contemplated hereby as promptly as practicable and
to cooperate fully with the Company to that end.
7.2. REGISTRATION STATEMENT AND PROXY STATEMENT. The Purchaser shall, as
promptly as practicable following the preparation of the Registration Statement
and Proxy Statement, file such document with the SEC, and the Purchaser shall
use its best efforts to have the Registration Statement and Proxy Statement
declared effective by the SEC as promptly as practicable and to maintain the
effectiveness of such Registration Statement and Proxy Statement.
7.3. STOCK RESERVATION. Between the date hereof and the date of the Closing,
the Purchaser will keep and reserve available a sufficient number of shares of
Purchaser Common Stock for issuance and delivery to the stockholders of the
Company as contemplated in this Agreement. The Purchaser will take all action
and use best efforts to have the Purchaser Common Stock to be delivered
hereunder listed on the NASDAQ NMS.
7.4. BLUE SKY LAWS. The Purchaser shall use its best efforts to obtain,
prior to the Closing, all necessary state securities laws or "blue sky" permits
and approvals required to carry out the transactions contemplated by this
Agreement, provided that the Purchaser shall not be required by virtue thereof
to submit to general jurisdiction in any state.
7.5. INFORMATION. The Purchaser will keep the Company advised of all
material developments relevant to its business and to consummation of the Merger
and the transactions contemplated herein. The Purchaser and its subsidiaries
will give to the Company and to the Company's officers, accountants, counsel and
other representatives full access, during normal business hours throughout the
period prior to the Closing, to all the properties, books, contracts,
commitments and records of the Purchaser and its subsidiaries. The Purchaser and
its subsidiaries will furnish to the Company during such period all such
information concerning the Purchaser and its subsidiaries and their business and
properties as the Company may reasonably request. No information provided by the
Purchaser or any of its subsidiaries pursuant to this Section 7.5 shall affect
or be deemed to modify any representation or warranty made by, or the conditions
to the obligations to consummate the Merger, of the Company.
7.6. CONFIDENTIALITY. The Purchaser and each of its subsidiaries shall, and
shall cause their respective director , officers, attorneys, agents or advisors
to, maintain the confidentiality of all information obtained from the Company
pursuant to Section 6.3, which information is not otherwise publicly disclosed
by the Company of any of the Subsidiaries. This covenant with respect to
confidentiality shall survive any termination of this Agreement pursuant to
Article X. In the event of termination of this Agreement, the Purchaser shall
return to the Company or destroy and certify the destruction of all information
previously furnished by the Company to the Purchaser in connection with the
transactions contemplated by this Agreement.
7.7. MEETING OF STOCKHOLDERS. Except as otherwise required by law, the
Purchaser will not call and convene a meeting of its stockholders to consider or
vote on any matter inconsistent with the consummation of the transactions
contemplated by this Agreement.
7.8. NO UNDERTAKINGS. Prior to Closing, the Purchaser will not enter into
any undertaking that might have a short-term material adverse effect on the
price of Purchaser Common Stock without first obtaining the Company's consent,
which consent shall not be unreasonably withheld.
7.9. NOTICE OF LITIGATION. The Purchaser will provide written notice to the
Company of any litigation, proceeding or governmental investigation which
arises, or to the knowledge of the Purchaser, is threatened or in prospect,
which is reasonably foreseen to exceed $125,000 in cost or liability after the
date of this Agreement and prior to the Closing, against or relating to the
Purchaser or any of its subsidiaries, their respective properties or businesses,
or the transactions contemplated by this Agreement, setting forth in such notice
the facts and circumstances currently available to the Purchaser with respect to
such litigation, proceeding or investigation.
7.10. PRESS RELEASES. The Purchaser will not, unless approved by the Company
hereto in advance, issue any press release or written statement for general
circulation or other written public disclosure relating to the transactions
contemplated hereby, except as otherwise required by law, it being contemplated
that the Purchaser and the Company will issue a joint press release announcing
the Merger and the transactions contemplated by this Agreement.
7.11. INDEMNIFICATION.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, including, without limitation, any such claim,
action, suit, proceeding or investigation in which any person who is now or was
any time prior to the date of this Agreement a director, officer or employee of
Company is, or threatened to be, made a party based in whole or in part on, or
arising in whole or in part out of, or pertaining to the fact that he is or was
a director, officer or employee of the Company, this Agreement is or any of the
transactions contemplated hereby, parties hereto agree to cooperate and use
their best efforts to defend against and respond thereto. From and after the
Closing, the Purchaser shall indemnify persons who served as directors and
officers of the Company on or before the Closing in accordance with and subject
to the provisions of the Purchaser's indemnification for its directors and
officers.
(b) Purchaser shall use best efforts to cause the persons serving as
officers and directors of Company immediately prior to the Closing to be covered
for a period of six years from the Closing by the directors' and officers'
liability insurance policy maintained by Company (provided that Purchaser may
substitute therefor policies of at least the same coverage and amounts
containing in terms and conditions which are not less advantageous to such
policy) with respect to acts or omissions occurring prior to the Closing which
were committed by such officers and directors in their capacity as such.
(c) In the event that the Purchaser or any successors or assigns (i)
consolidates or merges with any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys substantial properties or assets to another person, then,
in each case, to the extent necessary, proper provision shall be made so that
the successors and assigns of Purchaser or Newco, as the case may be, assume the
obligations set forth in this section. The provisions of this section are
intended to be for the benefit and shall be enforceable by each indemnified
party and his/her heirs and representatives.
7.12. COVENANTS WITH RESPECT TO NEWCO. Purchaser covenants and agrees that
at or prior to the Effective Time: (i) Purchaser will cause Newco to be a trust
company chartered under Massachusetts law for the purpose of effecting the
merger of the Company with and into Newco and Newco will be validly existing and
in good standing under Massachusetts law; (ii) Newco will have full corporate
power and authority to execute and deliver this Agreement, the Merger Agreement
and to consummate the transactions contemplated hereby and thereby, (iii)
the Board of Directors of Newco and Purchaser, as the sole shareholder of Newco
will have duly and validly approved and adopted this Agreement, the Merger
Agreement and the transactions contemplated hereby and thereby, and no other
corporate proceedings on the part of Newco will be necessary to consummate the
transactions so contemplated, (iv) this Agreement will constitute a valid and
binding obligation of Newco enforceable in accordance with its terms; and (v)
Purchaser will cause Newco to execute and deliver this Agreement and the Merger
Agreement as soon as practicable.
VIII.
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
Unless waived by the Purchaser in writing in its sole discretion, all
obligations of the Purchaser under this Agreement are subject to the fulfillment
prior to or at the Closing, of each of the following conditions:
8.1. APPROVAL OF COMPANY STOCKHOLDERS. The transactions contemplated by
this Agreement shall have been duly approved by the requisite affirmative vote
of the issued and outstanding shares of the capital stock of the Company; and
not more than 10% of the issued and outstanding shares of Company Common Stock
shall have been the subject of objection to the transactions hereunder and
demand for payment pursuant to statutory appraisal rights.
8.2. REGULATORY APPROVAL AND EXPIRATION OF WAITING PERIODS. The Purchaser
and the Company shall have received all regulatory approvals required or deemed
necessary in connection with the Merger, this Agreement, and the transactions
contemplated hereby and thereby, all notice periods and waiting periods required
after the granting of any such approvals shall have passed and all conditions
contained in any such approval required to have been satisfied prior to
consummation of such transactions shall have been satisfied.
8.3. NO COURT ORDER, DECREE OR INJUNCTION. Neither the Purchaser nor the
Company shall be subject to any order, decree or injunction of a court or agency
of competent jurisdiction which enjoins or prohibits the consummation of the
transactions contemplated by this Agreement or the Merger.
8.4. REPRESENTATIONS, WARRANTIES AND COVENANTS. In all material respects,
the representations and warranties of the Company contained in this Agreement
shall be in all material respects true at and as of the date of this Agreement
and shall be deemed made again at and as of the date of the Closing; the Company
shall have in all material respects performed all obligations and complied with
all covenants required by this Agreement to be performed or complied with by it
prior to the Closing; and the Purchaser shall have received from the Company a
certificate or certificates in such reasonable detail as the Purchaser may
reasonably request, signed by the Chairman of the Board or President of the
Company and dated the date of the Closing, to the foregoing effect.
8.5. OPINION OF COUNSEL TO THE COMPANY. The Company shall have delivered to
the Purchaser a favorable opinion of the Company's counsel, dated the date of
Closing, in form and substance satisfactory to the Purchaser and its counsel
with respect to the transactions contemplated hereby and by the Merger.
8.6. ACCOUNTANTS' LETTER. The Purchaser and the Company shall have received
a favorable opinion of Arthur Andersen LLP in substance satisfactory to the
Purchaser, to the effect that the acquisition of the Company by the Purchaser
may be accounted for by the Purchaser as a "pooling of interests" for financial
statement purposes and that such accounting treatment is in accordance with
generally accepted accounting principles.
8.7. ACCURACY OF REGISTRATION STATEMENT AND PROXY STATEMENT. On and as of
the dates of the meetings of the stockholders of the Company, and, if required,
the Purchaser at which action is to be taken on the transactions contemplated
hereby, the Registration Statement and Proxy Statement and prospectus included
therein shall contain no statement which, at the time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in order to
make the statements made therein not misleading.
8.8. CONSENTS AND ACTIONS; CONTRACTS. All requisite material consents of
any third parties and other actions which the Company has covenanted to use its
best efforts to obtain and take shall have been obtained and completed except
such consents and actions as the Company has failed to obtain or take despite
using its best efforts.
8.9. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
and Proxy Statement shall have become effective, and no stop order suspending
its effectiveness shall have been issued and no proceedings for that purpose
shall have been instituted, pending or threatened in writing.
8.10. OTHER EVIDENCE. The Purchaser shall have received from the Company
such further certificates and documents evidencing due action in accordance with
this Agreement, including certified copies of proceedings of the Board of
Directors and stockholders of the Company, as the Purchaser shall reasonably
request.
8.11. NO MATERIAL ADVERSE CONDITION. There shall not have been a material
adverse condition with respect to the Company as of the date of the Closing.
For purposes of this Section, a "material adverse condition" is a condition
which either alone or when aggregated with other conditions has resulted or, in
the reasonable opinion of the Purchaser, would result in a substantial loss or
damage to the properties or assets of the Company whether or not insured, that
would materially affect or impair the ability of the Company to conduct its
business as presently conducted.
8.12. TAX MATTERS. The Purchaser shall have received a favorable opinion of
Piper & Marbury LLP in substance satisfactory to the Purchaser, to the effect
that: (a) no gain or loss will be recognized by the Purchaser, the Company or
Newco as a result of the Merger; and (b) to such further effect, consistent with
the foregoing, as may reasonably be required.
IX.
CONDITIONS TO THE COMPANY'S OBLIGATIONS
Unless waived by the Company in writing in its sole discretion, all
obligations of the Company under this Agreement are subject to the fulfillment,
prior to or at the Closing, of each of the following conditions:
9.1. REGULATORY APPROVAL AND EXPIRATION OF WAITING PERIODS. The Purchaser
and the Company shall have received all regulatory approvals required or deemed
necessary in connection with the Merger, this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby, all notice periods and
waiting periods required after the granting of any such approvals shall have
passed and all conditions contained in any such approval required to have been
satisfied prior to consummation of such transactions shall have been satisfied.
9.2. NO COURT ORDER, DECREE OR INJUNCTION. Neither the Purchaser nor the
Company shall be subject to any order, decree or injunction of a court or agency
of competent jurisdiction which enjoins or prohibits the consummation of the
transactions contemplated by this Agreement or the Merger.
9.3. REPRESENTATIONS, WARRANTIES AND COVENANTS. In all material respects,
the representations and warranties of the Purchaser contained in this Agreement
shall be true as of the date of this Agreement and shall be deemed made again at
and as of the date of the Closing; the Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing; and the Company shall
have received from the Purchaser a certificate or certificates in such
reasonable detail as the Company may reasonably request, signed by the Chair of
the Board or President of the Purchaser and dated the date of the Closing, to
the foregoing effect.
9.4. OPINION OF COUNSEL TO THE PURCHASER. The Purchaser shall have
delivered to the Company a favorable opinion of the Purchaser's counsel dated
the date of Closing, in form and substance satisfactory to the Company and its
counsel with respect to the transactions contemplated hereby and by the Merger.
9.5. LISTING. All action shall have been taken by the Purchaser to have the
Purchaser Common Stock to be delivered hereunder listed on the NASDAQ NMS.
9.6. APPROVAL OF COMPANY STOCKHOLDERS. The transactions contemplated by
this Agreement shall have been approved by the requisite affirmative vote of the
issued and outstanding shares of the capital stock of the Company.
9.7. ACCURACY OF REGISTRATION STATEMENT AND PROXY STATEMENT. On and as of
the date of the meeting of the stockholders of the Company at which action is to
be taken on the transactions contemplated hereby, the Registration Statement and
Proxy Statement and prospectus included therein shall contain no statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or which omits to state
any material fact necessary in order to make the statements made therein not
misleading.
9.8. CONSENTS AND ACTIONS; CONTRACTS. All requisite consents of any third
parties and other actions which the Purchaser has covenanted to use its best
efforts to obtain and take under Section 7.1 hereof shall have been obtained and
completed, except such consents and actions as the Purchaser has failed to
obtain or take despite using its best efforts.
9.9. FINANCIAL ADVISOR'S OPINION. The Company shall have received, for
inclusion in the Registration Statement and Proxy Statement, an opinion of Alex
Sheshunoff & Company, to the effect that the transactions hereunder are fair,
from a financial point of view, to the stockholders of the Company.
9.10. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement and
Proxy Statement shall have become effective, and no stop order suspending its
effectiveness shall have been issued and no proceedings for that purpose shall
have been instituted, pending or threatened.
9.11. OTHER EVIDENCE. The Company shall have received from the Purchaser such
further certificates and documents evidencing due action in accordance with this
Agreement, including certified copies of proceedings of the Board of Directors
and stockholders of the Purchaser, as the Company reasonably shall request.
9.12. NO MATERIAL ADVERSE CONDITION. There shall not have been a material
adverse condition with respect to the Purchaser from the date of this Agreement
to the Closing. For purposes of this Section, a "material adverse condition" is
a condition which either alone or when aggregated with other conditions has
resulted or, in the reasonable opinion of the Company, would result in a
substantial loss or damage to the properties or assets of the Purchaser taken as
a whole, whether or not insured, that would materially affect or impair
the ability of the Purchaser to conduct their business as presently conducted.
9.13. PURCHASER DETERMINATION PRICE. The Determination Price shall be at
least $23.25; provided, however, that the Company must notify the Purchaser in
writing within three business days after the Determination Price is calculable
that it intends to exercise its termination right.
9.14. TAX MATTERS. The Company shall have received favorable opinions of
Bingham, Dana & Gould, and of Piper & Marbury LLP, dated the date upon which the
Registration Statement shall have become effective, and on the date of Closing,
substantially to the effect that, on the basis of facts and representations set
forth therein, or set forth in writing elsewhere and referred to therein, for
federal income tax purposes (a) the transactions described in SECTION 1 hereto
constitute one or more reorganizations as described in Section 368(a)(1)
(including, without limitation, Sections 368 (a)(1)(A) and 368(a)(2)(D)) and
related sections of the Code; and (b) no gain or loss will be recognized by a
stockholder of the Company upon the exchange of shares of Company Common Stock
for Purchaser Common Stock it being understood that such opinion will not extend
to cash received in lieu of fractional shares or cash received by dissenters, if
any, and in respect of other substantial federal income tax effects as the
Company may reasonably require, including, without limitation, such opinions
as are customary in transactions of a like or substantially similar character.
In rendering any such opinion, such counsel may require and rely, to the extent
they deem necessary or appropriate, upon opinions of other counsel and upon
representations of an officer or officers of the Company and/or the Purchaser
and/or any of any affiliates of either thereof.
9.15. PURCHASER COMMON STOCK LISTED. The shares of Purchaser Common Stock
which shall be issued to the Stockholders of the Company upon consummation of
the Merger shall have been authorized for listing on the NASDAQ NMS, subject to
official notice of issuance.
9.16. POOLING OF INTEREST. The Company shall have received a letter from
Arthur Andersen LLP addressed to the Company and Purchaser to the effect that
the Merger will qualify for "Pooling of Interests" accounting treatment.
X.
TERMINATION, WAIVER AND AMENDMENT.
10.1. TERMINATION. This Agreement, the Merger Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby may be terminated
prior to the Closing, either before or after their approval by the stockholders
of the Purchaser or the Company:
(i) by the mutual consent of the Purchaser and the Company if the
Board of Directors of each so determines by vote of a majority of the members of
its entire Board;
(ii) by the Purchaser or the Company, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event of a material breach by the other of any representation, warranty,
covenant or agreement contained herein which is not cured within 30 days after
the date of written notice from the other party hereto;
(iii) by the Purchaser or the Company in writing, if the applications
for prior approval referred to in Article V hereof have been denied, and the
time period for appeals and requests for reconsideration has run;
(iv) by the Purchaser or the Company, in writing, if the Company's
stockholders do not approve the transactions contemplated herein at the annual
or special meeting duly called for that purpose as contemplated herein;
(v) by the Purchaser or the Company in writing, in the event either
discovers a continuing material adverse condition which cannot be corrected with
respect to the other party;
(vi) by the Purchaser or the Company in writing, if the Closing has
not occurred by the close of business on June 30, 1996;
(vii) by the Company if the Determination Price is less than $23.25;
provided, however, that the Company must notify the Purchaser in writing within
three business days after the Determination Price is calculable that it intends
to exercise its termination right.
10.2. EFFECT OF TERMINATION. In the event this Agreement and the Merger
Agreement are terminated pursuant to SECTION 10.I hereof, this Agreement and the
Merger Agreement shall become void and have no effect, except that (i) the
provisions relating to confidentiality set forth in SECTIONS 6.4 and 7.6 hereof
and the provisions relating to expenses set forth in SECTION 11.1 hereof shall
continue in effect.
10.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants in this Agreement, the Merger
Agreement or in any instrument delivered pursuant hereto or thereto shall expire
on, and be terminated and extinguished at, the Closing other than covenants that
by their terms are to survive or be performed after the Closing and no party
hereto shall be under any liability whatsoever with respect to any such
representation, certification or warranty, it being intended that the sole
remedy of any party for a breach of any such representation, certification or
warranty shall be to elect not to proceed with the Closing hereunder if such
breach has resulted in a condition to such party's obligations hereunder not
being satisfied; provided, however, that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive the
Purchaser, Newco or the Company (or any director, officer or controlling
person thereof) of any defense in law or equity which otherwise would be
available against the claims of any person, including, without limitation, any
stockholder or former stockholder of either the Purchaser or the Company, the
aforesaid representations, warranties and covenants being material inducements
to the consummation by the Purchaser, Newco and the Company of the transactions
contemplated herein. Notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
10.4. WAIVER. Except with respect to any required stockholder or regulatory
approval, the Purchaser and the Company, respectively, by written instrument
signed by an executive officer of such party, may at any time (whether before or
after approval of this Agreement and the Merger Agreement by the stockholders of
the Purchaser, if required, and the Company) extend the time for the performance
of any of the obligations of or other acts of the other party, and may waive (i)
any inaccuracies of such parties in the representations or warranties contained
in this Agreement, the Merger Agreement or any document delivered pursuant
thereto, (ii) compliance with any of the covenants, undertakings or agreements
of such parties, or satisfaction of any of the conditions precedent to its
obligations, contained herein or in the Merger Agreement or (iii) the
performance by such parties of any of its obligations set out herein or therein.
10.5. AMENDMENT OR SUPPLEMENT. This Agreement and the Merger Agreement may be
amended or supplemented at any time by mutual agreement of the parties hereto;
provided, however, that after any approval of the transactions contemplated by
this Agreement by Company stockholders, there may not be without further
approval of such stockholders, any amendment of this Agreement which reduces the
amount or changes the form of the consideration to be delivered to any
stockholders hereunder other than as contemplated by this Agreement. Any
such amendment or supplement must be in writing and approved by their respective
Boards of Directors.
XI.
MISCELLANEOUS
11.1. EXPENSES. (a) Each party to this Agreement shall pay all of its
expenses relating hereto, including fees and disbursements of its counsel,
accountants, investment bankers, and financial advisors, whether or not the
transactions hereunder are consummated. Expenses of printing this Agreement, the
Registration Statement and Proxy Statement and any other documents used in the
transactions contemplated hereunder and the fee for registration under the
Securities Act of the shares of Purchaser Common Stock to be issued upon the
conversion of shares of Company Common Stock shall be paid by the Purchaser.
11.2. ENTIRE AGREEMENT. This Agreement (including the exhibits hereto and the
lists, schedules and documents delivered pursuant hereto, which are a part
hereof) is intended by the parties to and does constitute the entire agreement
of the parties with respect to the transactions contemplated by this Agreement.
The terms and conditions of this Agreement and the Merger Agreement shall inure
to the benefit of and be binding upon the parties hereto and thereto and their
respective successors. Nothing in this Agreement or the Merger Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities.
11.3. NO ASSIGNMENT. No party hereto may assign any of its rights or
obligations under this Agreement to any other person without the written consent
of the other party hereto.
11.4. NOTICES. All notices, requests, demands and other communications under
or in connection with this Agreement shall be in writing, and, (a) if to the
Purchaser, shall be addressed to F. Sheldon Prentice, Senior Vice President,
General Counsel and Secretary, Chittenden Bank, Two Burlington Square,
Burlington, Vermont 05401, with a copy to E. Miles Prentice, III, Piper &
Marbury LLP, 53 Wall Street, New York, New York 10005 and (b) if to the Company,
shall be addressed to Flagship Bank and Trust Company, 306 Main Street, P.O. Box
487, Worcester, Massachusetts 01613-0487, Attention: Mr. Donald J. McGowan with
a copy to Neal J. Curtin, Esq., Bingham, Dana & Gould, 150 Federal Street,
Boston, Massachusetts 02110.
All such notices, requests, demands or communications shall be mailed postage
prepaid, certified mail, return receipt requested, or delivered personally or
sent by facsimile transmission or overnight express, and shall be sufficient and
effective when delivered to or received at the address so specified. The
Purchaser and the Company each may change the address at which it is to receive
notice by like written notice to the other.
11.5. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original, but all of which together shall
constitute one and same instrument.
11.6. GOVERNING LAW. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts.
11.7. SPECIFIC PERFORMANCE. The parties hereby acknowledge and agree that the
failure of either party to fulfill any of its respective covenants and
agreements hereunder, including the failure to take all such actions as are
necessary on its part to cause the consummation of the Merger, will cause
irreparable injury to the Purchaser or the Company for which damages, even if
available, will not be an adequate remedy. Accordingly, the Company and the
Purchaser hereby consent to the issuance of injunctive relief by any court of
competent jurisdiction to compel performance of the Company's or the Purchaser's
obligations and to the granting by any such court of the remedy of the specific
performance by the Company or the Purchaser of their respective obligations
hereunder.
11.8. HEADINGS. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the Purchaser and theCompany have caused this Agreement
to be duly executed by their respective Chairs of the Board or Presidents, and
attested to by their respective Secretaries or Assistant Secretaries, thereunto
duly authorized, as of the date first above written.
ATTEST: CHITTENDEN CORPORATION
S/F. SHELDON PRENTICE BY: S/PAUL A. PERRALULT
F. Sheldon Prentice, Paul A. Perrault,
Secretary President and CEO
ATTEST: FLAGSHIP BANK AND TRUST COMPANY
S/DENISE SOLODYNA BY: S/DONALD J.MCGOWAN
Donald J. McGowan,
President
ADDENDUM
IN WITNESS WHEREOF, the Chittenden Acquisition Bank has caused this Agreement
to be duly executed by its duly authorized President and attested to by its
Clerk as of the date set forth above.
ATTEST: CHITTENDEN ACQUISITION BANK
S/DENISE SOLODYNA BY: S/DONALD J. MCGOWAN
Clerk
<PAGE>
PLAN OF MERGER
MERGER OF FLAGSHIP BANK AND TRUST COMPANY
INTO
CHITTENDEN ACQUISITION BANK
ARTICLE 1
FLAGSHIP BANK AND TRUST COMPANY ("Company") and CHITTENDEN CORPORATION
("Purchaser"),have entered into an Agreement and Plan of Reorganization dated as
of September 19, 1995 (the "Reorganization Agreement"), providing for the merger
of the Company with and into Chittenden Acquisition Bank ("CAB"),a Massachusetts
corporation to be formed, with CAB, the surviving entity, thereby effecting the
acquisition of the Company by the Purchaser (the "Merger"). The Merger shall
take effect at the time and date (the "Effective Date") of the filing of
Articles of Merger with the Secretary of the Commonwealth of Massachusetts. The
Merger of the Company with and into CAB shall have all the effects set forth in
Section 36 of Chapter 172 and Section 80 of Chapter 156B of the Massachusetts
General Laws, with CAB being the surviving corporation and a wholly-owned
subsidiary of Purchaser. By virtue of the Merger, the separate existence of the
Company shall cease, CAB, as the Surviving Corporation, shall continue to be
governed by the laws of the Commonwealth of Massachusetts and shall continue
the banking business authorized to be conducted under Massachusetts law, and the
separate corporate existence of CAB as a wholly-owned subsidiary of Purchaser
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. CAB will operate its business under the name
of Flagship Bank and Trust Company and the existing name "CAB" shall cease.
ARTICLE 2
From and after the Effective Date, the Articles of Incorporation and By-Laws
of the Company shall become the Articles of Incorporation and By-Laws of CAB
(subject to such amendments as may subsequently be adopted pursuant to the
provisions thereof and of applicable law), and the Board of Directors and
Officers of the Company shall be the Board of Directors and Officers of the
surviving corporation (with the addition of up to two Directors to be named by
the Purchaser) until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Company's Articles of Incorporation and By-Laws.
ARTICLE 3
The manner and basis of exchanging and converting the shares of the Company
and the Purchaser is as follows:
(A) OUTSTANDING PURCHASER SHARES. The shares of the capital stock of the
Purchaser issued and outstanding immediately prior to the Effective Date shall
continue to be issued and outstanding from and after the Effective Date, shall
not be converted and shall otherwise be unchanged by the Merger; provided,
however, the number of such shares issued and outstanding shall be increased by
virtue of the effect of Paragraph B of this Article 3.
(B) OUTSTANDING COMPANY COMMON STOCK. At the Effective Date and in
consideration of the Merger, each share of Company common stock, par value
$2.815 per share (the "Company Common Stock"), issued and outstanding
immediately prior to the Effective Date (except for any Dissenting Shares, as
defined in Paragraph (F) of this Article 3), shall, on the Effective Date, by
virtue of the Merger, automatically and without any action on the part of the
holder thereof, become and be converted into the right to receive the Per Share
Consideration which shall consist of:
1.20 shares of fully paid and non-assessable Common Stock of the Purchaser,
par value $1.00 per share (the "Purchaser Common Stock") for each share of
Company Common Stock.
At the Effective Date and in consideration of the Merger, each share of CAB
common stock theretofore authorized (whether issued or unissued) shall remain
outstanding and continue to be held by the Purchaser.
As promptly as practicable after the Effective Date, the Purchaser shall
cause the paying agent to send to each holder of record of Company Common Stock
(excluding the holders of any Dissenting Shares) transmittal materials for use
in exchanging Company Common Stock certificates for the Per Share Consideration.
Upon surrender to the paying agent of such certificates, together with such
transmittal materials duly executed and completed in accordance with the
instructions thereto (or upon completion of reasonable procedures pertaining to
lost certificates), Purchaser shall promptly cause to be paid to the persons
entitled thereto the Per Share Consideration to which such persons are entitled,
after giving effect to any required tax withholdings. No interest shall accrue
or be paid on the amount payable upon the surrender of any such certificate. If
payment is to be made to a person other than the registered holder of the
certificate surrendered, it shall be a condition of such payment that the
certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person other
than the registered holder of the certificate surrendered or establish to the
satisfaction of Purchaser that such tax has been paid or is not applicable.
Neither the paying agent nor Purchaser shall be liable to any holder of
certificates for shares of Company Common Stock for any amount paid to a
public official pursuant to any applicable property, escheat or similar law.
(C) TREASURY SHARES; SHARES OWNED BY PURCHASER. Each share of Company
Common Stock issued and held in the treasury of the Company or beneficially
owned by Purchaser on the Effective Date shall be cancelled and retired, and no
right to receive the Per Share Consideration shall arise with respect thereto.
(D) CONVERSION OF SHARES. On and after the Effective Date, the shares of
CAB Common Stock shall remain the sole property of Purchaser, former holders of
certificates for shares of Company Common Stock shall cease to have any rights
as stockholders of the Company and the holders of such shares shall thereafter
be entitled only to the shares of Purchaser Common Stock and right to receive
cash into which their shares of Company Common Stock shall have been converted
in the Merger, subject to any rights under the Massachusetts Business
Corporation Law. Until certificates for Company Common Stock are presented to
the paying agent as contemplated by Paragraph (B) of this Article 3, each such
certificate shall be deemed for all purposes to evidence ownership of the number
of shares of Purchaser Common Stock and the right to receive cash into which
such shares of Company Common Stock shall have been converted pursuant to the
Merger. Unless and until such outstanding certificates shall be surrendered, no
dividend on or other distribution, if any, payable to holders of record of
Purchaser Common Stock shall be paid to the holder of such outstanding
certificate, but upon surrender of such outstanding certificate there shall be
paid to the record holder thereof the amount, without interest thereon, of
dividends and other distributions, if any, which subsequent to the Effective
Date have been declared and become payable with respect to the number of shares
of Purchaser Common Stock represented thereby.
(E) CONVERSION OF COMPANY STOCK OPTIONS. At the Effective Time, each
option granted by the Company to purchase shares of Company common stock which
is outstanding and unexercised immediately prior thereto shall be converted
automatically into an option to purchase shares of Purchaser common stock in an
amount and at an exercise price determined as provided below (and otherwise
subject to the terms of the Company stock option plan (the "Company Stock
Plan")):
(i) the number of shares of Purchaser common stock to be subject to
the new options shall be equal to the product of the number of shares of Company
common stock subject to the original option times the Per Share Consideration,
provided that any fractional shares of Company common stock resulting from such
multiplication shall be rounded down to the nearest share; and
(ii) the exercise price per share of Purchaser common stock under the
new option shall be equal to the exercise price per share of Company common
stock under the original option divided by the Per Share Consideration, provided
that such exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" as defined in Section 4.22 of the Internal Revenue
Code of 1986, as amended (the "Code") shall be and is intended to be effected in
a manner which is consistent with Section 4.24(a) of the Code, the duration and
other terms of the new options shall be the same as the original option except
that all references to Company shall be deemed to be references to Purchaser.
The Purchaser's Common Stock covered by the new Purchaser options will be
registered for resale by the holders of such options from the Effective Time.
(F) FRACTIONAL SHARES. In lieu of the issuance of fractional shares of
Purchaser Common Stock pursuant to Paragraph (B) of this Article 3, cash
adjustments, without interest, will be paid to the holders of Company Common
Stock in respect of any fractional share that would otherwise be issuable and
the amount of such cash adjustment shall be equal to an amount in cash
determined by multiplying such holder's fractional interest by the average
closing price of Purchaser Common Stock on the NASDAQ NMS for the twenty (20)
consecutive trading days ending on the fifth trading day prior to the date
before receipt of the last regulatory approval (the "Determination Price").
For purposes of determining whether, and in what amounts, a particular holder of
Company Common Stock would be entitled to receive pursuant to this Paragraph
(F), shares of record held by one holder and represented by two or more
certificates shall be aggregated.
(G) DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock which are issued and outstanding
immediately prior to the Effective Date and which are held by stockholders of
the Company who did not vote in favor of the Merger and who comply with all of
the relevant provisions of Sections 86 through 98 of the MBCL (the "Dissenting
Shares") shall not be converted into or be exchangeable for the right to receive
the Per Share Consideration, unless and until such holders shall have failed
to perfect or shall have effectively withdrawn or lost their dissenters' rights
under the MBCL. If any such holder so loses such rights, such shares shall
thereupon be deemed converted into and become exchangeable for the right to
receive, as of the Effective Date, the Per Share Consideration without any
interest thereon. If the holder of any such shares shall become entitled to
receive payment therefor pursuant to this Paragraph (F) or applicable law, such
payment shall be made by Purchaser. The Company shall give Purchaser (i) prompt
notice of any Dissenting Shares, withdrawals of Dissenting Shares of any other
instruments served pursuant to Sections 86 through 98 of the MBCL received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to Dissenting Shares. The Company will not voluntarily make any
payment with respect to any Dissenting Shares and will not, except with the
prior written consent of Purchaser, settle or offer to settle any Dissenting
Shares.
(H) CLOSING OF COMPANY TRANSFER BOOKS. On the Effective Date, the Stock
transfer books of the Company will be closed and no transfers of shares of
Company capital stock shall thereafter be made.
(I) CORPORATE ORGANIZATION.
(i) ARTICLES OF ORGANIZATION. At the Effective Date, the Articles of
Organization of the Company as in effect at the Effective Date shall become the
Articles of Organization of CAB as the surviving entity.
(ii) BY-LAWS. At the Effective Date, the By-Laws of the Company as in
effect immediately prior to the Effective Date shall become the By-Laws of CAB
as the surviving entity until thereafter amended in accordance with applicable
law.
(iii) OFFICERS AND DIRECTORS. At the Effective Date, the officers,
including the Chairman of the Board and the President, and directors of the
Company immediately prior to the Effective Date shall become the officers and
directors of CAB as the surviving entity, and, in addition, up to two other
members of the Board of Directors may be designated by the Purchaser, each to
hold office in accordance with the Articles of Organization and By-Laws of
CAB as the surviving entity until their respective successors are duly elected
and appointed and qualified.
ARTICLE 4
(A) AMENDMENT AND TERMINATION.
(i) TERMINATION. Notwithstanding the approval and adoption of this
Plan of Merger by the stockholders of the Company, this Plan of Merger shall
terminate forthwith in the event that the Reorganization Agreement shall be
terminated as therein provided. In the event of the termination of this Plan of
Merger as provided above, this Plan of Merger shall forthwith become void and
there shall be no liability on the part of any of the parties hereto except as
otherwise provided in the Reorganization Agreement.
(ii) AMENDMENT. This Plan of Merger shall not be amended except by an
instrument in writing signed on behalf of each of the parties hereto pursuant
to an amendment to the Reorganization Agreement approved in the manner therein
provided. If any such amendment to the Reorganization Agreement is so approved,
any amendment to this Plan of Merger required by such amendment to the
Reorganization Agreement shall be effected by the parties hereto by action taken
by their respective Boards of Directors.
ARTICLE 5
(B) MISCELLANEOUS.
(i) COUNTERPARTS. This Plan of Merger shall be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to each of the other parties.
(ii) GOVERNING LAW. This Plan of Merger shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
ATTEST: CHITTENDEN CORPORATION
S/F. SHELDON PRENTICE BY: S/PAUL A. PERRAULT
- ----------------------- ---------------------------
F. Sheldon Prentice, Paul A. Perrault,
Secretary President and CEO
ATTEST: FLAGSHIP BANK AND TRUST COMPANY
S/ DENISE SOLODYNA BY: S/DONALD J. MCGOWAN
- ------------------- -----------------------------
Denise Solodyna Donald J. McGowan,
SVP, CFO, and Clerk President
ADDENDUM
ATTEST: CHITTENDEN ACQUISITION BANK
S/DENISE SOLODYNA BY: S/DONALD J. MCGOWAN
- ------------------- ----------------------------
Denise Solodyna, Donald J. McGowan,
Treasurer
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 19, 1995, between Flagship
Bank and Trust Company, a Massachusetts trust company (the "Company"), and
Chittenden Corporation, a Vermont corporation (the "Purchaser").
WHEREAS, the Purchaser and the Company have entered into an Agreement and
Plan of Reorganization of even date herewith (the "Reorganization Agreement"),
which agreement is being executed by the parties hereto simultaneously with this
Agreement; and
WHEREAS, as a condition to the Purchaser's entry into the Reorganization
Agreement and in consideration for such entry, the Company has agreed to grant
the Purchaser the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Reorganization Agreement, the parties
hereto agree as follows:
1. GRANT OF OPTION. On the terms and conditions contained in this Agreement,
the Company hereby grants to the Purchaser an unconditional, irrevocable option
(the "Option") to purchase up to 359,939 shares (the "Option Shares") of the
common stock, par value $2.815 per share (the "Common Shares"), of the Company,
representing upon the date of issuance of such option shares 24.9 percent
(24.9%) of the aggregate of the issued and outstanding Common Shares as of the
date hereof, at a price of $20.00 per share (the "Option Price").
2. EXERCISE OF OPTION. The Option may not be exercised or transferred except
upon and after the occurrence of any of the events set forth in this paragraph
2. The Purchaser may exercise or transfer the Option, in whole or in part, at
any time or from time to time after (a) any person or group (as such terms are
defined in the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder), other than the Purchaser or a
wholly-owned subsidiary of the Purchaser, ("Other Party") acquires after the
date hereof beneficial ownership ofor the right to acquire such beneficial
ownership or to vote at least 20 percent (20%) of the then outstanding Common
Shares, other than any person acquiring such beneficial ownership by will or
operation of law; or (b) there shall be publicly announced prior to the meeting
of the Company stockholders contemplated by SECTION 6.5 of the Reorganization
Agreement any proposal by such a person or group relating to (i) any merger,
consolidation or acquisition of all or substantially all of the assets of
the Company or other business combination involving the Company which the
Company's Board of Directors shall have authorized, recommended or entered
into, or (ii) a change in the ownership of 20 percent (20%) or more of the
Common Shares then outstanding and the Company's stockholders shall have failed
to approve the Reorganization Agreement and the transaction contemplated
thereby. The Company shall notify the Purchaser promptly in writing of the
occurrence of any of the events set forth in the preceding sentence, it being
understood that the giving of such notice by the Company shall not be a
condition to the right of the Purchaser to transfer or exercise the Option.
The Company will not take any action which would have the effect of preventing
or disabling the Company from delivering the Option Shares to the Purchaser upon
exercise of the Option or otherwise performing its obligations under this
Agreement. In the event the Purchaser wishes to exercise the Option, the
Purchaser shall send a written notice to the Company specifying the total
number of Option Shares it wishes to purchase and a place and date between three
and fifteen business days inclusive from the date such notice is given for the
closing of such purchase (a "Closing"), provided, however, that a Closing shall
not occur prior to the receipt of all necessary regulatory approvals therefor.
3. PAYMENT AND DELIVERY OF CERTIFICATES. At any Closing hereunder the
Purchaser will either (i) make payment to the Company of the aggregate price for
the Option Shares so purchased by delivery of immediately available funds and
the Company will deliver to the Purchaser a stock certificate or certificates
representing the number of Option Shares so purchased, registered in the name
of the Purchaser or its designee in such denominations as were specified by the
Purchaser in its notice of exercise; or (ii) notify the Company that the
Purchaser will accept payment from the Other Party of the difference between the
Company's per share consideration pursuant to the agreement with the Other Party
and $20.00 per share. In connection with any partial exercise of the Option, the
Purchaser (or any direct or indirect assignee or transferee ofthe Purchaser)
shall be entitled to surrender this Stock Option Agreement to the Company in
exchange for two or more Stock Option Agreements entitling the holders thereof
to purchase in the aggregate the same number of Common Shares as may be
purchasable hereunder upon the same terms and conditions as set forth herein.
4. REPRESENTATIONS AND WARRANTIES.
A. The Company hereby represents and warrants to the Purchaser as follows:
(i) AUTHORITY RELATIVE TO THIS AGREEMENT. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by the Company.
(ii) OPTION SHARES. The Company has taken all necessary corporate
action to authorize and reserve and permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance with
its terms will have reserved for issuance upon the exercise of the Option,
359,939 Common Shares, all of which, upon issuance pursuant hereto, shall be
duly authorized, validly issued, fully paid, nonassessable, and shall be
delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights, other than those created by
the Purchaser.
B. The Purchaser hereby represents and warrants to the Company as follows:
(i) AUTHORITY RELATIVE TO THIS AGREEMENT. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the
Purchaser and no other corporate proceedings on the part of the Purchaser
are necessary to authorize this Agreement or to consummate the transactions
so contemplated. This Agreement has been duly and validly executed and
delivered by the Purchaser.
(ii) PURCHASE NOT FOR DISTRIBUTION. This Option is not being acquired
with a view to the public distribution thereof and neither this Option nor any
of the Option Shares will be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act of
1933, as amended.
5. REGISTRATION RIGHTS.
A. On or after the occurrence of an event permitting exercise of the
Option pursuant to paragraph 2 hereof, the Company shall, at the request of the
Purchaser (whether on its own behalf or on the behalf of any subsequent holder
of this Option (or part thereof) or any of the Option Shares issued pursuant
hereto), promptly prepare, file and keep current a registration statement
governing this Option if required under the Securities Act of 1933 (the
"Securities Act") governing this Option and any shares issued and issuable
pursuant to this Option and shall use its best efforts to cause such
registration statement to become effective and remain current in order to
permit the sale or other disposition of this Option and any Option Shares
issued upon total or partial exercise of this Option in accordance with
any plan of disposition adopted by the Purchaser, except that the
Company shall not be required to maintain the effectiveness of such registration
statement for more than 90 days. The Purchaser, together with any subsequent
holder of the Option, shall have the right to demand in the aggregate two
such registrations. In connection with each such registration, the Company
shall use its best efforts to cause to be delivered to the Purchaser (and
any other holder whose Option or Option Shares are the subject of such
registration) such certificates, opinions, accountants' letters and other
documents as the Purchaser (or such subsequent holder) shall reasonably
request. All expenses incurred by the Company in complying with the
provisions of this paragraph 5, including without limitation, all
registration and filing fees, printing fees and disbursements of counsel for
the Company and blue sky fees and expenses shall be paid by the Company,
except that all underwriting discounts and selling commissions applicable to
the sales and all fees and disbursements for counsel for the Purchaser shall
be paid by the Purchaser and/or the holder whose Option or Option Shares are
the subject of such registration.
B. On or after the occurrence of any event permitting exercise of the Option
pursuant to paragraph 2 hereof, each time the Company shall determine to
proceed with the actual preparation and filing of a registration statement
under the Securities Act in connection with the proposed offer and sale for
money of any of its securities (other than in connection with a dividend
reinvestment, employee stock purchase, stock option or similar plan or a
registration statement on Form S-4) by it or any of its security holders,
the Company will give written notice of its determination to the Purchaser.
Upon the written request of the Purchaser given with 10 days after receipt
of any such notice from the Company, the Company will cause all securities
which the Purchaser shall request to be included in such registration
statement contemplated by this subparagraph B to be included in such
registration statement; provided, however, that nothing herein shall prevent
the Company from, at any time, abandoning or delaying any such registration;
provided further, however, that if the Company determines not to proceed with
a registration after the registration statement has been filed with the
Securities and Exchange Commission, the Company shall promptly complete the
registration for the benefit of the Purchaser if the Purchaser agrees
to bear all incremental expenses incurred by the Company as the result of
such registration after the Company has decided not to proceed. If any
registration pursuant to this subparagraph B shall be underwritten in whole
or in part, the Purchaser may require that any securities requested for
inclusion pursuant to this subparagraph B be included in the underwriting
on the same terms and conditions as the securities otherwise being sold
through underwriters.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
A. In the event that any additional Common Shares are issued or otherwise
become outstanding after the date of this Agreement (other than pursuant to
exercise of the Option pursuant to this Agreement or as contemplated by
subparagraph 6(B) of this Agreement), including, without limitation, pursuant
to stock option or other employee plans or as a result of the exercise of
conversion rights, the number of Common Shares subject to the Option shall
be increased so that, after such issuance, it (together with all Option
shares previously issued pursuant hereto) equals 24.9% of the number of Common
Shares then issued and outstanding without giving effect to any shares
subject or issued pursuant to this Option.
B. In the event of any change in the Common Shares by reason of stock
dividend, split-up, merger, recapitalization, subdivision, conversion,
combination, exchange of shares or similar transaction, the type and number
of Option Shares, and the Option Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements
governing such transaction, so the Purchaser shall receive upon exercise of
the Option the number and class of shares or other securities or property that
the Purchaser would have held immediately after such event if the Option had
been exercised immediately prior to such event, or the record date therefor,
as applicable. Whenever the number of Option Shares (or other securities)
purchasable upon exercise hereof is adjusted as provided in this
subparagraph 6(B), the Option Price shall be adjusted by multiplying the
Option Price by a fraction, the numerator of which is equal to the number
of Option Shares prior to the Adjustment and the denominator of which is
equal to the number of Option Shares (or other securities) purchasable after
the adjustment.
7. FILINGS AND CONSENTS. The Purchaser and the Company each will use
its best efforts to make all filings with, and to obtain consents of,
all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement. If the
Other Party is prevented from honoring any part of its obligation, the
Purchaser reserves the right to negotiate with the appropriate regulators to
effect the maximum consideration for the Option Shares.
8. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and agrees
that it would not have an adequate remedy at law and would be irreparably
harmed in the event that any of the provisions of this Agreement were not
performed by the other party hereto in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that each of the parties
hereto shall be entitled to injunctive relief to prevent breaches of this
Agreement and to specifically enforce the terms and provisions hereof, in
addition to any other remedy to which each of the parties hereto may be
entitled, at law or in equity.
9. ENTIRE AGREEMENT. This Agreement and the Reorganization Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter hereof.
10. ASSIGNMENT. At any time or from time to time upon or after the occurrence
of any event set forth in the second sentence of paragraph 2, the Purchaser
may sell, assign or otherwise transfer its rights and obligations hereunder,
in whole or in part, to any person or group of persons, subject only to
compliance with applicable law. In order to effectuate the foregoing, the
Purchaser (or any direct or indirect assignee or transferee of the
Purchaser) shall be entitled to surrender this Stock Option Agreement to
the Company in exchange for two or more Stock Option Agreements entitling the
holders thereof to purchase in the aggregate the same number of shares of
Common Stock as may be purchasable hereunder upon the same terms and conditions
as those set forth herein.
11. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
12. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by cable, telegram or telex, or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties as follows):
If to the Purchaser:
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Attention: Paul A. Perrault, President
With a copy to:
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Attention: F. Sheldon Prentice, Secretary
If to the Company:
Flagship Bank and Trust Company
306 Main Street, P.O. Box 487
Worcester, Massachusetts 01613-0487
Attention: Donald J. McGowan
With a copy to:
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110
Attention: Neal J. Curtin, Esq.
or to such other address as the person to whom notice is to be given may
have previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Vermont.
14. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
15. PARTIES IN INTEREST. This Agreement shall be binding upon or inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person (other than
an assignee or transferee of the Purchaser pursuant to paragraph 10 hereof)
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
17. EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
18. TERMINATION. The Option granted hereby, to the extent not previously
exercised, shall terminate upon the earliest of (i) one year after the
occurrence of any event set forth in paragraph 2 hereof, (ii) immediately
after the Effective Time (as defined in the Reorganization Agreement) or (iii)
the termination of the Reorganization Agreement in accordance with the terms
thereof prior to the occurrence of any event set forth in paragraph 2 hereof.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
ATTEST: CHITTENDEN CORPORATION
BY: S/ F. SHELDON PRENTICE BY: S/PAUL A. PERRAULT
- ---------------------------- ------------------------
F. Sheldon Prentice, Paul A. Perrault,
Secretary President
ATTEST: FLAGSHIP BANK AND TRUST COMPANY
BY: S/DENISE SOLODYNA BY: S/DONALD J. MCGOWAN
- ------------------------- -------------------------
Denise Solodyna Donald J. McGowan,
SVP, CFO and Clerk President
