<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------------------
Date of Report (Date of earliest event reported): December 16, 1998
-----------------
CHITTENDEN CORPORATION
(Exact name of Registrant as specified in charter)
Vermont 0-7974 03-0228404
- -------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
Two Burlington Square, Burlington, Vermont 05401
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(802) 658-4000
--------------
(Registrant's telephone number, including area code)
<PAGE>
This Current Report on Form 8-K/A is being filed by Chittenden
Corporation to supplement its previously filed Current Report on Form 8-K, dated
December 16, 1998 (the "Initial Form 8-K"), by adding the exhibits to the
Agreement and Plan of Merger that was filed as Exhibit 2.1 to the Initial Form
8-K. The following is an amendment and restatement of such Initial Form 8-K.
Item 5 - Other Events
- ---------------------
On December 16, 1998, Chittenden Corporation, a Vermont corporation
(the "Company"), Chittenden Acquisition Subsidiary, Inc., a Delaware corporation
and wholly-owned subsidiary of the Company, and Vermont Financial Services
Corp., a Delaware corporation ("VFSC"), entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provides for a series of
related transactions pursuant to which VFSC will be merged with and into the
Company (the "Merger"), with the Company being the surviving corporation. The
Boards of Directors of the Company and VFSC approved the Merger Agreement, and
all of the transactions contemplated thereby, at their respective meetings held
on December 16, 1998. The consummation of the Merger is subject to certain
customary conditions, including, without limitation, the approval of the
stockholders of each of the Company and VFSC and certain regulatory approvals.
Under the Merger Agreement, at the Effective Time (as such term is
defined in the Merger Agreement), each outstanding share of common stock, par
value $1.00 per share, of VFSC (the "VFSC Common Stock") will be converted into
the right to receive 1.07 shares of the Company's common stock, par value $1.00
per share (the "Chittenden Common Stock"). Each holder of VFSC Common Stock who
would otherwise be entitled to receive a fractional share of Chittenden Common
Stock will receive cash in lieu thereof. The Merger is intended to constitute a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended, and to be accounted for as a pooling-of-interests.
A copy of the Merger Agreement is attached hereto as Exhibit 2.1 and
is incorporated herein by reference, and a copy of the Joint Press Release
issued by the Company and VFSC regarding the Merger is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
In connection with the execution of the Merger Agreement, the
Company and VFSC entered into a Stock Option Agreement, dated as of December 16,
1998, pursuant to which VFSC granted the Company an option to purchase, subject
to certain terms and conditions contained therein, up to an aggregate of 19.9%
of the outstanding shares of VFSC Common Stock. The option was granted as an
inducement to Chittenden's willingness to enter into the Merger Agreement. A
copy of the Stock Option Agreement is attached hereto as Exhibit 10.1 and is
incorporated herein by reference.
A conference call has been scheduled for 11:00 a.m. EDT, on December
17, 1998, during which the company and VFSC will discuss the proposed Merger. In
connection with this conference call, the Company has made available certain
materials (the "Investor Presentation Materials") describing certain aspects of
the Merger. A copy of the Investor Presentation Materials, dated December 16,
1998, relating to the Merger is attached hereto as Exhibit 99.2 and is
incorporated by reference. The Investor Presentation Materials include forward-
looking statements regarding each of the Company, VFSC and the surviving
corporation following the Merger. The Investor Presentation Materials also
include a cautionary statement regarding factors which may cause actual results
of operations to vary materially from the forward-looking statements contained
therein.
2
<PAGE>
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
Exhibit No. Description
- ---------- -----------
2.1 Agreement and Plan of Merger, dated as of December 16, 1998, by and
between Chittenden Corporation, Chittenden Acquisition Subsidiary, Inc.
and Vermont Financial Services Corp.
10.1 Stock Option Agreement, dated as of December 16, 1998, by and between
Vermont Financial Services Corp. and Chittenden Corporation.
99.1 Text of Joint Press Release issued by Chittenden Corporation and Vermont
Financial Services Corp. on December 16, 1998.
99.2 Investor Presentation Materials, dated December 16, 1998, relating to the
Merger.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be filed on its behalf by
the undersigned thereunto duly authorized.
CHITTENDEN CORPORATION
Dated: January 6, 1999 By: /s/ F. Sheldon Prentice
-----------------------------
Name: F. Sheldon Prentice
Title: Senior Vice President,
General Counsel and
Secretary
4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
2.1 Agreement and Plan of Merger, dated as of December 16, 1998, by and
between Chittenden Corporation, Chittenden Acquisition Subsidiary,
Inc. and Vermont Financial Services Corp.
10.1 Stock Option Agreement, dated as of December 16, 1998, by and between
Vermont Financial Services Corp. and Chittenden Corporation.
99.1 Text of Joint Press Release issued by Chittenden Corporation and
Vermont Financial Services Corp. on December 16, 1998.
99.2 Investor Presentation Materials, dated December 16, 1998, relating to
the Merger.
5
<PAGE>
EXHIBIT 2.1
----------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CHITTENDEN CORPORATION,
CHITTENDEN ACQUISITION SUBSIDIARY, INC.,
AND
VERMONT FINANCIAL SERVICES CORP.
DATED AS OF DECEMBER 16, 1998
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I--CERTAIN DEFINITIONS.......................................... 1
1.1 Certain Definitions............................................ 1
ARTICLE II--THE MERGER; EFFECTS OF THE MERGER........................... 6
2.1 The Merger..................................................... 6
2.2 Charter and Bylaws............................................. 6
2.3 Closing........................................................ 6
2.4 Effectiveness and Effects of the Merger........................ 6
2.5 Tax Consequences............................................... 6
2.6 Accounting Treatment........................................... 6
2.7 Board of Directors............................................. 6
ARTICLE III--MERGER CONSIDERATION; EXCHANGE PROCEDURES.................. 7
3.1 Merger Consideration........................................... 7
3.2 Rights as Stockholders; Stock Transfers........................ 7
3.3 Fractional Shares.............................................. 7
3.4 Exchange Procedures............................................ 7
3.5 Anti-Dilution Provisions....................................... 8
3.6 Treasury Shares................................................ 8
3.7 Options........................................................ 8
ARTICLE IV--THE SUBSEQUENT MERGER; EFFECTS OF THE SUBSEQUENT MERGER..... 9
4.1 Subsequent Merger.............................................. 9
4.2 Charter........................................................ 9
4.3 Bylaws......................................................... 9
4.4 Board of Directors............................................. 9
4.5 Cancellation of Shares......................................... 9
ARTICLE V--ACTIONS PENDING MERGER....................................... 10
5.1 Ordinary Course................................................ 10
5.2 Stock.......................................................... 10
5.3 Dividends, Etc................................................. 10
5.4 Compensation; Employment Agreements; Etc....................... 10
5.5 Benefit Plans.................................................. 11
5.6 Dispositions, Acquisitions and Capital Expenditures............ 11
5.7 Amendments..................................................... 11
5.8 Accounting Methods............................................. 11
5.9 Loan Policies.................................................. 12
5.10 Adverse Actions................................................ 12
5.11 Settlement of Claims........................................... 12
5.12 Agreements..................................................... 12
ARTICLE VI--REPRESENTATIONS AND WARRANTIES.............................. 12
6.1 Disclosure Schedules........................................... 12
6.2 Standard....................................................... 12
6.3 Representations and Warranties................................. 12
ARTICLE VII--COVENANTS.................................................. 22
7.1 Reasonable Best Efforts........................................ 22
7.2 Stockholder Approvals.......................................... 22
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.3 Registration Statement......................................... 23
7.4 Press Releases................................................. 24
7.5 Access; Information............................................ 24
7.6 Acquisition Proposals.......................................... 24
7.7 Affiliate Agreements........................................... 25
7.8 Takeover Laws.................................................. 25
7.9 No Rights Triggered............................................ 25
7.10 Shares Listed.................................................. 25
7.11 Regulatory Applications; Filings; Consents..................... 25
7.12 Indemnification; Directors' and Officers' Insurance............ 26
7.13 Compensation and Benefit Plans................................. 27
7.14 Headquarters................................................... 28
7.15 Notification of Certain Matters................................ 28
7.16 The Bank Mergers............................................... 28
7.17 Financial Reports.............................................. 29
7.18 Post-Closing Governance........................................ 29
ARTICLE VIII--CONDITIONS TO CONSUMMATION OF THE MERGER.................. 29
8.1 Stockholder Vote............................................... 29
8.2 Regulatory Approvals........................................... 29
8.3 Third Party Consents........................................... 29
8.4 No Injunction, Etc............................................. 29
8.5 Representations, Warranties and Covenants of VFSC.............. 29
8.6 Representations, Warranties and Covenants of Chittenden........ 30
8.7 Effective Registration Statement............................... 30
8.8 Tax Opinion Relating to the Merger............................. 30
8.9 NYSE Listing................................................... 30
8.10 Accounting Treatment........................................... 30
ARTICLE IX--TERMINATION................................................. 31
9.1 Termination.................................................... 31
9.2 Effect of Termination and Abandonment.......................... 32
ARTICLE X--MISCELLANEOUS................................................ 33
10.1 Survival....................................................... 33
10.2 Waiver; Amendment.............................................. 33
10.3 Counterparts................................................... 33
10.4 Governing Law.................................................. 33
10.5 Expenses....................................................... 33
10.6 Confidentiality................................................ 33
10.7 Notices........................................................ 33
10.8 Understanding; No Third Party Beneficiaries.................... 34
10.9 Headings; Interpretation....................................... 34
</TABLE>
EXHIBIT A-1 Form of Affiliate Letter to Chittenden
EXHIBIT A-2 Form of Affiliate Letter to VFSC
EXHIBIT B Bank Holding Companies Index Group
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of December 16, 1998 (this
"Agreement"), by and between Chittenden Corporation, a Vermont corporation
("Chittenden"), Chittenden Acquisition Subsidiary, Inc., a Delaware
corporation and wholly owned subsidiary of Chittenden ("CASI"), which has been
formed for the specific and sole purpose of consummating the Merger (as such
term is defined below), and Vermont Financial Services Corp., a Delaware
corporation ("VFSC").
WITNESSETH:
WHEREAS, the Boards of Directors of Chittenden, CASI and VFSC have
determined that it is in the best interests of their respective corporations
and their stockholders to consummate the strategic business merger
transactions provided for herein, in which (i) CASI will, subject to the terms
and conditions set forth herein, merge (the "Merger") with and into VFSC such
that VFSC is the surviving corporation in the Merger and continues its
corporate existence under the laws of the State of Delaware as a wholly owned
subsidiary of Chittenden, and (ii) VFSC (as the surviving corporation from the
Merger) will, subject to the terms and conditions set forth herein, merge (the
"Subsequent Merger," and together with the Merger, the "Mergers") with and
into Chittenden such that Chittenden is the surviving corporation in the
Subsequent Merger and continues its corporate existence under the laws of the
State of Vermont;
WHEREAS, in connection with the execution of this Agreement, VFSC and
Chittenden are entering into a stock option agreement, with VFSC as issuer and
Chittenden as grantee (the "VFSC Stock Option Agreement"); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Mergers and also to prescribe certain
conditions to the Mergers;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I--CERTAIN DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" shall have the meaning set forth in Section 7.7(a).
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"Bank Merger" shall have the meaning set forth in Section 7.16.
"Bank Merger Agreements" shall have the same meaning set forth in Section
7.16.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Burdensome Condition" shall have the meaning set forth in Section 8.2.
"CASI" shall have the meaning set forth in the preamble to this Agreement.
"CASI Common Stock" shall have the meaning set forth in Section 3.1(b).
"CASI Meeting" shall have the meaning set forth in Section 7.2.
"Certificate of Merger" shall have the meaning set forth in Section 2.1.
"Chittenden" shall have the meaning set forth in the preamble to this
Agreement.
A-1
<PAGE>
"Chittenden Affiliates Agreement" shall have the meaning set forth in
Section 7.7(b).
"Chittenden Common Stock" shall have the meaning set forth in Section
3.1(a).
"Chittenden Meeting" shall have the meaning set forth in Section 7.2.
"Claim" shall have the meaning set forth in Section 7.12(a).
"Classified Loans" shall have the meaning set forth in Section 6.3(v)(ii).
"Closing" shall have the meaning set forth in Section 2.3.
"Closing Date" shall have the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" shall have the meaning set forth in Section
6.3(l)(i).
"Confidentiality Agreement" shall mean the Confidentiality Agreement, dated
as of November 10, 1998, by and between Chittenden and VFSC.
"DGCL" shall mean the Delaware General Corporation Law.
"Disclosure Schedule" shall have the meaning set forth in Section 6.1.
"DOJ" shall have the meaning set forth in Section 7.1(b).
"Effective Date" shall have the meaning set forth in Section 2.4.
"Effective Time" shall have the meaning set forth in Section 2.4.
"Encumbrances" shall have the meaning set forth in Section 6.3(o)(ii).
"Environmental Laws" shall have the meaning set forth in Section 6.3(q)(i).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning set forth in Section 6.3(l)(i).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" shall have the meaning set forth in Section 3.4(a).
"Exchange Fund" shall have the meaning set forth in Section 3.4(a).
"Exchange Ratio" shall have the meaning set forth in Section 3.1(a).
"FDIA" shall mean the Federal Deposit Income Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any successor
thereto.
"FFIEC" shall mean the Federal Financial Institutions Examination Council.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"GAAP" shall have the meaning set forth in Section 2.6.
A-2
<PAGE>
"Indemnified Parties" shall have the meaning set forth in Section 7.12(a).
"Information Technology" shall have the meaning set forth in Section
6.3(z)(iii).
"Joint Proxy Statement" shall have the meaning set forth in Section 7.3(a).
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Loans" shall have the meaning set forth in Section 6.3(v)(i).
"Management Continuity Agreements" shall mean the agreements between VFSC
and each of the officers of VFSC listed under the heading "Outplacement
Executives" in Section 7.13(e) of VFSC's Disclosure Schedule.
"Material Adverse Effect" shall mean with respect to Chittenden or VFSC,
respectively, any effect that (i) is material and adverse to the financial
position, results of operations, assets or business of Chittenden and its
Subsidiaries taken as a whole, or VFSC and its Subsidiaries taken as a whole,
respectively, or (ii) would materially impair the ability of Chittenden or
VFSC, respectively, to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of the
Mergers and the other transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed to include the
impact of (a) changes in banking, corporate and similar laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks or savings associations
and their holding companies generally, (c) actions or omissions of Chittenden
or its Subsidiaries or VFSC or its Subsidiaries taken with the prior written
consent of Chittenden or VFSC, as applicable, in contemplation of the
transactions contemplated hereby, (d) circumstances affecting banks or savings
associations and their holding companies generally, and (e) the effects of the
Mergers and compliance by either party with the provisions of this Agreement
on the financial position, results of operations, assets or business of such
party and its Subsidiaries, or the other party and its Subsidiaries, as the
case may be.
"Meeting" shall have the meaning set forth in Section 7.2.
"Merger" shall have the meaning set forth in the recitals to this Agreement.
"Mergers" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section 2.1.
"Multiemployer Plans" shall have the meaning set forth in Section
6.3(1)(iii).
"New Certificates" shall have the meaning set forth in Section 3.4(a).
"NYSE" shall mean The New York Stock Exchange, Inc.
"OCC" shall mean the Office of the Comptroller of the Currency.
"Old Certificates" shall have the meaning set forth in Section 3.4(a).
"Pension Plan" shall have the meaning set forth in Section 6.3(l)(iii).
"Person" or "person" shall mean any individual, bank, corporation,
partnership, limited liability company, association, joint-stock company,
business trust or unincorporated organization.
"Plans" shall have the meaning set forth in Section 6.3(l)(iii).
"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
A-3
<PAGE>
"Property Restrictions" shall have the meaning set forth in Section
6.3(o)(ii).
"Real Property" and " Real Properties" shall have the meaning set forth in
Section 6.3(o)(ii).
"Registration Statement" shall have the meaning set forth in Section 7.3(a).
"Regulatory Approvals" shall mean the approval (or waiver, if applicable) of
the following regulatory authorities, which are necessary to consummate the
Mergers and the Bank Mergers: the FRB, the FDIC and the regulatory authorities
of the states in which Chittenden, VFSC and their respective Subsidiaries
operate.
"Regulatory Authority" and "Regulatory Authorities" shall have the meaning
set forth in Section 6.3(h)(ii).
"Rights" shall mean, with respect to any person, securities or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire, or any options, calls or commitments relating to,
shares of stock of such person.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 6.3(g)(i).
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Subsequent Effective Time" shall have the meaning set forth in Section 4.1.
"Subsequent Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Subsidiary" and "Significant Subsidiary" shall have the respective meanings
set forth in Rule 1-02 of Regulation S-X of the SEC.
"Subsidiaries" shall mean all of a party's Subsidiaries and Significant
Subsidiaries.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Takeover Laws" shall have the meaning set forth in Section 6.3(n).
"Tax Returns" shall have the meaning set forth in Section 6.3(r).
"Taxes" shall mean (i) all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, goods and services, capital, transfer,
franchise, profits, license, withholding, payroll, employment, employer
health, excise, estimated, severance, stamp, occupation, property or other
taxes, custom duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority; and (ii) any liability for the
payment of amounts with respect to payments of a type described in clause (i)
as a result of being a member of an affiliated, consolidated, combined or
unitary group, or as a result of any obligation under any tax sharing
arrangement or tax indemnity agreement.
"Treasury Shares" shall have the meaning set forth in Section 3.1(a).
"VBCA" shall mean The Vermont Business Corporation Act.
"VFSC" shall have the meaning set forth in the preamble to this Agreement.
"VFSC Affiliates Agreement" shall have the meaning set forth in Section
7.7(b).
A-4
<PAGE>
"VFSC Common Stock" shall have the meaning set forth in Section 3.1(a).
"VFSC Compensation and Benefit Plans" shall mean the Compensation and Benefit
Plans of VFSC.
"VFSC Meeting" shall have the meaning set forth in Section 7.2.
"VFSC Stock Option" shall have the meaning set forth in Section 3.7(a).
"VFSC Stock Option Agreement" shall have the meaning set forth in the
recitals to this Agreement.
"VFSC Stock Option Plans" shall have the meaning set forth in Section 3.7(a).
"Year 2000 Compliant" shall have the meaning set forth in Section
6.3(z)(iii).
"Year 2000 Plan" shall have the meaning set forth in Section 6.3(z)(i).
"Year 2000 Regulatory Requirements" shall have the meaning set forth in
Section 6.3(z)(i).
A-5
<PAGE>
ARTICLE II--THE MERGER; EFFECTS OF THE MERGER
2.1 The Merger. At the Effective Time, upon the terms and subject to the
conditions of this Agreement, CASI shall merge with and into VFSC, the
separate corporate existence of CASI shall cease and VFSC shall survive and
continue its corporate existence under the laws of the State of Delaware as a
wholly owned subsidiary of Chittenden (VFSC, as the surviving corporation in
the Merger, being sometimes referred to herein as the "Surviving
Corporation"). The parties shall prepare and execute a certificate of merger
(the "Certificate of Merger") in order to comply in all respects with the
requirements of the DGCL and with the provisions of this Agreement. Chittenden
may at any time change the method of effecting the strategic business merger
transactions with VFSC and CASI provided for herein (including without
limitation the provisions of this Article II) if and to the extent it deems
such change to be desirable, including without limitation to provide for a
merger of VFSC into Chittenden or a wholly owned subsidiary of Chittenden;
provided, however, that no such change shall (A) alter or change the amount or
kind of consideration to be issued to holders of VFSC Common Stock as provided
for in this Agreement (the "Merger Consideration"), (B) adversely affect the
tax treatment of VFSC's stockholders as a result of receiving the Merger
Consideration or (C) materially impede or delay consummation of the Merger.
VFSC and CASI agree to, and to cause their Subsidiaries to, appropriately
amend this Agreement and any related documents in order to reflect such
revised method of effecting the strategic business merger transactions with
VFSC and CASI provided for herein to the extent deemed necessary or desirable
by Chittenden in its reasonable judgment.
2.2 Charter and Bylaws. The Certificate of Merger shall provide that, at the
Effective Time, the charter of the Surviving Corporation shall be the charter
of CASI, as such charter may be amended, and set forth in the Certificate of
Merger or any certificate of amendment filed prior to the Effective Time. The
bylaws of the Surviving Corporation shall be the bylaws of CASI at the
Effective Time.
2.3 Closing. The closing of the Merger (the "Closing") will occur at 10:00
a.m., Boston time, on the date to be specified by the parties, which (subject
to the satisfaction or waiver of the conditions as set forth in Article VIII
in accordance with this Agreement) shall be no later than the fifth business
day to occur after the last of the conditions set forth in Sections 8.1, 8.2,
8.3, 8.7 and 8.9 shall have been satisfied or waived in accordance with the
terms of this Agreement (the "Closing Date"), at the offices of Goodwin,
Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109, unless
another date or place is agreed to in writing by the parties.
2.4 Effectiveness and Effects of the Merger. On the Closing Date, or at such
time as may otherwise be agreed by the parties, CASI and VFSC shall execute
and file with the Secretary of State of the State of Delaware the Certificate
of Merger in accordance with the DGCL. Subject to the satisfaction or waiver
of the conditions set forth in Article VIII, the Merger shall become effective
(the "Effective Time") upon the occurrence of the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware pursuant to
Section 252 of the DGCL, or such other time, if any, as may be specified in
the Certificate of Merger. The Merger shall have the effects prescribed in
Sections 259 and 261 of the DGCL. The date on which the Effective Time occurs
is referred to herein as the "Effective Date."
2.5 Tax Consequences. It is intended that both the Merger and the Subsequent
Merger be consummated pursuant to one integrated plan which qualifies as a
reorganization under Section 368(a)(1)(A) of the Code. This Agreement shall
constitute a "plan of reorganization" for purposes of Section 368 of the Code.
2.6 Accounting Treatment. It is intended that the Merger be accounted for as
a "pooling of interests" under generally accepted accounting principles
("GAAP").
2.7 Board of Directors. At the Effective Time, the Board of Directors of the
Surviving Corporation shall be those persons serving as directors of CASI
immediately prior to the Effective Time, such persons to serve until the
earlier of their resignation or removal or until their respective successors
are duly appointed or elected and qualified, as the case may be.
A-6
<PAGE>
ARTICLE III--MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.1 Merger Consideration. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or stockholder:
(a) Outstanding VFSC Common Stock. Each share (excluding (i) shares held by
VFSC or by Chittenden, other than in a fiduciary capacity ("Treasury Shares"))
of the common stock, par value $1.00 per share, of VFSC (the "VFSC Common
Stock") issued and outstanding immediately prior to the Effective Time shall
be converted into and become the right to receive 1.07 shares (subject to
adjustment as set forth herein, the "Exchange Ratio") of common stock, par
value $l.00 per share, of Chittenden (the "Chittenden Common Stock").
(b) Outstanding CASI Common Stock. Each share of the common stock, par value
$1.00 per share, of CASI ("CASI Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
validly issued, fully paid and nonassessable share of the VFSC Common Stock.
(c) Outstanding Chittenden Common Stock. Each share of Chittenden Common
Stock issued and outstanding immediately prior to the Effective Time shall
remain outstanding following the Effective Time.
3.2 Rights as Stockholders; Stock Transfers. At the Effective Time, holders
of VFSC Common Stock shall cease to be, and shall have no rights as,
stockholders of VFSC, other than to receive any dividend or other distribution
with respect to such VFSC Common Stock with a record date occurring prior to
the Effective Time and to receive the Merger Consideration provided under this
Article III. After the Effective Time, there shall be no transfers on the
stock transfer books of VFSC of shares of VFSC Common Stock, other than
transfers of VFSC Common Stock that have occurred prior to the Effective Time.
Fractional Shares. Notwithstanding any other provision hereof, no fractional
shares of Chittenden Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger; instead,
Chittenden shall pay to each holder of VFSC Common Stock who would otherwise
be entitled to a fractional share of Chittenden Common Stock (after
aggregating all Old Certificates delivered by such holder) an amount in cash
to be paid in lieu of fractional shares (without interest) determined by
multiplying such fraction by the average of the last sale prices of Chittenden
Common Stock, as reported by the NYSE Composite Transactions reporting system
(as reported in The Wall Street Journal or, if not reported therein, in
another authoritative source), for the five NYSE trading days immediately
preceding the Effective Date.
3.4 Exchange Procedures.
(a) Prior to the Effective Time, Chittenden shall deposit, or shall cause to
be deposited, with a bank or trust company selected by Chittenden and
reasonably acceptable to VFSC (the "Exchange Agent"), for the benefit of the
holders of certificates representing shares of VFSC Common Stock immediately
prior to the Effective Time ("Old Certificates"), for exchange in accordance
with this Article III, certificates representing the shares of Chittenden
Common Stock ("New Certificates") and an estimated amount of cash to be paid
in lieu of fractional shares (such cash and New Certificates, together with
any dividends or distributions with respect thereto (without any interest
thereon), being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to this Article III in exchange for outstanding shares of VFSC Common
Stock.
(b) As promptly as practicable after the Effective Time, and in any event
within seven business days thereafter, Chittenden shall send or cause to be
sent to each holder of record of shares (other than Treasury Shares) of VFSC
Common Stock immediately prior to the Effective Time transmittal materials for
use in exchanging such stockholder's Old Certificates for the consideration
set forth in this Article III. Chittenden shall cause the New Certificates,
into which shares of a stockholder's VFSC Common Stock are convertible from
and after the Effective Time, and/or any check in respect of any fractional
share interests or dividends or distributions which such person shall be
entitled to receive, to be delivered to such stockholder upon delivery to the
Exchange
A-7
<PAGE>
Agent of Old Certificates representing such shares of VFSC Common Stock (or
indemnity reasonably satisfactory to Chittenden and the Exchange Agent, if any
of such certificates are lost, stolen or destroyed) owned by such stockholder.
No interest will be paid on any such cash to be paid pursuant to this Article
III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto or any affiliate thereof shall be liable to any former holder of VFSC
Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to Chittenden Common
Stock with a record date occurring after the Effective Time shall be paid to
the holder of any unsurrendered Old Certificate representing shares of VFSC
Common Stock converted in the Merger into the right to receive shares of such
Chittenden Common Stock until the holder thereof shall surrender such Old
Certificate, together with the necessary transmittal materials, in accordance
with this Article III. Subject to applicable law, after the surrender of an
Old Certificate in accordance with this Article III, the record holder thereof
shall be entitled to receive any such dividends or other distributions,
without any interest thereon, which theretofore had become payable with
respect to shares of Chittenden Common Stock for which such Old Certificate
was exchangeable.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of VFSC for twelve (12) months after the Effective Time shall be
paid to Chittenden, subject to the rights of such stockholders to receive
payments from any such portion of the Exchange Fund in accordance with the
terms of this Article III. Any stockholders of VFSC who have not theretofore
complied with this Article III shall thereafter look only to Chittenden for
payment of the shares of Chittenden Common Stock, cash in lieu of any
fractional shares and unpaid dividends and distributions on the Chittenden
Common Stock deliverable in respect of each share of VFSC Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
3.5 Anti-Dilution Provisions. In the event Chittenden or VFSC changes (or
establishes a record date for changing) the number of, or provides for the
exchange of, shares of Chittenden Common Stock or VFSC Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split, stock
dividend, recapitalization, reclassification, reorganization or similar
transaction with respect to the outstanding Chittenden Common Stock or VFSC
Common Stock and the record date therefor shall be prior to the Effective
Date, the Exchange Ratio shall be proportionately and appropriately adjusted.
3.6 Treasury Shares. Each of the shares of VFSC Common Stock constituting
Treasury Shares immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
3.7 Options.
(a) At the Effective Time, all employee and director stock options to
purchase shares of VFSC Common Stock (each, a "VFSC Stock Option"), which are
then outstanding and unexercised, shall cease to represent a right to acquire
shares of VFSC Common Stock, and shall be converted automatically into options
to purchase shares of Chittenden Common Stock, and Chittenden shall assume
each such VFSC Stock Option subject to the terms of any of the stock option
plans listed under "Stock Plans" in Section 6.3(l)(i) of VFSC's Disclosure
Schedule (collectively, the "VFSC Stock Option Plans"), and the agreements
evidencing grants thereunder; provided, however, that from and after the
Effective Time, (i) the number of shares of Chittenden Common Stock
purchasable upon exercise of any such VFSC Stock Option shall be equal to the
number of shares of VFSC Common Stock that were purchasable under such VFSC
Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounding to the nearest whole share (with .5 being rounded
up), and (ii) the per share exercise price under each such VFSC Stock Option
shall be adjusted by dividing the per share exercise price of each such VFSC
Stock Option by the Exchange Ratio, rounding to the nearest cent. The terms of
each VFSC Stock Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect
A-8
<PAGE>
any stock split, stock dividend, recapitalization or other similar transaction
with respect to Chittenden Common Stock on or subsequent to the Effective
Date. Notwithstanding the foregoing, the number of shares and the per share
exercise price of each VFSC Stock Option which is intended to be an "incentive
stock option" (as defined in Section 422 of the Code) shall be adjusted in
accordance with the requirements of Section 424(a) of the Code. Accordingly,
with respect to any incentive stock options, fractional shares shall be
rounded down to the nearest whole number of shares and where necessary the per
share exercise price shall be rounded up to the nearest cent.
(b) At or prior to the Effective Time, Chittenden shall reserve for issuance
the number of shares of Chittenden Common Stock necessary to satisfy
Chittenden's obligations under Section 3.7(a). At the Effective Time, or as
soon as practicable thereafter, and in any event within fifteen business days
thereafter, Chittenden shall file with the SEC a registration statement on
Form S-8 or other appropriate form under the Securities Act with respect to
the shares of Chittenden Common Stock subject to options to acquire Chittenden
Common Stock issued pursuant to Section 3.7(a) hereof, and shall use its best
efforts to maintain the current status of the prospectus contained therein, as
well as comply with any applicable state securities or "blue sky" laws, for so
long as such options remain outstanding.
ARTICLE IV--THE SUBSEQUENT MERGER; EFFECTS OF THE
SUBSEQUENT MERGER
4.1 Subsequent Merger. As soon as practicable following the Effective Time,
Chittenden shall, and it shall cause VFSC (as the Surviving Corporation in the
Merger) to, effect the Subsequent Merger by executing and filing (i) articles
of merger with the Secretary of State of the State of Vermont pursuant to the
VBCA and (ii) a certificate of merger with the Secretary of State of the State
of Delaware pursuant to the DGCL. The Subsequent Merger shall become effective
at the time (the "Subsequent Effective Time") specified in both (i) the
articles of merger filed with the Secretary of State of the State of Vermont
pursuant to Section 11.05 of the VBCA and (ii) the certificate of merger filed
with the Secretary of State of the State of Delaware pursuant to Section 252
of the DGCL. As a result of the Subsequent Merger, the separate corporate
existence of VFSC shall cease and Chittenden shall be the surviving
corporation and continue its corporate existence under the laws of the State
of Vermont. The Subsequent Merger shall have the effects prescribed in Section
11.06 of the VBCA and Sections 259 and 261 of the DGCL.
4.2 Charter. The charter of the surviving corporation from the Subsequent
Merger shall be the charter of Chittenden immediately prior to the Subsequent
Effective Time.
4.3 Bylaws. The bylaws of the surviving corporation from the Subsequent
Merger shall be the bylaws of Chittenden immediately prior to the Subsequent
Effective Time.
4.4 Board of Directors. At the Subsequent Effective Time, the Board of
Directors of the surviving corporation shall be those persons serving as
directors of Chittenden immediately prior to the Subsequent Effective Time,
such persons to serve until the earlier of their resignation or removal or
until their respective successors are duly appointed or elected and qualified,
as the case may be.
4.5 Cancellation of Shares. Each share of VFSC Common Stock issued and
outstanding immediately prior to the Subsequent Effective Time shall, by
virtue of the Subsequent Merger and without any action on the part of
Chittenden, be canceled without receipt of any consideration thereof by
Chittenden.
A-9
<PAGE>
ARTICLE V--ACTIONS PENDING MERGER
From the date hereof until the Effective Time, except as set forth in the
Disclosure Schedule or expressly contemplated by this Agreement, without the
prior written consent of the other party (which consent shall not be
unreasonably withheld or delayed), (i) Chittenden will not, and will cause
each of its Subsidiaries not to, and (ii) VFSC will not, and will cause each
of its Subsidiaries not to:
5.1 Ordinary Course. Conduct its business other than in the ordinary and
usual course or, to the extent consistent therewith, fail to use reasonable
efforts to preserve intact its business organizations and assets and maintain
its rights, franchises and existing relations with customers, suppliers,
employees and business associates, or take any action that would (i) adversely
affect the ability of any party to obtain any necessary approval of any
Regulatory Authority required for the transactions contemplated hereby or (ii)
adversely affect its ability to perform any of its material obligations under
this Agreement.
5.2 Stock. In the case of VFSC, other than (i) pursuant to Rights or other
stock options or stock-based awards Previously Disclosed in its Disclosure
Schedule or as otherwise set forth in the Disclosure Schedule, or (ii)
pursuant to the VFSC Option Agreement, (w) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
stock, any securities (including units of beneficial ownership interest in any
partnership or limited liability company) convertible into or exchangeable for
any additional shares of stock, stock appreciation rights or any Rights, any
stock appreciation rights or any Rights or take any action related to such
issuance or sale, (x) enter into any agreement with respect to the foregoing,
(y) permit any additional shares of stock, any securities (including units of
beneficial ownership interest in any partnership or limited liability company)
convertible into or exchangeable for any additional shares of stock, stock
appreciation rights or any Rights, any stock appreciation rights or any Rights
to become subject to new grants of employee stock options, stock appreciation
rights, or similar stock-based employee rights, or accelerate the vesting of
any existing such stock options, stock appreciation rights or other stock-
based employee rights, or (z) change (or establish a record date for changing)
the number of, or provide for the exchange of, shares of its stock, any
securities (including units of beneficial ownership interest in any
partnership or limited liability company) convertible into or exchangeable for
any additional shares of stock, stock appreciation rights or any Rights, any
stock appreciation rights or any Rights issued and outstanding prior to the
Effective Date as a result of a stock split, stock dividend, recapitalization,
reclassification, reorganization or similar transaction with respect to its
outstanding stock or any other such securities. In the case of Chittenden,
take any action that would, or be reasonably likely to, reduce the value of
the consideration paid by Chittenden in connection with the Merger or prevent
or impede the Merger.
5.3 Dividends, Etc. (i) If such action would prevent or impede the Merger
from qualifying for "pooling of interests" accounting treatment under GAAP,
make, declare or pay any dividend other than (a) regular quarterly cash
dividends on VFSC Common Stock or Chittenden Common Stock, as applicable, in
the ordinary course consistent with past practice (with any increase in either
such dividend as is consistent with past practice), and (b) dividends from
Subsidiaries to VFSC or Chittenden, as applicable, or to another Subsidiary of
VFSC or Chittenden, as applicable, or (ii) other than (a) as Previously
Disclosed in its Disclosure Schedule or (b) in the ordinary course pursuant to
employee benefit plans as long as any such action would not prevent or impede
the Merger from qualifying for "pooling of interests" accounting treatment
under GAAP, directly or indirectly combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its stock. After the date hereof, each of
Chittenden and VFSC shall coordinate with the other the declaration of any
dividends in respect of Chittenden Common Stock and VFSC Common Stock and the
record dates and payment dates relating thereto, it being the intention of the
parties hereto that holders of Chittenden Common Stock or VFSC Common Stock
shall not receive two dividends, or fail to receive one dividend, for any
single calendar quarter with respect to their shares of Chittenden Common
Stock and/or VFSC Common Stock and any shares of Chittenden Common Stock any
such holder receives in exchange therefor in the Merger.
5.4 Compensation; Employment Agreements; Etc. In the case of VFSC, except as
Previously Disclosed in its Disclosure Schedule, enter into or amend any
written employment, severance or similar agreements or
A-10
<PAGE>
arrangements with any of its directors, officers or employees, or grant any
salary or wage increase or increase any employee benefit (including incentive
or bonus payments), except for (i) upon the prior written consent of
Chittenden, normal individual increases in compensation to employees in the
ordinary course of business consistent with past practice or (ii) other
changes as are provided for herein or as may be required by law or to satisfy
contractual obligations listed on the Disclosure Schedule existing as of the
date hereof or additional grants of awards to newly hired employees consistent
with past practice or such changes that, either individually or in the
aggregate, would not reasonably be expected to result in a material liability
to it or its Subsidiaries.
5.5 Benefit Plans.
(a) In the case of VFSC, except as Previously Disclosed in its Disclosure
Schedule, enter into or amend (except as may be required by applicable law, to
satisfy contractual obligations existing as of the date hereof or amendments
which, either individually or in the aggregate, would not reasonably be
expected to result in a material liability to it or its Subsidiaries) any
pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement related thereto, in respect of any of its directors, officers or
other employees, including taking any action that accelerates the vesting or
exercise of any benefits payable thereunder.
(b) In the case of Chittenden, enter into or amend, except as may be
required by applicable law or to satisfy contractual obligations existing as
of the date hereof, any pension, retirement, stock option, stock purchase,
savings, profit sharing, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of its
directors, officers or other employees, except for any such actions that may
undertaken in the ordinary course of business consistent with past practice or
that otherwise may be consistent with current industry standards or convention
applicable to bank holding companies of comparable size.
5.6 Dispositions, Acquisitions and Capital Expenditures.
(a) In the case of VFSC, except as Previously Disclosed in its Disclosure
Schedule or as required in connection with any Regulatory Approval, (i)
dispose of or discontinue any portion of its assets, business or properties
which is material to it and its Subsidiaries taken as a whole, or acquire
(other than by way of foreclosures or acquisitions of control in a bona fide
fiduciary capacity or in satisfaction of debts previously contracted in good
faith, in each case in the ordinary and usual course of business consistent
with past practice) all or any portion of, the business or property of any
other entity which is material to it and its Subsidiaries taken as a whole,
(ii) make any acquisition, or take any other action, which would materially
and adversely affect its ability to consummate the transactions contemplated
by this Agreement or (iii) make or agree to make any capital expenditures,
except for individual expenditures that do not exceed $200,000.
(b) In the case of Chittenden, conduct its business other than in
substantially the same manner as heretofore conducted, it being understood and
agreed that nothing contained herein shall prevent Chittenden from acquiring
or merging with another financial institution or any other company engaged in
any business in which Chittenden is presently engaged or from entering into
any new lines of business, whether through acquisition or otherwise; provided,
however, that Chittenden shall advise VFSC of any such proposed material
acquisition, merger or other business initiative prior to Chittenden's
entering into any definitive agreement or otherwise entering into or making
any other legally binding commitment or undertaking with respect thereto.
5.7 Amendments. Amend its charter or bylaws in order to adversely affect
either party's ability to consummate the Mergers or the economic benefits of
the Mergers to any party.
5.8 Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by GAAP.
A-11
<PAGE>
5.9 Loan Policies.
(a) In the case of VFSC, change its loan policies or procedures in effect as
of the date hereof, except as required by any Regulatory Authority.
(b) In the case of Chittenden, change its loan policies or procedures in a
manner that would violate any rules, regulations or established policies of
any Regulatory Authority.
5.10 Adverse Actions. (i) Knowingly take any action that would, or would be
reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code or for
"pooling of interests" accounting treatment under GAAP; or (ii) knowingly take
any action that is intended or is reasonably likely to result in (x) any of
its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time prior to the Effective
Time, (y) any of the conditions to the Merger set forth in Article VIII not
being satisfied, or (z) a material violation of any provision of this
Agreement, except, in each case, as may be required by applicable law.
5.11 Settlement of Claims. Settle any material claim, action or proceeding,
except after obtaining the prior written consent of the other party.
5.12 Agreements. Agree or commit to do anything prohibited by this Article
V.
ARTICLE VI--REPRESENTATIONS AND WARRANTIES
6.1 Disclosure Schedules. On or prior to the date hereof, Chittenden (on
behalf of itself and CASI) has delivered to VFSC and VFSC has delivered to
Chittenden a schedule (respectively, its "Disclosure Schedule") setting forth,
among other things, items the disclosure of which is necessary or appropriate
in relation to any or all of its representations and warranties; provided,
however, that (i) no such item is required to be set forth in a Disclosure
Schedule as an exception to a representation or warranty if its absence is not
reasonably likely to result in the related representation or warranty being
deemed untrue or incorrect under the standards established by Section 6.2, and
(ii) the mere inclusion of an item in a Disclosure Schedule shall not be
deemed an admission by a party that such item represents a material exception
or fact, event or circumstance or that such item is reasonably likely to
result in a Material Adverse Effect. To the extent applicable, every
disclosure and statement made in either party's Disclosure Schedule under a
particular section heading of such party's Disclosure Schedule shall be deemed
a disclosure and statement under all other section headings of such party's
Disclosure Schedule.
6.2 Standard. No representation or warranty of Chittenden or VFSC contained
in Section 6.3 shall be deemed untrue or incorrect, and no party hereto shall
be deemed to have breached a representation or warranty, as a consequence of
the existence of any fact, circumstance or event unless such fact,
circumstance or event, individually or taken together with all other facts,
circumstances or events inconsistent with any paragraph of Section 6.3, has
had or is reasonably expected to have a Material Adverse Effect; provided,
however, that the foregoing standard shall not apply to representations and
warranties contained in subsections (b), (c), (d) and (e) of Section 6.3,
which shall be deemed untrue, incorrect and breached if they are not true and
correct in all material respects.
6.3 Representations and Warranties. Subject to Sections 6.1 and 6.2 and
except as Previously Disclosed in its Disclosure Schedule, Chittenden hereby
represents and warrants to VFSC, to the extent applicable, and VFSC hereby
represents and warrants to Chittenden, to the extent applicable, in each case
with respect to itself and its Subsidiaries unless the context otherwise
requires or unless otherwise specified, as follows:
(a) Organization, Standing and Authority. Such party is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Each of Chittenden and VFSC is duly
registered as a bank holding company under the BHCA and the regulations of the
FRB thereunder. Such party is duly qualified to do business and is in good
standing in the states of the United States and foreign jurisdictions
A-12
<PAGE>
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified. Such party has in effect all federal, state,
local, and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now
being conducted.
(b) Capitalization.
(i) As of the date hereof, the authorized stock of Chittenden consists
solely of 30,000,000 shares of Chittenden Common Stock, of which, as of the
date hereof, 14,167,036 shares were outstanding; 1,762,625 shares of
Chittenden Common Stock are directly or indirectly held by Chittenden as
treasury stock; and 200,000 shares of preferred stock, par value $100.00
per share, of which, as of the date hereof, none are outstanding. As of the
date hereof, the authorized stock of CASI consists solely of 100 shares of
CASI Common Stock, par value $1.00 per share, of which, as of the date
hereof, 100 shares were outstanding. As of the date hereof, the authorized
stock of VFSC consists solely of 20,000,000 shares of VFSC Common Stock, of
which, as of the date hereof, 12,849,618.6225 shares were outstanding;
443,846.6617 shares of VFSC Common Stock are directly or indirectly held by
VFSC as treasury stock; and 5,000,000 shares of preferred stock, par value
$1.00 per share, of which, as of the date hereof, none are outstanding. The
outstanding shares of each party's capital stock are validly issued, fully
paid and nonassessable, and subject to no preemptive rights (and were not
issued in violation of any preemptive rights). As of the date hereof,
except as Previously Disclosed, there are no shares of either party's
capital stock authorized and reserved for issuance, each party does not
have any Rights issued or outstanding with respect to its stock, and each
party does not have any commitment to authorize, issue or sell any such
shares or Rights, except pursuant to this Agreement, the VFSC Stock Option
Agreement (in the case of VFSC) or Compensation and Benefit Plans. Since
September 30, 1998, neither Chittenden, CASI nor VFSC has issued any shares
of its stock or rights in respect thereof or reserved any shares for such
purposes except pursuant to plans or commitments Previously Disclosed in
its Disclosure Schedule.
(ii) The number of shares of Chittenden Common Stock which are issuable
and reserved for issuance upon exercise of any employee and director stock
options to purchase shares of Chittenden Common Stock as of the date hereof
is set forth in Chittenden's Disclosure Schedule, and the number of shares
of VFSC Common Stock which are issuable and reserved for issuance upon
exercise of VFSC Stock Options as of the date hereof is set forth in VFSC's
Disclosure Schedule.
(c) Subsidiaries.
(i) (A) Such party has Previously Disclosed in its Disclosure Schedule a
list of all of its Subsidiaries together with the jurisdictions of
organization of each Subsidiary, (B) it owns, directly or indirectly, at
least 99% of the issued and outstanding shares of each of its Significant
Subsidiaries, (C) no equity securities of any of its Significant
Subsidiaries are or may become required to be issued (other than to it or a
Subsidiary of it) by reason of any Rights, (D) there are no contracts,
commitments, understandings or arrangements by which any of such
Significant Subsidiaries is or may be bound to sell or otherwise transfer
any shares of the stock of any such Significant Subsidiaries (other than to
it or a Subsidiary of it), (E) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote or to
dispose of such shares (other than to it or a Subsidiary of it), and (F)
all of the shares of stock of each such Significant Subsidiary held by it
or its Subsidiaries are fully paid and nonassessable, not subject to
preemptive rights and are owned by it or its Subsidiaries free and clear of
any Liens.
(ii) Such party does not own (other than in a bona fide fiduciary
capacity or in satisfaction of a debt previously contracted or with respect
to its Subsidiaries) beneficially, directly or indirectly, any shares of
any equity securities or similar interests of any person, or any interest
in a partnership or joint venture of any kind.
(d) Corporate Power. Such party has the corporate power and authority to
carry on its business as it is now being conducted and to own all its
properties and assets; and it has the corporate power and authority to
A-13
<PAGE>
execute, deliver and perform its obligations under this Agreement and the VFSC
Stock Option Agreement (in the case of VFSC) and to consummate the
transactions contemplated hereby and thereby.
(e) Corporate Authority. This Agreement and the VFSC Stock Option Agreement
(in the case of VFSC) and the transactions contemplated hereby and thereby,
subject to approval by the holders of a majority of the shares of Chittenden
Common Stock and CASI Common Stock entitled to vote thereon and by the holders
of two-thirds of the shares of VFSC Common Stock entitled to vote thereon,
have been authorized by all necessary corporate actions of such party, and
each of this Agreement and the VFSC Stock Option Agreement (in the case of
VFSC) is a legal, valid and binding agreement of such party, enforceable in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general applicability relating to or affecting
creditors' rights or by general principles of equity).
(f) No Defaults. Subject to the receipt of the Regulatory Approvals and
expiration of waiting periods referred to in Section 8.2, if any, and the
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the VFSC Stock Option Agreement
(in the case of VFSC) and the consummation of the transactions contemplated
hereby (including, without limitation, the Mergers and Bank Mergers) and
thereby by such party do not and will not (i) constitute a breach or violation
of, or a default under, any law, rule or regulation or any judgment, decree,
order, permit, license, credit agreement, indenture, loan, note, bond,
mortgage, reciprocal easement agreement, lease, instrument, concession,
franchise or other agreement of it or of any of its Subsidiaries or to which
it or any of its Subsidiaries, properties or assets is subject or bound, (ii)
constitute a breach or violation of, or a default under, its charter or
bylaws, or (iii) require the consent or approval of any third party or
Regulatory Authority under any such law, rule, regulation, judgment, decree,
order, permit, license, credit agreement, indenture, loan, note, bond,
mortgage, reciprocal easement agreement, lease, instrument, concession,
franchise or other agreement.
(g) SEC Documents; Financial Reports; and Regulatory Reports.
(i) Its Annual Report on Form 10-K, as amended through the date hereof,
for the fiscal year ended December 31, 1997, and all other reports,
registration statements, definitive proxy statements or information
statements required to be filed by it or any of its Subsidiaries subsequent
to December 31, 1995 under the Securities Act, or under Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act (collectively, its "SEC
Documents"), with the SEC, and all its SEC Documents filed with the SEC, in
the form filed or to be filed, (A) complied or will comply in all material
respects as to form with the applicable requirements under the Securities
Act or the Exchange Act, as the case may be, and (B) did not and will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; and each of the balance sheets contained in or incorporated by
reference into any such SEC Document (including the related notes and
schedules thereto) fairly presents and will fairly present the financial
position of the entity or entities to which such balance sheet relates as
of its date, and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in such SEC
Documents (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
entity or entities to which such statement relates for the periods to which
it relates, in each case in accordance with GAAP consistently applied
during the periods involved, except in each case as may be noted therein,
subject to normal year-end audit adjustments in the case of unaudited
statements. Except as set forth in its SEC Documents, neither it nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on its consolidated balance sheet or in the notes thereto.
(ii) Since January 1, 1994, it has duly filed with the FRB, the OCC, the
FDIC, the Vermont Bank Commissioner, the Massachusetts Bank Commissioner,
the New Hampshire Bank Commissioner and any other applicable Regulatory
Authority, as the case may be, in correct form the reports required to be
filed
A-14
<PAGE>
under applicable laws and regulations, and such reports were in all
material respects complete and accurate in compliance with the requirements
of applicable laws and regulations. In connection with the most recent
examinations of it by the FRB, the OCC, the FDIC, the Vermont Bank
Commissioner, the Massachusetts Bank Commissioner, the New Hampshire Bank
Commissioner or any other applicable Regulatory Authority, it was not
required to correct or change any action, procedure or proceeding which it
believes has not been corrected or changed as required in all material
respects.
(h) Litigation; Regulatory Action.
(i) No litigation, claim or other proceeding before any court or
governmental agency is pending against it, and, to the best of its
knowledge, no litigation, claim or proceeding has been threatened.
(ii) Neither it nor any of its properties is a party to or is subject to
any order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter or similar submission to, any
federal or state governmental agency or authority charged with the
supervision or regulation of financial institutions or issuers of
securities or engaged in the insurance of deposits (including, without
limitation, the OCC, the FRB, the FDIC, the Vermont Bank Commissioner, the
Massachusetts Bank Commissioner, the Massachusetts Board of Bank
Incorporation, and the New Hampshire Bank Commissioner) or the supervision
or regulation of it or any of its Subsidiaries (each individually a
"Regulatory Authority," and collectively, the "Regulatory Authorities").
(iii) It has not been advised by any Regulatory Authority that such
Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or
similar submission.
(i) Compliance with Laws. It:
(i) in the conduct of its business, is in compliance with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the
Home Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all
Regulatory Authorities that are required in order to permit it to conduct
its businesses substantially as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect and, to the best of its knowledge, no suspension or cancellation
of any of them is threatened; and
(iii) has received, since December 31, 1994, no notification or
communication from any Regulatory Authority (A) asserting that it is not in
compliance with any of the statutes, regulations, or ordinances which such
Regulatory Authority enforces, (B) threatening to revoke any license,
franchise, permit, or governmental authorization, (C) threatening or
contemplating revocation or limitation of, or which would have the effect
of revoking or limiting, federal deposit insurance (nor, to its knowledge,
do any grounds for any of the foregoing exist) or (D) failing to approve
any proposed acquisition, or stating its intention not to approve
acquisitions, proposed to be effected by it within a certain time period or
indefinitely.
(j) Contractual Defaults. It is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy, or other
instrument to which it is a party, by which its assets, business, or
operations may be bound or affected, or under which it or its respective
assets, business, or operations receives benefits, and there has not occurred
any event that, with the lapse of time or the giving of notice or both, would
constitute such a default.
(k) No Brokers. No action has been taken by it that would give rise to any
valid claim against any party hereto for a brokerage commission, finder's fee
or other like payment with respect to the transactions
A-15
<PAGE>
contemplated by this Agreement, excluding, in the case of Chittenden, fees to
be paid to CIBC Oppenheimer Corp. and, in the case of VFSC, fees to be paid to
McConnell, Budd & Downes, Inc.
(l) Employee Benefit Plans. In the case of VFSC,
(i) Its Disclosure Schedule contains a complete list of all material
bonus, vacation, deferred compensation, pension, retirement, profit-
sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans, all employment or
severance contracts, all medical, dental, disability, health and life
insurance plans, all other employee benefit and fringe benefit plans,
contracts or arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained by it, any of
its Subsidiaries or entity which is considered one employer with it under
Section 4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"), for the benefit of officers, former officers, employees,
former employees, directors, former directors, or the beneficiaries of any
of the foregoing (collectively, the "Compensation and Benefit Plans").
(ii) True and complete copies of the Compensation and Benefit Plans (as
amended to date) along with the following have been made available to
Chittenden: (A) the most recent IRS determination or approval letter with
respect to such Compensation and Benefit Plan under Code Section 401(a) or
501(c)(9), and any applications for determination or approval subsequently
filed with the IRS; (B) the three most recently filed IRS Forms 5500, with
all applicable schedules and accountants' opinions attached thereto; (C)
the three most recent actuarial valuation reports completed with respect to
such Compensation and Benefit Plan; (D) the summary plan description for
such Compensation and Benefit Plan (or other descriptions of such
Compensation and Benefit Plan provided to employees) and all modifications
thereto; (E) any insurance policy (including any fiduciary liability
insurance policy or fidelity bond) related to such Compensation and Benefit
Plan; (F) any registration statement or other filing made pursuant to any
federal or state securities law and (G) all correspondence to and from any
state or federal agency within the last three years with respect to such
Compensation and Benefit Plan.
(iii) Each of the Compensation and Benefit Plans has been administered in
accordance with the terms thereof. All Compensation and Benefit Plans which
are "employee benefit plans" within the meaning of Section 3(3) of ERISA,
other than "multiemployer plans" within the meaning of Section 3(37) of
ERISA ("Multiemployer Plans"), (the "Plans"), to the extent subject to
ERISA, are in material compliance with ERISA, the Code and all other
applicable laws. Each Compensation and Benefit Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension
Plan") and which is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the Internal
Revenue Service, and it is not aware of any circumstances reasonably likely
to result in the revocation or denial of any such favorable determination
letter. There is no pending or, to its knowledge, threatened litigation or
governmental audit, examination or investigation relating to any of its
Compensation and Benefit Plans. Each asset held under any such Pension Plan
may be liquidated or terminated without the imposition of any redemption
fee, surrender charge or comparable liability. No partial termination
(within the meaning of Section 411(d)(3) of the Code) has occurred with
respect to any Pension Plan.
(iv) No liability under Title IV of ERISA has been or is expected to be
incurred by it with respect to any ongoing, frozen or terminated "single-
employer plan," within the meaning of Section 4001(a)(15) of ERISA, or the
single-employer plan of any ERISA Affiliate. None of it, any of its
Subsidiaries or any ERISA Affiliate has ever maintained a Multiemployer
Plan. No notice of a "reportable event," within the meaning of Section 4043
of ERISA for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan of it or by any ERISA
Affiliate or will be required to be filed as a result of the transactions
contemplated hereby.
(v) All contributions, premiums and payments required to be made under
the terms of any Compensation and Benefit Plan have been made or have been
accrued on the balance sheets contained in its
A-16
<PAGE>
SEC Documents. Neither any Pension Plan of it or any of its ERISA
Affiliates has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither it nor any of its Subsidiaries or ERISA Affiliates has provided, or
is required to provide, security to any Pension Plan or to any single-
employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(vi) Under each Pension Plan, as of the last day of the most recent plan
year ended prior to the date hereof, the projected benefit obligations (as
determined in accordance with Financial Accounting Standard No. 87) did not
exceed the then current value of the assets of such Plan, and there has
been no adverse change in the financial condition of such Plan (with
respect to either assets or benefits) since the last day of the most recent
Plan year.
(vii) It does not have any obligations under any Compensation and Benefit
Plans to provide benefits, including death or medical benefits, with
respect to employees of it beyond their retirement or other termination of
service other than (i) coverage mandated by Part 6 of Title I of ERISA or
Section 4980B of the Code, (ii) retirement or death benefits under any
employee pension benefit plan (as defined under Section 3(2) of ERISA),
(iii) disability benefits under any employee welfare plan that have been
fully provided for by insurance or otherwise, (iv) benefits in the nature
of severance pay or (v) benefits the full cost of which are borne by the
former employee or such employee's beneficiary.
(viii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or any employee of it under any
Compensation and Benefit Plan or otherwise from it or any ERISA Affiliate,
(ii) increase any benefits otherwise payable under any Compensation and
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(ix) Each Compensation and Benefit Plan may be amended, terminated, or
otherwise modified by it or an ERISA Affiliate to the greatest extent
permitted by applicable law, including the elimination of any and all
future benefit accruals under any Compensation and Benefit Plan and no
employee communications or provision of any Compensation and Benefit
document has failed to effectively reserve the right of it or its ERISA
Affiliates, to so amend, terminate or otherwise modify such Compensation
and Benefit Plan.
(x) For purposes of this Section (l), an entity "maintains" a
Compensation and Benefit Plan if such entity sponsors, contributes to, or
provides benefits under or through such Compensation and Benefit Plan, or
has any obligation (by agreement or under applicable law) to contribute to
or provide benefits under or through such Compensation and Benefit Plan, or
if such Compensation and Benefit Plan provides benefits to or otherwise
covers current or former employees or directors of such entity (or their
spouses, dependents, or beneficiaries).
(xi) At the request of Chittenden, VFSC has amended, in a manner intended
by the parties not to prevent or impede the Mergers from qualifying for
"pooling of interests" accounting treatment under GAAP, each of the
Management Continuity Agreements between VFSC and the officers listed in
Section 7.13(e) of its Disclosure Schedule to delete the paragraph(s)
contained therein that would require a cash payment be made to the officer
who is a party thereto in exchange for the cancellation of certain stock
options held by the officer in the event that the officer's employment is
terminated following a change in control (as such term is defined in the
Management Continuity Agreement) either (a) by VFSC or the applicable
Subsidiary other than for Cause, Retirement or Disability (as such terms
are defined in the Management Continuity Agreement) or (b) by the officer
for Good Reason (as such term is defined in the Management Continuity
Agreement).
(xii) The Board of Directors of VFSC has taken all actions necessary such
that following the Effective Time all outstanding options to purchase VFSC
Common Stock that were granted pursuant to VFSC's
A-17
<PAGE>
Amended and Restated 1994 Stock Option Plan, 1988 Directors Non-Qualified
Stock Option Plan and 1987 Officers Non-Qualified Stock Option Plan shall
cease to represent options to acquire VFSC Common Stock and shall be
converted automatically into options to purchase shares of Chittenden
Common Stock in accordance with Section 3.7 hereof.
(m) Labor Matters. It is not a party to, or bound by any collective
bargaining agreement, contract or other agreement or understanding with a
labor union or labor organization, nor is it the subject of a proceeding
asserting that it has committed an unfair labor practice (within the meaning
of the National Labor Relations Act) or seeking to compel it to bargain with
any labor organization as to wages and conditions of employment.
(n) Takeover Laws. It has taken all action required to be taken by it in
order to exempt this Agreement and the VFSC Stock Option Agreement (in the
case of VFSC) and the transactions contemplated hereby and thereby from, and
this Agreement and the VFSC Stock Option Agreement (in the case of VFSC) and
the transactions contemplated hereby and thereby are exempt from, the
requirements of any "moratorium," "business combination," "control share,"
"fair price" or other takeover defense laws and regulations (collectively,
"Takeover Laws"), if any, of (i) in the case of the representations and
warranties of Chittenden, the State of Vermont, and (ii) in the case of the
representations and warranties of CASI and VFSC, the State of Delaware,
including Section 203 of the DGCL.
(o) Ownership of Property. In the case of VFSC,
(i) It has good and, as to real property, marketable title to all assets
and properties, whether real or personal, tangible or intangible
(including, without limitation, the capital stock of its Subsidiaries and
all other assets and properties), reflected in its SEC Documents and
financial statements filed in connection therewith, or acquired subsequent
thereto subject to no encumbrances, liens, mortgages, security interests or
pledges, except (a) those items that secure liabilities that are reflected
in its SEC Documents and financial statements filed in connection therewith
or incurred in the ordinary course of business after the date of such
financial statements, (b) statutory liens for amounts not yet delinquent or
which are being contested in good faith, (c) those items that secure public
or statutory obligations or any discount with, borrowing from, or other
obligations to any Federal Reserve Bank, Federal Home Loan Bank, inter-bank
credit facilities, or any transaction by it or any Subsidiary acting in a
fiduciary capacity, and (d) such encumbrances, liens, mortgages, security
interests, and pledges that are not in the aggregate material to it on a
consolidated basis. As a lessee, it has the right under valid and existing
leases to use, possess and control all of the personal property and real
estate leased by it as presently used, possessed and controlled by it.
(ii) Its real properties, whether owned through a fee simple title or
leasehold estate (individually, a "Real Property," and collectively, the
"Real Properties") are listed on the Disclosure Schedule and are not
subject to any Liens, security interests or other encumbrances on title
(collectively, "Encumbrances") and are not subject to any rights of way,
written agreements, laws, ordinances and regulations affecting building use
or occupancy, or reservations of an interest in title (collectively,
"Property Restrictions"), except for Encumbrances and Property Restrictions
disclosed on existing title reports or existing surveys which would not
have a Material Adverse Effect. None of its Real Properties is subject to
any restriction on the sale or other disposition thereof or on the
financing or release of any financing thereon.
(iii) Valid policies of title insurance have been issued insuring its fee
simple title or leasehold estate, as the case may be, to its Real
Properties in amounts which are at least equal to the purchase price
thereof paid by it therefor.
(iv) To the best of its knowledge, (A) there is no necessary certificate,
permit or license from any governmental authority having jurisdiction over
any of its Real Properties or agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of its Real Properties or which is necessary to permit
the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of its Real Properties which has not
been obtained
A-18
<PAGE>
or is not in full force and effect, and there is no pending threat of
modification or cancellation of any of the same, (B) there is no written
notice of any violation of any federal, state or municipal law, ordinance,
order, rule, regulation or requirement affecting any of its Real Properties
issued by any governmental authorities and (C) there are no structural
defects relating to its Real Properties, the building systems in each of
its Real Properties is in working order and there is no physical damage to
any Real Property for which there is no insurance in effect covering the
cost of restoration, any current renovation or uninsured restoration.
(v) It has not received any written or published notice to the effect
that (A) any condemnation or rezoning proceedings are pending or threatened
with respect to any of its Real Properties or (B) any zoning, building or
similar law, code, ordinance, order or regulation is or will be violated by
the continued maintenance, operation or use of any buildings or other
improvements on any of its Real Properties or by the continued maintenance,
operation or use of the parking areas associated with any of its Real
Properties.
(vi) All work to be performed, payments to be made and actions to be
taken by it prior to the date hereof pursuant to any agreement entered into
with a governmental body or authority in connection with a site approval,
zoning reclassification or similar action relating to any of its Real
Properties, has been performed, paid or taken, as the case may be, and to
the best of its knowledge, there is not any planned or proposed work,
payment or action that may be required after the date hereof pursuant to
any such agreement.
(vii) All properties currently under development or construction by it
and all properties currently proposed for acquisition, development or
commencement of construction prior to the Effective Time by it are listed
as such on its Disclosure Schedule.
(viii) VFSC is not in default under any of its leases of Real Property
and the consummation of the Merger will not result in a default under any
of the leases. If a lease requires consent of the landlord to consummate
the Merger and VFSC cannot obtain such consent, VFSC and Chittenden shall
use reasonable efforts to locate another rental property within the same
zip code which in terms of its location, premises, area and lease terms is
reasonably acceptable to Chittenden. Under such circumstances, VFSC shall
apply for relocation of the branch licenses to such new location, shall use
reasonable efforts to obtain approval of such applications and shall
cooperate with Chittenden in negotiating a lease of such premises in the
name of Chittenden as tenant.
(p) Insurance. It is insured, and during each of the past three calendar
years has been insured, for reasonable amounts with financially sound
insurance companies against such risks as companies engaged in a similar
business would, in accordance with good business practice customarily be
insured and has maintained all insurance required by applicable laws and
regulations. It has Previously Disclosed to the other party a list identifying
all insurance policies maintained by it as of the date hereof. All of the
policies and bonds maintained by it are in full force and effect and all
claims thereunder have been filed in a due and timely manner and, to its
knowledge, no such claim has been denied.
(q) Environmental Matters.
(i) As used in this Agreement, "Environmental Laws" means all applicable
local, state and federal environmental, health and safety laws and
regulations, including, without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation, and
Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
Occupational Safety and Health Act, each as amended, regulations
promulgated thereunder, and state counterparts.
(ii) Neither the conduct nor operation of such party nor any condition of
any property presently or previously owned, leased or operated by it
violates Environmental Laws and no condition has existed or event has
occurred with respect to it that, with notice or the passage of time, or
both, is reasonably likely to result in liability under Environmental Laws.
It has not received any notice from any person or entity that it
A-19
<PAGE>
or the operation or condition of any property ever owned, leased, operated,
held as collateral or held as a fiduciary by it are in violation of or
otherwise are alleged to have liability under any Environmental Law,
including but not limited to responsibility (or potential responsibility)
for the assessment or remediation of any pollutants, contaminants, or
hazardous or toxic wastes, substances or materials at, on, beneath, or
originating from any such property.
(r) Taxes. It (A) has filed (or there has been filed on its behalf) all
material returns, declarations, reports estimates, information returns and
statements required to be filed under federal, state, local or any foreign Tax
laws ("Tax Returns"), and all such Tax Returns are accurate and complete in
all material respects, and (B) has paid (or payment has been made on its
behalf) all Taxes shown on such Tax Returns as required to be paid by it. The
most recent audited financial statements contained in its SEC Documents
reflect an adequate reserve for all material Taxes payable by it and its
Subsidiaries for all taxable periods and portions thereof through the date of
such financial statements. It has not incurred any material liability for
Taxes other than in the ordinary course of business. No event has occurred,
and no condition or circumstance exists, which presents a material risk that
any material Tax described in the preceding sentence will be imposed upon it.
To the best of its knowledge, no deficiencies for any Taxes have been
proposed, asserted or assessed against it, and no requests for waivers of the
time to assess any such Taxes are pending. Except as Previously Disclosed,
there is no audit, examination, deficiency or refund litigation or matter in
controversy with respect to any taxes that might reasonably be expected to
result in a determination, the effect of which would be a Material Adverse
Effect. It is not currently, has not been within the past five years, and does
not anticipate becoming prior to the Effective Time, a "United States real
property holding corporation" within the meaning of Section 897(c) of the
Code.
(s) Intellectual Property. It owns or, to its knowledge, possesses valid and
binding licenses and other rights to use all material patents, copyrights,
trade secrets, trade names, servicemarks and trademarks used in its
businesses, each without payment, and it has not received any notice of
conflict with respect thereto that asserts the rights of others. It has
performed in all material respects all the obligations required to be
performed, and is not in default in any material respect, under any contract,
agreement, arrangement or commitment relating to any of the foregoing.
(t) Tax Treatment; Accounting Treatment. As of the date hereof, it is aware
of no reason why the Merger (i) will fail to qualify as a reorganization under
Section 368(a) of the Code or (ii) may not be accounted for as a "pooling of
interests" under GAAP.
(u) Regulatory Approvals. The approval (or waiver, if applicable) of the
following regulatory authorities is necessary to consummate the Mergers and
related Bank Mergers: the FRB, the FDIC and the regulatory authorities of the
states in which Chittenden, VFSC and their respective Subsidiaries operate. As
of the date hereof, VFSC and Chittenden are not aware of any reason why the
approvals of such regulatory authorities will not be received.
(v) Loans; Nonperforming and Classified Assets.
(i) Each loan agreement, note or borrowing arrangement, including without
limitation portions of outstanding lines of credit and loan commitments
(collectively, "Loans"), on its books and records, was made and has been
serviced in all material respects in accordance with customary lending
standards in the ordinary course of business; is evidenced in all material
respects by appropriate and sufficient documentation; to the extent
secured, has been secured by valid liens and security interests which have
been perfected; and constitutes 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 creditor's rights and to
general equity principles.
(ii) It has Previously Disclosed as to it as of September 30, 1998; (A)
any written or, to its knowledge, oral Loan under the terms of which the
obligor is 60 or more days delinquent in payment of principal or interest,
or to the best of its knowledge, in default of any other provision thereof;
(B) each Loan which has
A-20
<PAGE>
been classified as "other loans specially mentioned," "classified,"
"criticized," "substandard," "doubtful," "credit risk assets," "watch list
assets," "loss" or "special mention" (or words of similar import) by it or
a Regulatory Authority (the "Classified Loans"); (C) a listing of the real
estate owned, acquired by foreclosure or by deed-in-lieu thereof, including
the book value thereof; (D) each Loan with any director, executive officer
or five percent or greater stockholder of it, or to the best knowledge of
it, any person, corporation or enterprise controlling, controlled by or
under common control with any of the foregoing; (E) all Loans which are
classified as Insider Transactions by Regulation O of the FRB have been
made by it 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 collectibility or present other unfavorable features.
(iii) VFSC shall promptly after the end of each quarter after the date
hereof and upon Closing inform Chittenden of the amount of Loans subject to
each type of classification of the Classified Loans.
(w) Allowance for Loan Losses. The allowance for loan losses reflected in
its SEC Documents and financial statements filed therewith, as of their
respective dates, is adequate under GAAP and all regulatory requirements
applicable to financial institutions.
(x) Administration of Fiduciary Accounts. It has properly administered all
accounts for which it acts as a fiduciary, including but not limited to
accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance
with the terms of the governing documents and applicable laws and regulations.
Neither it nor any of its directors, officers or employees, has committed any
breach of trust with respect to any such fiduciary account, and the records
for each such fiduciary account are true and correct and accurately reflect
the assets of such fiduciary account.
(y) Derivative Transactions. Except as Previously Disclosed, as of the date
hereof, it has not engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments since December 31,
1997.
(z) Year 2000.
(i) It has adopted a plan (in each case, a "Year 2000 Plan") requiring
testing, information-gathering and other procedures to conform to the
deadlines and material requirements and guidelines applicable to it as a
provider of services using Information Technology and imposed by any
Regulatory Authority or the FFIEC, to cause such Information Technology to
be Year 2000 Compliant (such deadlines, material requirements and
guidelines, as they may be in effect from time to time, being referred to
in this Agreement as the "Year 2000 Regulatory Requirements").
(ii) It has taken appropriate actions and has committed the resources
reasonably necessary or otherwise appropriate to comply with its Year 2000
Plan in a timely manner. Such actions (including the testing and
information-gathering procedures) have not produced any preliminary
findings or other results which would indicate that the Information
Technology will not be Year 2000 Compliant or that it will not be in
compliance with the Year 2000 Regulatory Requirements; and it has not
received any written notice or preliminary oral notice from a Regulatory
Authority or the FFIEC to one of its officers or senior executive employees
with respect to any adverse action against it relating to Year 2000
Compliance.
(iii) For purposes of this Agreement, (A) "Information Technology" means
all computer software, computer hardware (whether general or specific
purpose) and other similar or related items of automated, computerized, or
software systems that are used or relied on by Chittenden or VFSC, or any
of their respective Subsidiaries, in the conduct of their respective
businesses; and (B) "Year 2000 Compliant" means that the Information
Technology is designed to be used prior to, during and after the calendar
year 2000 A.D., and the Information Technology used during each such time
period will accurately receive, provide and process date/time data
(including calculating, comparing and sequencing) from, into and
A-21
<PAGE>
between the 20th and 21st centuries, including the years 1999 and 2000 and
leap-year calculations, and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date/time data, to the
extent that any other information technology, used in combination with the
Information Technology, properly exchanges date/time data with it.
(aa) Repurchase Agreements. With respect to all agreements pursuant to which
it has purchased securities subject to an agreement to resell, if any, it 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.
(bb) Deposit Insurance. Its deposits are insured by the FDIC in accordance
with the FDIA, and it has paid all assessments and filed all reports required
by the FDIA.
(cc) No Material Adverse Effect. Since September 30, 1998, except as
disclosed in its SEC Documents filed with the SEC on or before the date
hereof, (i) it has conducted its business in the ordinary and usual course
(excluding the incurrence of expenses related to this Agreement and the
transactions contemplated hereby) and (ii) no event has occurred or
circumstance arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 6.3 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to it.
(dd) Contracts. VFSC is not a party to or bound by any contract,
arrangement, commitment or understanding (whether written or oral): (i) which,
upon consummation of the transactions contemplated by this Agreement or the
Bank Merger Agreements, will result in any payment becoming due to any
officer, employee or consultant, (ii) which, upon 60 days or less notice,
cannot be terminated without a penalty that is reasonably likely to have a
Material Adverse Effect with respect to it, or (iii) which requires the
payment by it of more than $100,000 per annum. Chittenden is not a party to or
bound by any contract, arrangement, commitment or understanding (whether
written or oral) which, upon consummation of the transactions contemplated by
this Agreement or the Bank Merger Agreements, will result in a payment
becoming due to any officer, employee or consultant that is reasonably likely
to have a Material Adverse Effect with respect to it.
ARTICLE VII - COVENANTS
Chittenden (and CASI for purposes of Section 7.2) hereby covenants to and
agrees with VFSC, and VFSC hereby covenants to and agrees with Chittenden,
that:
7.1 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, it shall use its
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Mergers as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby, including effecting all filings and
obtaining (and cooperating with the other party hereto to obtain) any permit,
consent, authorization, order or approval of, or any exemption by, any
Regulatory Authority and any other third party that is required to be obtained
by Chittenden or VFSC or any of their respective Subsidiaries in connection
with the Mergers and the other transactions contemplated by this Agreement,
and using reasonable efforts to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby, and using reasonable efforts
to defend any litigation seeking to enjoin, prevent or delay the consummation
of the transactions contemplated hereby or seeking material damages, and each
shall cooperate fully with the other parties hereto to that end.
(b) Notwithstanding anything in this Agreement to the contrary, each of
Chittenden and VFSC shall promptly take, or cause its Affiliates to take, if
required by or necessary to resolve any objection of the Department of Justice
("DOJ") or its staff, the FRB or its staff, the FDIC or its staff, any state
attorney general
A-22
<PAGE>
or its staff or any other governmental entity, in each case in order to
consummate the transactions contemplated hereby, all steps (including
executing agreements and submitting to judicial or administrative orders) to
secure regulatory approval or government clearance (including by avoiding or
setting aside any preliminary or permanent injunction or other order of any
United States federal or state court of competent jurisdiction or any other
governmental authority), including, without limitation, all steps to make
arrangements for or to effect the divestiture of particular assets or deposit
liabilities or categories of assets or deposit liabilities or businesses of
Chittenden or any of its Subsidiaries or VFSC or any of its Subsidiaries. Each
of Chittenden and VFSC represents and warrants that such party's Affiliates
and Subsidiaries have full power and authority to effect the transactions
contemplated by this Section 7.1(b).
7.2 Stockholder Approvals. Each of Chittenden, CASI and VFSC shall take, in
accordance with applicable law, applicable stock exchange or NASDAQ Stock
Market rules and its charter and bylaws, all action necessary to convene,
respectively: an appropriate meeting of the stockholders of Chittenden to
consider and vote upon any matters required to be approved by Chittenden
stockholders for consummation of the Mergers (including any adjournment or
postponement, the "Chittenden Meeting"); an appropriate meeting of the
stockholders of CASI to consider and vote upon the approval of this Agreement
and any other matters required to be approved by CASI's stockholders for
consummation of the Mergers (including any adjournment or postponement, the
"CASI Meeting"); and an appropriate meeting of the stockholders of VFSC to
consider and vote upon the approval of this Agreement and any other matters
required to be approved by VFSC's stockholders for consummation of the Mergers
(including any adjournment or postponement, the "VFSC Meeting;" and each of
the Chittenden Meeting, the CASI Meeting and the VFSC Meeting, a "Meeting"),
as promptly as practicable after the date hereof. The Board of Directors of
each of Chittenden, CASI and VFSC shall (subject to compliance with its
fiduciary duties as advised in writing by counsel) recommend such approval by
its respective stockholders, and each of Chittenden, CASI and VFSC shall use
its reasonable best efforts to solicit such approval from its stockholders.
7.3 Registration Statement.
(a) Chittenden and VFSC agree to cooperate in the preparation of a
registration statement on Form S-4 (the "Registration Statement") to be filed
by Chittenden with the SEC in connection with the issuance of Chittenden
Common Stock in the Merger (including the joint proxy statement and prospectus
and other proxy solicitation materials of Chittenden and VFSC constituting a
part thereof (the "Joint Proxy Statement") and all related documents).
Chittenden and VFSC agree to file a draft of the Joint Proxy Statement with
the SEC as promptly as practicable. Each of Chittenden and VFSC agrees to use
all reasonable efforts to cause the Registration Statement to be filed and
declared effective under the Securities Act as promptly as reasonably
practicable after the SEC has cleared the Joint Proxy Statement. Chittenden
also agrees to use all reasonable efforts to obtain all necessary state
securities law or "blue sky" permits and approvals required to carry out the
transactions contemplated by this Agreement.
(b) Each of Chittenden and VFSC agrees, upon request, to furnish promptly
the other party with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Registration
Statement, the Joint Proxy Statement or any filing, notice or application made
by or on behalf of such other party or any of its Subsidiaries to any
Regulatory Authority in connection with the transactions contemplated hereby.
Each of Chittenden and VFSC agrees, as to itself and its Subsidiaries, that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Joint
Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to stockholders and at the times of the Chittenden Meeting and the
VFSC Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or any statement which, in the light of the
circumstances under which such statement is made, will be false or misleading
with respect to any material fact,
A-23
<PAGE>
or which will omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier statement in the Joint Proxy Statement or any
amendment or supplement thereto. Each of Chittenden and VFSC further agrees
that if it shall become aware prior to the Effective Date of any information
that would cause any of the statements in the Joint Proxy Statement to be
false or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or
misleading, it shall promptly inform the other party thereof and shall take
the necessary steps to correct the Joint Proxy Statement.
(c) In the case of Chittenden, Chittenden will advise VFSC, promptly after
Chittenden receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed,
of the issuance of any stop order or the suspension of the qualification of
the Chittenden Common Stock for offering or sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose, or of any request
by the SEC for the amendment or supplement of the Registration Statement or
for additional information.
7.4 Press Releases. It will consult with the other party before issuing any
press release with respect to the transactions contemplated by this Agreement
and will not, without the prior approval of the other party hereto, issue any
press release or written statement for general circulation relating to the
transaction contemplated hereby, except as otherwise required by applicable
law or regulation or the applicable rules of the NYSE or the NASDAQ Stock
Market.
7.5 Access; Information.
(a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, each party shall, and shall cause its Subsidiaries
to, afford the other parties and their officers, employees, counsel,
accountants, advisors and other authorized representatives, access, during
normal business hours throughout the period prior to the Effective Date, to
all of its properties, books, contracts, commitments and records, and to its
officers, employees, accountants, counsel or other representatives, and,
during such period, it shall, and shall cause its Subsidiaries to, furnish
promptly to such other parties and representatives (i) a copy of each material
report, schedule and other document filed by it pursuant to the requirements
of federal or state securities laws (other than reports or documents that
Chittenden, CASI or VFSC, or their respective Subsidiaries, as the case may
be, are not permitted to disclose under applicable law), and (ii) all other
information concerning the business, properties and personnel of it as the
other may reasonably request. Neither Chittenden, CASI nor VFSC nor any of
their respective Subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would violate or
prejudice the rights of its customers, jeopardize the attorney-client
privilege of the institution in possession or control of such information or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty
or binding agreement entered into prior to the date of this Agreement. The
parties hereto will make appropriate substitute disclosure arrangements under
the circumstances in which the restrictions of the preceding sentence apply.
(b) It and its Subsidiaries will not use any information obtained pursuant
to this Section 7.5 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement and will hold all information and
documents obtained pursuant to this paragraph in confidence (as provided in,
and subject to the provisions of, the Confidentiality Agreement, as if it were
the Receiving Party, as defined therein). No investigation by the parties of
the business and affairs of any other party shall affect or be deemed to
modify or waive any representation, warranty, covenant or agreement in this
Agreement, or the conditions to a party's obligation to consummate the
transactions contemplated by this Agreement.
7.6 Acquisition Proposals. From the date hereof until the earlier of the
Effective Date or the termination of this Agreement, without the prior written
consent of Chittenden, VFSC shall not, and shall cause its Subsidiaries and
its and its Subsidiaries' officers, directors, agents, advisors and affiliates
not to, solicit or encourage inquiries or proposals with respect to, or engage
in any negotiations concerning, or provide any confidential information to, or
have any discussions with, any such person relating to, any tender offer or
A-24
<PAGE>
exchange offer for, or any proposal for the acquisition of a substantial
equity interest in, or a substantial portion of the assets of, or any merger
or consolidation with, it or any of its Subsidiaries; provided, however, that
VFSC may, and may authorize and permit its officers, directors, employees or
agents to, furnish or cause to be furnished confidential information and may
participate in such discussions and negotiations if its Board of Directors,
after having consulted with and considered the written advice of outside
counsel, has determined that the failure to provide such information or
participate in such negotiations and discussions could cause the members of
such Board of Directors to breach their duties under applicable laws. VFSC
shall advise Chittenden of its receipt of any such proposal or inquiry, of the
substance thereof, and of the identity of the person making such proposal or
inquiry within 24 hours of the receipt thereof.
7.7 Affiliate Agreements.
(a) Not later than the 15th day prior to the mailing of the Joint Proxy
Statement, each party shall deliver to the other, a schedule of each person
that, to the best of its knowledge, is or is reasonably likely to be, as of
the date of the relevant Meeting, deemed to be an "affiliate" of it (each, an
"Affiliate") as that term is used in SEC Accounting Series Releases 130 and
135 and, in the case of VFSC only, in Rule 145 under the Securities Act.
(b) Each party shall use its reasonable best efforts to cause each person
who may be deemed to be an Affiliate of it to execute and deliver to the other
party on or before the date of mailing of the Joint Proxy Statement an
agreement to comply with SEC Accounting Releases 130 and 135 and, in the case
of VFSC only, with Rule 145 under the Securities Act, in the forms attached
hereto as Exhibits A-1 ("Chittenden Affiliates Agreement") and A-2 ("VFSC
Affiliates Agreement"), respectively.
(c) Within thirty (30) days after the end of the first complete calendar
month ending at least thirty (30) days after the Closing Date, Chittenden will
publish results including at least thirty (30) days of combined operations of
Chittenden and VFSC as referred to in the VFSC Affiliates Agreement and as
contemplated by and in accordance with SEC Accounting Release No. 135.
7.8 Takeover Laws. No party shall take any action that would cause the
transactions contemplated by this Agreement and the VFSC Stock Option
Agreement (in the case of VFSC) to be subject to requirements imposed by any
Takeover Law and each party shall take all necessary steps within its control
to exempt (or ensure the continued exemption of) the transactions contemplated
by this Agreement and the VFSC Stock Option Agreement (in the case of VFSC)
from, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect, that purports to apply
to this Agreement, the VFSC Stock Option Agreement (in the case of VFSC) or
the transactions contemplated hereby or thereby.
7.9 No Rights Triggered. Each of Chittenden, CASI and VFSC shall take all
steps necessary to ensure that the entering into of this Agreement and the
consummation of the transactions contemplated hereby and any other action or
combination of actions, or any other transactions contemplated hereby, do not
and will not result in the grant of any rights to any person (i) under its
charter or bylaws, or (ii) under any material agreement to which it or any of
its Subsidiaries is a party.
7.10 Shares Listed. In the case of Chittenden, Chittenden shall use its
reasonable best efforts to list, prior to the Effective Date, on the NYSE,
upon official notice of issuance, the shares of Chittenden Common Stock to be
issued to the holders of VFSC Common Stock in the Merger.
7.11 Regulatory Applications; Filings; Consents. (a) Chittenden and VFSC and
their respective Subsidiaries shall cooperate and use their respective
reasonable best efforts (i) to prepare all documentation, to effect all
filings, to obtain all permits, consents, approvals and authorizations of all
third parties and Regulatory Authorities necessary to consummate the
transactions contemplated by this Agreement, including, without limitation,
any such approvals or authorizations required by the FRB, FDIC and the
Regulatory Authorities of the States in which Chittenden, VFSC and their
respective Subsidiaries operate, (ii) to comply with the terms and conditions
of such permits, consents, approvals and authorizations and (iii) to cause the
Mergers to be
A-25
<PAGE>
consummated as expeditiously as practicable. Provided VFSC has cooperated as
required above, Chittenden agrees to file the requisite applications to be
filed by it with the FRB and the Regulatory Authorities of the States in which
VFSC and its Subsidiaries operate as promptly as practicable. Each of
Chittenden and VFSC shall have the right to review in advance, and to the
extent practicable each will consult with the other, in each case subject to
applicable laws relating to the exchange of information, with respect to, all
material written information submitted to any third party or any Regulatory
Authority in connection with the transactions contemplated by this Agreement.
In exercising the foregoing right, each of the parties hereto agrees to act
reasonably and as promptly as practicable. Each party hereto agrees that it
will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Regulatory Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
parties apprised of the status of material matters relating to completion of
the transactions contemplated hereby.
7.12 Indemnification; Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, in which any
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director, officer or employee of VFSC
or any of its Subsidiaries or of Chittenden or any of its Subsidiaries is, or
is 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 this Agreement, the VFSC Stock
Option Agreement, the Bank Merger Agreements, or any of the transactions
contemplated hereby or thereby or any actions taken by any such person in
connection herewith or therewith, whether in any case asserted or arising
before or after the Effective Time, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto. It is understood
and agreed that after the Effective Time, Chittenden shall indemnify and hold
harmless, as and to the fullest extent permitted by Vermont law, each person
who is now, or has been at any time prior to the date hereof, or who becomes
prior to the Effective Time, a director or officer of VFSC or any of its
Subsidiaries (the "Indemnified Parties") against any losses, claims, damages,
liabilities, costs, expenses (including advancing reasonable attorney's fees
and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of an undertaking from such Indemnified Party to
repay such advanced expenses if it is finally and unappealably determined that
such Indemnified Party was not entitled to indemnification hereunder),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit proceeding or
investigation (whether asserted or arising before or after the Effective Time
and including any such threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he or she is or was a director, officer
or employee of VFSC, any of VFSC's Subsidiaries or any of their respective
predecessors or was prior to the Effective Time serving at the request of any
such party as a director, officer, employee, fiduciary or agent of another
corporation, partnership, trust or other enterprise, or (ii) this Agreement,
the VFSC Stock Option Agreement, the Bank Merger Agreements, or any of the
transactions contemplated hereby or thereby and all actions taken by an
Indemnified Party in connection herewith or therewith), and the Indemnified
Parties may retain counsel after consultation with Chittenden; provided,
however, that (1) Chittenden shall have the right to assume the defense
thereof and upon such assumption Chittenden shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other
expenses subsequently incurred by any Indemnified Party in connection with the
defense thereof, except that if Chittenden elects not to assume such defense,
or counsel for the Indemnified Parties reasonably advises the Indemnified
Parties that there are or may be (whether or not any have yet actually arisen)
issues which raise conflicts of interest between Chittenden and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them, and Chittenden shall pay the reasonable fees and
expenses of such counsel for the Indemnified Parties, (2) Chittenden shall be
obligated pursuant to this paragraph to pay for only one firm of counsel for
all Indemnified Parties unless such counsel shall determine that it would be
inappropriate or inadvisable for such counsel to represent all Indemnified
Parties, (3) Chittenden shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld) and (4) Chittenden shall have no
A-26
<PAGE>
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 7.12,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify Chittenden thereof, provided that the failure to so notify shall
not affect the obligations of Chittenden under this Section 7.12 except (and
only) to the extent such failure to notify materially prejudices Chittenden.
Chittenden's obligations under this Section 7.12 shall continue in full force
and effect for a period of six (6) years from the Effective Time; provided,
however, that all rights to indemnification in respect of any claim (a
"Claim") asserted or made within such period shall continue until the final
disposition of such Claim.
(b) Without limiting any of the obligations under paragraph (a) of this
Section 7.12, Chittenden agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in VFSC's charter or bylaws or in the similar governing documents of
any of VFSC's Subsidiaries as in effect as of the date hereof with respect to
matters occurring on or prior to the Effective Time shall survive the Merger
and shall continue in full force and effect, without any amendment thereto,
from and after the Effective Time; provided, however, that nothing contained
in this Section 7.12(b) shall be deemed to preclude the liquidation,
consolidation or merger of VFSC or any VFSC Subsidiary, in which case all of
such rights to indemnification and limitations on liability shall be deemed to
so survive and continue notwithstanding any such liquidation, consolidation or
merger and shall constitute rights which may be asserted against Chittenden.
Nothing contained in this Section 7.12(b) shall be deemed to preclude any
rights to indemnification or limitations on liability provided in VFSC's
charter or the similar governing documents of any of VFSC's Subsidiaries with
respect to matters occurring subsequent to the Effective Time to the extent
that the provisions establishing such rights or limitations are not otherwise
amended to the contrary.
(c) Chittenden shall use its best efforts to cause the persons serving as
officers and directors of VFSC immediately prior to the Effective Time to be
covered for a period of six (6) years from the Effective Time by the
directors' and officers' liability insurance policy maintained by VFSC
(provided that Chittenden may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are not less
advantageous to such directors and officers of VFSC than the terms and
conditions of such existing policy) with respect to acts or omissions
occurring prior to the Effective Time which were committed by such officers
and directors in their capacity as such.
(d) In the event Chittenden or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of
Chittenden shall assume the obligations set forth in this Section 7.12.
(e) The provisions of this Section 7.12 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives.
7.13 Compensation and Benefit Plans.
(a) Credit for Service. It is the intention of the parties that Chittenden
shall formulate Compensation and Benefit Plans for Chittenden and its
Subsidiaries, with respect to employees of both Chittenden and VFSC that
provide benefits for services after the Effective Time on a basis that does
not discriminate between such employees. Employees of VFSC and its
Subsidiaries immediately prior to the Effective Time who become employees of
Chittenden or one of its Subsidiaries immediately after the Effective Time
shall be given credit for purposes of eligibility (including, without
limitation, for purposes of the applicability of minimum waiting periods for
participation) and vesting of employee benefits (and not for benefit accrual
purposes) for service with VFSC and its affiliates, and predecessors of VFSC
and its affiliates, prior to the Effective Time under each benefit plan of
Chittenden and its Subsidiaries to the extent such service had been credited
under employee benefit plans
A-27
<PAGE>
of VFSC or its Subsidiaries, provided that no such crediting of service
results in duplication of benefits. Without limiting the foregoing, Chittenden
and its Affiliates shall not treat any employee of VFSC or any of its
Subsidiaries as a "new" employee for purposes of any exclusions under any
medical or dental plan of Chittenden or any of its Affiliates for a pre-
existing medical condition, and will make appropriate arrangements with its
insurance carriers to ensure such result, subject to the insurance carrier's
proof of insurability requirements.
(b) Stock Based Interests. In the case of VFSC Compensation and Benefit
Plans under which the employees' interests are based upon VFSC Common Stock,
such interests shall be based upon Chittenden Common Stock in accordance with
Section 3.7 with respect to VFSC Stock Options and otherwise in accordance
with the terms of the VFSC Compensation and Benefit Plans and in an equitable
manner.
(c) Compensation Arrangements. Chittenden shall honor and shall cause its
Subsidiaries to honor in accordance with their terms all individual
employment, termination, severance, change in control, post-employment and
other compensation, retirement or pension contracts, agreements, plans and
arrangements existing prior to the execution of this Agreement and all
provisions for benefits or other amounts earned or accrued through the
Effective Time under any of VFSC's Compensation and Benefit plans, which are
between VFSC or any Subsidiary of VFSC and any director, officer or employee
thereof or otherwise maintained by VFSC or any Subsidiary of VFSC for the
benefit or any director, officer, or employee thereof and complete copies of
which have been provided to Chittenden prior to the date hereof and are
disclosed in VFSC's Disclosure Schedule, and Chittenden will not, and will not
cause any of its Subsidiaries to, repudiate any employment, supplemental
retirement or other compensation, contract agreement, plan or arrangement with
any current or former director, officer or employee of VFSC or any Subsidiary
of VFSC, provided such contract, agreement, plan or arrangement has been set
forth in VFSC's Disclosure Schedule and a complete copy thereof has been
provided to Chittenden prior to the date hereof.
(d) Treatment of VFSC Plans. Until such time as Chittenden is able to
provide to those persons who are employees of VFSC or its Subsidiaries
immediately prior to the Effective Time and who become employees of Chittenden
or its Subsidiaries after the Effective Time with the types of benefits under
Chittenden's Compensation and Benefit Plans contemplated by Section 7.13(a),
Chittenden shall continue to provide such persons with the benefits provided
under VFSC's Compensation and Benefit Plans as maintained immediately prior to
the Effective Time.
(e) Termination Benefits and Severance Obligations. Chittenden shall take
the actions set forth on Section 7.13(e) of its Disclosure Schedule with
respect to certain qualified defined benefit plans and non-qualified deferred
compensation plans of VFSC. Chittenden's severance obligations to the
employees of VFSC and its Subsidiaries following the Effective Time shall be
as set forth on Section 7.13(e) to its Disclosure Schedule.
7.14 Headquarters. Chittenden's executive headquarters shall be located in
Burlington, Vermont. Chittenden shall maintain a substantial presence, which
may involve data processing or other operational facilities, in Brattleboro,
Vermont, subject to the business judgment of the Board of Directors of
Chittenden.
7.15 Notification of Certain Matters. Each of Chittenden, CASI and VFSC
shall give prompt notice to the other of any fact, event or circumstance known
to it that (i) is reasonably likely, individually or taken together with all
other facts, events and circumstances known to it, to result in any Material
Adverse Effect with respect to it or (ii) notwithstanding the standard set
forth in Section 6.2, would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
7.16 The Bank Mergers. Chittenden and VFSC shall take all actions necessary
and appropriate, including causing the entering into of appropriate merger
agreements (the "Bank Merger Agreements"), to cause their respective
Subsidiary banks to merge with and into each other (individually, a "Bank
Merger" and collectively, the "Bank Mergers"), as Chittenden deems advisable,
in each case in accordance with applicable laws and regulations and the terms
of the applicable Bank Merger Agreement and as soon as practicable after
A-28
<PAGE>
consummation of the Mergers. In the event United Bank merges with and into a
Subsidiary bank of Chittenden, two current directors of United Bank to be
designated by Chittenden shall be added to the Board of Directors of the
Subsidiary bank of Chittenden.
7.17 Financial Reports. VFSC shall use its reasonable best efforts to
deliver to Chittenden, prior to or on February 8, 1999, all audited financial
statements (including the related notes and schedules thereto) which (i) set
forth fairly the financial condition and results of operations of VFSC for the
fiscal year ended December 31, 1998 specified in conformity with GAAP
consistently applied throughout such fiscal year, except in each case as may
be noted therein, and (ii) are required to be included in its Annual Report on
Form 10-K. For each day that such audited financial statements are delivered
after February 8, 1999 (if any), the date referenced in Section 9.1(c) of this
Agreement shall be extended by one day; provided, however, in no event shall
VFSC deliver such audited financial statements to Chittenden later than March
1, 1999.
7.18 Post-Closing Governance. Chittenden shall take all necessary actions to
cause the size of its Board of Directors to be increased to seventeen (17)
members, effective as of the Effective Time, and to cause six (6) members of
VFSC's current Board of Directors, such persons to be chosen by Chittenden
after consultation with VFSC, to be elected to Chittenden's Board of
Directors, such election to be effective as of the Effective Time. To the
extent practicable, such six (6) individuals shall be appointed as equally as
possible among the three classes of Chittenden's directors.
ARTICLE VIII--CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger are
conditioned upon the satisfaction at or prior to the Effective Time of each of
the following:
8.1 Stockholder Vote. Approval of this Agreement and the transactions
contemplated hereby by the requisite votes of the respective stockholders of
Chittenden, CASI and of VFSC.
8.2 Regulatory Approvals. All Regulatory Approvals required to consummate
the Merger shall have been obtained and shall remain in full force and effect
and all statutory waiting periods in respect thereof shall have expired.
8.3 Third Party Consents. All necessary consents or approvals of all persons
(other than Regulatory Authorities) required for the consummation of the
Merger (including those listed on Section 6.3(f) of each party's respective
Disclosure Schedule) shall have been obtained and shall be in full force and
effect, unless the failure to obtain any such consent or approval is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Chittenden or VFSC, as the case may be.
8.4 No Injunction, Etc. No order, decree or injunction of any court or
agency of competent jurisdiction shall be in effect, and no law, statute or
regulation shall have been enacted or adopted, that enjoins, prohibits or
makes illegal consummation of any of the transactions contemplated hereby;
provided, however, that each of Chittenden and VFSC shall have used its
reasonable best efforts to prevent any such rule, regulation, injunction,
decree or other order, and to appeal as promptly as possible any injunction,
decree or other order that may be entered, including, without limitation, by
proffering its willingness to accept an order embodying any arrangement
required to be made by such party pursuant to Section 7.1(b) of this Agreement
(and notwithstanding anything in this Section 8.4 to the contrary, no terms,
conditions or provisions of an order embodying such an arrangement shall
constitute a basis for such party asserting nonfulfillment of the conditions
contained in this Section 8.4).
8.5 Representations, Warranties and Covenants of VFSC. In the case of
Chittenden's obligation to consummate the Merger: (i) each of the
representations and warranties contained herein of VFSC shall be true and
correct as of the date hereof and upon the Effective Date with the same effect
as though all such
A-29
<PAGE>
representations and warranties had been made on the Effective Date, except for
any such representations and warranties made as of a specified date, which
shall be true and correct as of such date, in any case subject to the standard
set forth in Section 6.2, (ii) each and all of the agreements and covenants of
VFSC to be performed and complied with pursuant to this Agreement on or prior
to the Effective Date shall have been duly performed and complied with in all
material respects, and (iii) Chittenden shall have received a certificate
signed by the President, Chief Executive Officer or Chief Financial Officer of
VFSC, dated the Effective Date, to the effect set forth in clauses (i) and
(ii) of this Section 8.5.
8.6 Representations, Warranties and Covenants of Chittenden. In the case of
VFSC's obligation to consummate the Merger: (i) each of the representations
and warranties contained herein of Chittenden shall be true and correct as of
the date hereof and upon the Effective Date with the same effect as though all
such representations and warranties had been made on the Effective Date,
except for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, in any case subject to
the standard set forth in Section 6.2, (ii) each and all of the agreements and
covenants of Chittenden to be performed and complied with pursuant to this
Agreement on or prior to the Effective Date shall have been duly performed and
complied with in all material respects, and (iii) VFSC shall have received a
certificate signed by the President, Chief Executive Officer or Chief
Financial Officer of Chittenden, dated the Effective Date, to the effect set
forth in clauses (i) and (ii) of this Section 8.6.
8.7 Effective Registration Statement. The Registration Statement shall have
become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Regulatory Authority.
8.8 Tax Opinion Relating to the Merger. Chittenden shall have received an
opinion from Goodwin, Procter & Hoar LLP, and VFSC shall have received an
opinion from Sullivan & Worcester LLP, dated in each case as of the Closing
Date, substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinions which are
consistent with the state of facts existing at the Closing Date, the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
In rendering such opinions, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Chittenden, VFSC and others, reasonably satisfactory in form and
substance to such counsel.
8.9 NYSE Listing. The shares of Chittenden Common Stock issuable pursuant to
this Agreement shall have been approved for listing on the NYSE, subject to
official notice of issuance.
8.10 Accounting Treatment. Chittenden shall have received from Arthur
Andersen LLP, independent public accountants for Chittenden, a letter, dated
as of or shortly before the Effective Date, stating its opinion that the
Merger shall qualify for "pooling of interests" accounting treatment. VFSC
shall have received from KPMG Peat Marwick LLP, independent public accountants
for VFSC, a letter, dated as of or shortly before the Effective Date, stating
its opinion that VFSC is a "poolable entity."
It is specifically provided, however, that a failure to satisfy the
conditions set forth in Section 8.5 shall only constitute a condition if
asserted by Chittenden, and a failure to satisfy the condition set forth in
Section 8.6 shall only constitute a condition if asserted by VFSC.
A-30
<PAGE>
ARTICLE IX -- TERMINATION
9.1 Termination. This Agreement may be terminated, and the Merger may be
abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the mutual
consent of Chittenden and VFSC in a written instrument, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board.
(b) Breach. At any time prior to the Effective Time, by Chittenden or VFSC
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), if
its Board of Directors so determines by vote of a majority of the members of
its entire Board, in the event of either: (i) a breach by the other party of
any representation or warranty contained herein (subject to the standards set
forth in Section 6.2), which breach cannot be or has not been cured within 30
days after the giving of written notice to the breaching party of such breach;
or (ii) a material breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured
within 30 days after the giving of written notice to the breaching party of
such breach.
(c) Delay. At any time prior to the Effective Time, by Chittenden or VFSC,
if its Board of Directors so determines by vote of a majority of the members
of its entire Board, in the event that the Merger is not consummated by
October 31, 1999 (or such other later date pursuant to Section 7.17 of this
Agreement), except to the extent that the failure of the Merger then to be
consummated arises out of or results from the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein.
(d) No Approval. By Chittenden or VFSC, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event (i) the approval of the FRB required for consummation of the Merger and
of other transactions contemplated by the Merger shall have been denied by
final nonappealable action of such Regulatory Authority or any governmental
entity of competent jurisdiction shall have issued a final nonappealable order
enjoining or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement; provided, however, the party seeking
termination shall have complied fully with its obligations under Section
7.1(b) of this Agreement, or (ii) any stockholder approval required by Section
8.1 herein is not obtained at the Chittenden Meeting or the VFSC Meeting.
(e) Recommendation Altered. By either the Board of Directors of Chittenden
or the Board of Directors of VFSC, if the Board of Directors of the other
party shall have withdrawn, modified or changed in a manner adverse to the
terminating party its approval or recommendation of this Agreement and the
transactions contemplated hereby.
(f) Decline in Chittenden Stock Price. By the Board of Directors of either
Chittenden or VFSC, upon written notice to the other party, at any time during
the fifteen-day period commencing two days after the Determination Date (as
defined below), if both of the following conditions are satisfied:
(i) the Average Closing Price shall be less than the product of 0.80 and
the Starting Price; and
(ii) (A) the quotient obtained by dividing the Average Closing Price by
the Starting Price (such number being referred to herein as the "Chittenden
Ratio") shall be less than (B) the quotient obtained by dividing the
Average Index Price by the Index Price on the Starting Date and subtracting
0.12 from the quotient in this clause (ii) (B) (such number being referred
to herein as the "Index Ratio');
Subject, however, to the following provisions. If either party elects to
exercise its termination right pursuant to the immediately preceding sentence,
it shall give prompt written notice to the other party; provided, however,
that such notice of election to terminate may be withdrawn at any time within
the aforementioned fifteen-day period. During the five-day period commencing
with its receipt of such notice, Chittenden shall have the option to elect to
increase the Exchange Ratio to equal the lesser of (i) the quotient obtained
by dividing (A) the product
A-31
<PAGE>
of 0.80, the Starting Price and the Exchange Ratio (as then in effect) by (B)
the Average Closing Price, and (ii) the quotient obtained by dividing (A) the
product of the Index Ratio and the Exchange Ratio (as then in effect) by (B)
the Chittenden Ratio. If Chittenden makes such an election within such five-
day period, it shall give prompt written notice to VFSC of such election and
the revised Exchange Ratio, whereupon no termination shall have occurred
pursuant to this Section 9.1(f) and this Agreement shall remain in effect in
accordance with its terms (except as the Exchange ratio shall have been so
modified), and any references in this Agreement to "Exchange Ratio" shall
thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to
this Section 9.1(f).
For purposes of this Section 9.1(f), the following terms shall have the
meanings indicated:
"Average Closing Price" means the average of the daily last sale prices of
Chittenden Common Stock as reported on the NYSE (as reported in The Wall
Street Journal or, if not reported therein, in another mutually agreed upon
authoritative source) for the fifteen consecutive full trading days in which
such shares are traded on the NYSE ending at the close of trading on the
Determination Date.
"Average Index Price" means the average of the Index Prices for the fifteen
consecutive full NYSE trading days ending at the close of trading on the
Determination Date.
"Determination Date" means the date on which the last Regulatory Approval
required for consummation of the Merger shall be received.
"Index Group" means the 20 bank holding companies listed below, the common
stock of all of which shall be publicly traded as to which there shall not
have been, since the Starting Date and before the Determination Date, an
announcement of a proposal for such company to be merged with another
unaffiliated company, acquired by an unaffiliated company or for such company
to acquire another unaffiliated company or companies in transactions with an
aggregate value exceeding 10% of the acquiror's market capitalization as of
the Starting Date. In the event that the common stock of any such company
ceases to be publicly traded or any such announcement is made with respect to
any such company, such company will be removed from the Index Group, and the
weights (which have been determined based on the number of outstanding shares
of common stock) redistributed proportionately for purposes of determining the
Index Price. The 20 bank holding companies and the weights attributed to them
are set forth on Exhibit B hereto.
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices on such date
of the companies comprising the Index Group.
"Starting Date" means the last full day on which the NYSE was open for
trading prior to the execution of this Agreement.
"Starting Price" shall mean the last sale price per share of Chittenden
Common Stock on the Starting Date, as reported by the NYSE (as reported in The
Wall Street Journal or, if not reported therein, in another mutually agreed
upon authoritative source).
If Chittenden or any company belonging to the Index Group declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such
company shall be appropriately adjusted for the purposes of applying this
Section 9.1(f).
9.2 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article IX,
no party to this Agreement shall have any liability or further obligation to
any other party hereunder except (i) as set forth in Section 10.1, (ii) as
required under the VFSC Stock Option Agreement, and (iii) that termination
will not relieve a breaching party from liability for any willful breach of
this Agreement giving rise to such termination.
A-32
<PAGE>
ARTICLE X -- MISCELLANEOUS
10.1 Survival. All representations, warranties, agreements and covenants
contained in this Agreement shall not survive the Effective Time or the
termination of this Agreement if this Agreement is terminated prior to the
Effective Time; provided, however, that if the Effective Time occurs, the
agreements of the parties in Sections 3.4, 3.7, 7.7(c), 7.12, 7.13, 7.14,
7.16, 7.18, 10.1, 10.4 and 10.8 shall survive the Effective Time, and if this
Agreement is terminated prior to the Effective Time, the agreements of the
parties in Sections 7.5(b), 9.2, 10.1, 10.2, 10.4, 10.5, 10.6, 10.7 and 10.8
shall survive such termination.
10.2 Waiver; Amendment. Subject to compliance with applicable law, prior to
the Effective Time, any provision of this Agreement may be (i) waived by the
party intended to benefit by the provision, or (ii) amended or modified at any
time, by an agreement in writing between the parties hereto approved by their
respective Boards of Directors and executed in the same manner as this
Agreement. Prior to submission of this Agreement for approval by the
stockholders of VFSC, Chittenden may make such amendments as are permitted by
Section 2.1 and VFSC's Board of Directors shall, subject to the terms of this
Agreement, approve the supplements and amendments specified in this sentence.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
10.4 Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware, without regard to the
conflict of law principles thereof.
10.5 Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
10.6 Confidentiality. Each of the parties hereto and their respective
agents, attorneys and accountants will maintain the confidentiality of all
information provided in connection herewith in accordance with, and subject to
the limitations of, the Confidentiality Agreement.
10.7 Notices. All notices, requests and other communications hereunder to a
party shall be in writing and shall be deemed given if personally delivered,
delivered by overnight courier, telecopied (with confirmation) or mailed by
registered or certified mail (return receipt requested) to such party at its
address set forth below or such other address as such party may specify by
notice to the parties hereto.
If to Chittenden or CASI, to:
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Attention: Paul A. Perrault, Chief Executive Officer
Telecopier: (802) 660-1577
With copies to:
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Attention: F. Sheldon Prentice, Esq., General Counsel
Telecopier: (802) 660-1577
A-33
<PAGE>
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: William P. Mayer, Esq.
Telecopier: (617) 523-1231
If to VFSC, to:
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
Attention: John D. Hashagen, Jr., President
Telecopier: (802) 258-4097
With copies to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher Cabot, Esq. and Stephen J. Coukos, Esq.
Telecopier: (617) 338-2880
10.8 Understanding; No Third Party Beneficiaries. Except for the
Confidentiality Agreement, which shall remain in effect, and the VFSC Stock
Option Agreement, this Agreement represents the entire understanding of the
parties hereto with reference to the transactions contemplated hereby and
thereby and supersede any and all other oral or written agreements heretofore
made. Except for Section 7.12, nothing in this Agreement, expressed or
implied, is intended to confer upon any person, other than the parties hereto
or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
10.9 Headings; Interpretation. The headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. The word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires or
unless otherwise specified. Words of number may be read as singular or plural,
as required by context.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
CHITTENDEN CORPORATION
By: /s/ Paul A. Perrault
____________________________________
Name: Paul A. Perrault
Title: Chairman, President and
Chief Executive
Officer
CHITTENDEN ACQUISITION SUBSIDIARY,
INC.
By: /s/ Paul A. Perrault
____________________________________
Name: Paul A. Perrault
Title: President
VERMONT FINANCIAL SERVICES CORP.
By: /s/ John D. Hashagen, Jr.
____________________________________
Name: John D. Hashagen, Jr.
Title: President and Chief
Executive Officer
A-34
<PAGE>
Exhibit A-1
-----------
Form of Affiliate Letter to Chittenden
--------------------------------------
Chittenden Corporation
Two Burlington Square
Burlington, Vermont 05401
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Vermont Financial Services Corp., a Delaware corporation
("VFSC"), as the term "affiliate" is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the Rules and Regulations (the "Rules and Regulations")
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. I have been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of December 16, 1998 (the "Merger
Agreement"), between Chittenden Corporation, a Vermont corporation
("Chittenden"), Chittenden Acquisition Subsidiary, Inc., a Delaware corporation
and wholly owned subsidiary of Chittenden ("CASI"), and VFSC, VFSC will be,
through a series of transactions, merged with and into Chittenden (the "Merger")
and, that as a result of the Merger, I may receive shares of Chittenden Common
Stock (as defined in the Merger Agreement) in exchange for shares of VFSC Common
Stock (as defined in the Merger Agreement) owned by me.
Accordingly, I hereby represent, warrant and covenant to Chittenden that in
the event I receive any Chittenden Common Stock as a result of the Merger:
a. I shall not make any sale, transfer or other disposition of the
Chittenden Common Stock in violation of the Act or the Rules and
Regulations.
b. I have carefully read this letter and the Merger Agreement and
discussed its requirements and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Chittenden Common
Stock to the extent I believed necessary with my counsel or counsel for
VFSC.
c. I have been advised that the issuance of Chittenden Common Stock to me
pursuant to the Merger will be registered with the Commission under the
Act pursuant to a Registration Statement on Form S-4. However, I have
also been advised that, since at the time the Merger will be submitted
for a vote of the stockholders of VFSC, I may be deemed to have been an
affiliate of VFSC and the distribution by me of the Chittenden Common
Stock has not been registered under the Act, I may not sell, transfer
or otherwise dispose of Chittenden Common Stock issued to me in the
Merger unless (i) such sale, transfer or other disposition has been
registered under the Act, (ii) such sale, transfer or other disposition
is made in conformity with the volume and other limitations of Rule 145
promulgated by the Commission under the Act, or (iii) in the opinion of
counsel reasonably acceptable to Chittenden
A-35
<PAGE>
and its counsel, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
d. I understand that Chittenden is under no obligation to register the
sale, transfer or other disposition of the Chittenden Common Stock by
me or on my behalf under the Act or to take any other action necessary
in order to make compliance with an exemption from such registration
available.
e. I also understand that stop transfer instructions will be given to
Chittenden's transfer agent(s) with respect to the Chittenden Common
Stock and that there will be placed on the certificates for the
Chittenden Common Stock issued to me, or any substitutions therefor, a
legend in substantially the following form:
"The securities represented by this certificate have been issued
in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 applies and may only be sold or otherwise
transferred in compliance with the requirements of Rule 145 or
pursuant to a registration statement under said act or an
exemption from such registration."
f. I also understand that unless the transfer by me of my Chittenden
Common Stock has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Chittenden reserves the
right to place a legend on the certificates issued to my transferee in
substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 promulgated under the Securities Act of 1933 applies.
The shares have been acquired by the holder not with a view to,
or for resale in connection with, any distribution thereof within
the meaning of Securities Act of 1933 and may not be sold,
pledged or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities
Act of 1933."
It is understood and agreed that this letter agreement shall terminate and
be of no further force or effect and the legends set forth in paragraphs (e) and
(f) above shall be removed by delivery of substitute certificates without such
legend and the related stop transfer restrictions shall be lifted forthwith, if
(i) any such shares of Chittenden Common Stock shall have been registered under
the Act for sale, transfer or other disposition by me or on my behalf and are
sold, transferred or otherwise disposed of, or (ii) any such shares of
Chittenden Common Stock are sold in accordance with the provisions of paragraphs
(c), (e), (f) and (g) of Rule 144 promulgated under the Act, or (iii) I am not
at the time an affiliate of Chittenden and have been the beneficial owner of the
Chittenden Common Stock for at least one year (or such other period as may be
prescribed by the Act and the rules and regulations promulgated thereunder), and
Chittenden has filed with the Commission all of the reports it is required to
file under the Securities Exchange Act of 1934, as amended, during the preceding
twelve months, or (iv) I am not and have not been for at least three months an
affiliate of Chittenden and have been the
A-36
<PAGE>
beneficial owner of Chittenden Common Stock for at least two years (or such
period as may be prescribed by the Act and the rules and regulations promulgated
thereunder), or (v) Chittenden shall have received a letter from the staff of
the Commission, or an opinion of counsel reasonably acceptable to Chittenden, to
the effect that the stock transfer restrictions and the legend are not required.
I further represent to and covenant with Chittenden that from the date that
is thirty (30) days prior to the Effective Time (as defined in the Merger
Agreement) I will not sell, transfer or otherwise dispose of, or reduce the risk
of ownership with respect to, shares of VFSC Common Stock or Chittenden Common
Stock held by me and that I will not sell, transfer or otherwise dispose of, or
reduce the risk of ownership with respect to, any shares of Chittenden Common
Stock received by me in the Merger or other shares of Chittenden Common Stock
until after such time as financial results covering at least thirty (30) days of
combined operations of Chittenden and VFSC have been published by Chittenden, in
the form of a quarterly earnings report, an effective registration statement
filed with the Commission, a report to the Commission on Form 10-K, 10-Q, or 8-
K, or any other public filing or announcement which includes the financial
results of at least thirty (30) days of combined operations; provided, however,
-------- -------
that excluded from the foregoing undertaking shall be such sales, pledges,
transfers or other dispositions of shares of VFSC Common Stock or shares of
Chittenden Common Stock which are individually and in the aggregate de minimis
-- -------
within the meaning of Topic 2-E of the Commission's Staff Accounting Bulletin
Series.
In addition, I represent to and covenant with Chittenden that from and
after the date hereof until such time as financial results covering at least
thirty (30) days of combined operations of Chittenden and VFSC have been
published by Chittenden as provided above, I shall not purchase or otherwise
acquire, nor sell, transfer or otherwise dispose of, any shares of Chittenden
Common Stock or VFSC Common Stock without the prior written consent of F.
Sheldon Prentice, General Counsel of Chittenden, which consent shall only be
withheld to preserve "pooling of interests" accounting treatment of the Merger
or in accordance with applicable laws.
Very truly yours,
____________________________________
[Name]
Accepted this ___ day of
____________, 199_ by
CHITTENDEN CORPORATION
By:
-------------------------------
Name:
Title:
A-37
<PAGE>
Exhibit A-2
-----------
Form of Affiliate Letter to VFSC
--------------------------------
Vermont Financial Services Corp.
100 Main Street
Brattleboro, Vermont 05301
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Chittenden Corporation, a Vermont corporation ("Chittenden"), as
the term "affiliate" is used in and for purposes of Accounting Series Releases
130 and 135, as amended, of the Securities and Exchange Commission (the
"Commission"). I have been further advised that pursuant to the terms of the
Agreement and Plan of Merger dated as of December 16, 1998 (the "Merger
Agreement"), by and among Chittenden, Chittenden Acquisition Subsidiary, Inc., a
Delaware corporation and wholly owned subsidiary of Chittenden ("CASI"), and
Vermont Financial Services Corp., a Delaware corporation ("VFSC"), VFSC will be,
through a series of transactions, merged with and into Chittenden (the
"Merger").
I represent to and covenant with VFSC that from the date that is thirty
(30) days prior to the Effective Time (as defined in the Merger Agreement) until
such time as financial results covering at least thirty (30) days of combined
operations of Chittenden and VFSC have been published by Chittenden, in the form
of a quarterly earnings report, an effective registration statement filed with
the Commission, a report to the Commission on Form 10-K, 10-Q, or 8-K, or any
other public filing or announcement which includes the financial results of at
least thirty (30) days of combined operations, I will not sell, transfer or
otherwise dispose of, or reduce the risk of ownership with respect to, shares of
Chittenden Common Stock (as defined in the Merger Agreement) or VFSC Common
Stock (as defined in the Merger Agreement) held by me; provided, however, that
-------- -------
excluded from the foregoing undertaking shall be such sales, pledges, transfers
or other dispositions of shares of Chittenden Common Stock or shares of VFSC
Common Stock which are individually and in the aggregate de minimis within the
-- -------
meaning of Topic 2-E of the Commission's Staff Accounting Bulletin Series.
In addition, I represent to and covenant with VFSC that from and after the
date hereof until such time as financial results covering at least thirty (30)
days of combined operations of Chittenden and VFSC have been published by
Chittenden as provided above, I shall not purchase or otherwise acquire, nor
sell, transfer or otherwise dispose of, any shares of Chittenden Common Stock or
VFSC Common Stock without the prior written consent of F. Sheldon Prentice,
General Counsel of Chittenden, which consent shall only be withheld to preserve
"pooling of interests" accounting treatment of the Merger or in accordance with
applicable laws.
Very truly yours,
____________________________________
[Name]
Accepted this ___ day of
____________, 199_ by
VERMONT FINANCIAL SERVICES CORP.
By:
--------------------------------
Name:
Title:
A-38
<PAGE>
EXHIBIT B
---------
BANK HOLDING COMPANY INDEX GROUP
Name Percentage Weighting
---- ---------------------
Banknorth Group Inc. 3.997%
BT Financial Corp. 2.631%
Community Bank System Inc. 1.574%
Cape Cod Bank and Trust Co. 1.292%
F.N.B. Corp. 3.620%
First Commonwealth Financial 4.024%
Fulton Financial Corp. 10.628%
Harleysville National Corp. 1.981%
Independent Bank Corp. 1.924%
Keystone Financial Inc. 13.268%
Merchants New York Bancorp 2.571%
NBT Bancorp Inc. 2.345%
National Penn Bancshares Inc. 2.978%
Omega Financial Corp. 2.020%
S&T Bancorp Inc. 5.523%
Susquehanna Bancshares Inc. 5.521%
TrustCo Bank Corp. of NY 5.907%
UST Corp. 7.418%
U.S. Trust Corp. 9.071%
Valley National Bancorp 11.707%
----------------------- -------
Total 100%
====
A-39
<PAGE>
Exhibit 10.1
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of December 16, 1998, by and
between Vermont Financial Services Corp., a Delaware corporation ("Issuer"), and
Chittenden Corporation, a Vermont corporation ("Grantee").
WITNESSETH:
WHEREAS, Issuer and Grantee have entered into an Agreement and Plan
of Merger dated as of the date hereof (as amended from time to time, the "Merger
------
Agreement"), which agreement has been executed by the parties hereto immediately
- ---------
prior to the execution of this Stock Option Agreement (this "Agreement"); and
---------
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
------
to 2,557,073 fully-paid and nonassessable shares of Issuer's Common Stock, par
value $1.00 per share ("Common Stock"), at a price of $ 22.00 per share (the
------------
"Option Price"); provided, however, that in no event shall the number of shares
------ -----
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement), or (ii) redeemed,
repurchased, retired or otherwise cease to be outstanding after the date of this
Agreement, the number of shares of Common Stock subject to the Option shall be
increased or decreased, as appropriate, so that, after such issuance, such
number equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant to
the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any provision
of the Merger Agreement.
<PAGE>
2. (a) Holder (as hereinafter defined) may exercise the Option,
in whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that Holder shall have sent
to Issuer written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an "Exercise Termination Event": (i) the Effective Time
--------------------------
(as defined in the Merger Agreement) of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event, except a
termination by Grantee pursuant to Section 9.1(b) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
nonvolitional); or (iii) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a termination by Grantee pursuant to Section 9.1(b) of
the Merger Agreement (unless the breach by Issuer giving rise to such right of
termination is nonvolitional). The term "Holder" shall mean the holder or
------
holders of the Option from time to time, and which is initially Grantee.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each, an "Issuer
------
Subsidiary"), without having received Grantee's prior written consent, shall
- ----------
have entered into an agreement to engage in an Acquisition Transaction (as
hereinafter defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
--------
rules and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary"), or the Board of Directors of Issuer shall have
------------------
recommended that the stockholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition Transaction" shall
-----------------------
mean (w) a merger, consolidation or similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission (the "SEC")) of Issuer, (x) a purchase,
---
lease or other acquisition or assumption of all or a substantial portion of the
consolidated assets or consolidated deposits of Issuer or any Significant
Subsidiary of Issuer, (y) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Issuer, or (z) any substantially similar
transaction; provided, however, that in no event shall (A) the transactions
contemplated by the Merger Agreement or the entering into of the Merger
Agreement constitute an Acquisition Transaction or (B) any merger,
consolidation, purchase or similar transaction involving only the Issuer and one
or more of its Subsidiaries or involving only any two or more of such
Subsidiaries be deemed to be an Acquisition Transaction, provided such
transaction is not entered into in violation of the terms of the Merger
Agreement;
2
<PAGE>
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized, recommended,
proposed, or publicly announced its intention to authorize, recommend or
propose, an Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary, or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition Transaction with any
person other than Grantee or Grantee Subsidiary, or the Board of Directors of
Issuer shall have publicly announced its intention not to recommend that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement because of or in connection with an actual or proposed Acquisition
Transaction involving any person other than Grantee or Grantee Subsidiary;
(iii) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in the
ordinary course of its business shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding shares
of Common Stock (the term "beneficial ownership" for purposes of this Agreement
having the meaning assigned thereto in Section 13(d) of the 1934 Act, and the
rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction; or
(v) After an overture is made by any person other than
Grantee or any Grantee Subsidiary to Issuer or its stockholders to engage in an
Acquisition Transaction, Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach (x) would entitle Grantee to
terminate the Merger Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below).
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which Grantee has
given its prior written consent, shall have filed an application or notice with
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), or other federal or state bank regulatory authority, which application
or notice has been accepted for processing, for approval to engage in an
Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either
---------------------------
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then outstanding Common Stock; or
3
<PAGE>
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event of which Issuer
has notice (together, a "Triggering Event"), it being understood and agreed that
the giving of such notice by Issuer shall not be a condition to the right Holder
to exercise the Option.
(e) In the event Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares of
-----------
Common Stock it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date"); provided
------------ --------
that if prior notification to or approval of the Federal Reserve Board or any
other governmental authority or regulatory agency is required in connection with
such purchase, Holder and Issuer shall promptly file the required notice, form
or application for approval and shall expeditiously process the same and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the Option shall be deemed
to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
--------
failure or refusal of Issuer to designate such a bank account shall not preclude
Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of the purchase
price as provided in subsection (f) of this Section 2, Issuer shall deliver to
Holder a certificate or certificates representing the number of shares of Common
Stock purchase by Holder and, if the Option shall have been exercised in part
only, a new Option evidencing the rights of Holder thereof to purchase the
balance of the shares of Common Stock purchasable hereunder, and Holder shall
deliver to Issuer a copy of this Agreement. By receipt of any shares of Common
Stock issuable hereunder Holder will agree, and does hereby agree, not to offer
to sell or otherwise dispose of such shares in violation of the Securities Act
of 1933, as amended (the "1933 Act"), other applicable law or the provisions of
--------
this Agreement.
(h) In addition to any other legend that may be required by
applicable law, certificates for shares of Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
4
<PAGE>
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on
file at the principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that (i) the reference to the resale restrictions
of the 1933 Act, in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Holder shall have delivered to Issuer a
copy of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer and its counsel, to the effect
that such legend is not required for purposes of the 1933 Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied.
(i) Upon the giving by Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price under subsection (f) of this Section
2, Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to Holder. Issuer shall pay
all expenses, regulatory fees and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2 in
the name of Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) that it shall promptly take all action as may from time to time be
required (including (X) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. (S)18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), or the Change in Bank control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federal
Reserve Board or to any state or federal regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
Federal Reserve Board of
5
<PAGE>
such state regulatory authority as they may require) in order to permit Holder
to exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) that it shall promptly take all action provided
herein to protect the rights of Holder against dilution and otherwise hereunder.
4. This Agreement and the Option granted hereby are exchangeable,
without expense, at the option of Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Options" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of the Issuer, whether or not
the Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of securities purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for, and the inclusion and
validity of such provision shall be a condition to, the validity and
consummation of any such transaction, such proper adjustments and the full
satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a "shelf" registration statement under the 1933 Act
covering any shares issued and issuable pursuant to this Option and shall use
its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition
-------------
6
<PAGE>
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of the Option or Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering with inclusion of Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; provided,
--------
however, that after any such required reduction the number of Option Shares to
- -------
be included in such offering for the account of Holder shall constitute at 25%
of the total number of shares to be sold by Holder and Issuer in the aggregate;
and provided further, however, that if such reductions occurs, then the Issuer
shall file a registration statement for the balance as promptly as practical and
no reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in connection
with such registration, Issuer shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties, indemnities and
other agreements customarily included in secondary offering underwriting
agreements for the Issuer. Upon receiving any request under this Section 6 from
any Holder, Issuer agrees to send a copy thereof to any other person known to
Issuer to be entitled to registration rights under this Section 6, in each case
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies. Notwithstanding anything to the
contrary contained herein, in no event shall Issuer by obligated to effect more
than two registrations pursuant to this Section 6 by reason of the fact that
there shall be more than on Grantee as a result of any assignment or division of
this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase
Event (as defined below), (i) following a request of Holder, delivered within 90
days of the occurrence of the Subsequent Triggering Event giving rise to such
Repurchase Event (or such later period as provided in Section 10), Issuer (or
any successor there to) shall repurchase the Option from Holder at a price (the
"Option Repurchase Price") equal to the amount by which (A) the Market/Offer
-----------------------
Price (as defined below) exceeds (B) the Option Price, multiplied by the number
of shares for which this Option many then be exercised and (ii) at the request
of the owner of Option Shares from time to time (the "Owner"), delivered within
90 days of the occurrence of such Subsequent Triggering Event (or such later
period as provided in Section 10), Issuer shall repurchase such number of Option
Shares from the Owner as the owner shall designate at a price (the "Option Share
------------
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
- ----------------
Option Shares so designated. The term "Market/Offer Price" shall mean the
------------------
highest of (i) the price per share of Common Stock at which a tender offer or
exchange offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party
7
<PAGE>
pursuant to an agreement with Issuer, (iii) the highest closing price for shares
of Common Stock within the six-month period immediately preceding the date
Holder gives notice of the required repurchase of this Option or the Owner gives
notice of the required repurchase of Option Shares, as the case may be, and (iv)
in the event of a sale of all or a substantial portion of Issuer's assets, the
sum of the price paid in such sale for such assets and the current market value
of the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by Holder or the Owner, as the case may be, and
reasonably acceptable to the Issuer, divided by the number of shares of Common
Stock of Issuer outstanding at the time of such sale. In determining the
Market/Offer Price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by Holder
or Owner, as the case may be, and reasonably acceptable to the Issuer.
(b) Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder or
the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Prior to the later to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof, if any,
that Issuer is not then prohibited under applicable law and regulations from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering, to Holder and/or the Owner,
as appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file any
required notices, in each case as promptly as practicable in order to accomplish
such repurchase), Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to Holder, a new Stock Option
Agreement evidencing the right of Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock for
which the surrendered Agreement was
8
<PAGE>
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to Holder and the denominator of which is the Option
Repurchase Price, or (B) to the Owner, a certificate for the Option Shares it is
then so prohibited from repurchasing.
(d) For purposes of this Section 7, "Repurchase Event" shall be
----------------
deemed to have occurred upon either (i) the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisions to Section 2(b)(i), or (ii) the acquisition by any
person of beneficial ownership of 50% or more of the outstanding shares of
Common Stock, provided that neither such event shall constitute a Repurchase
Event unless a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event. The parties hereto agree that Issuer's obligations
to repurchase the Option or Option Shares under this Section 7 shall not
terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event and subject to the provisions of Section 7(a). Prior
to the occurrence of any Repurchase Event, the Issuer shall notify in writing
the Holder and each Owner of such Repurchase Event.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer shall be continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding voting shares
and voting share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its Subsidiaries, then, and in each such cases the
agreement governing such transactions shall make proper provisions so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of holder, of either (x) the
-----------------
Acquiring Corporation (as hereinafter defined or (y) any person that controls
the Acquiring Corporation.
(b) The following terms have the meaning indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing
---------------------
or surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or substantially all of Issuer's assets.
9
<PAGE>
(ii) "Substitute Common Stock" shall mean the common stock
-----------------------
issued by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as
--------------
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of a
-------------
share of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect to a share
of common stock issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as Holder may elect,
(c) The Substitute Option shall have the same terms as the Option;
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible to those
of the Option and in no event less advantageous to Holder of the Option. The
issuer of the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form as
this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
-----------------
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
- ------
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
10
<PAGE>
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
------------------------
Substitute Option from the Substitute Option Holder at a price (the "Substitute
----------
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
- -----------------------
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for which
the Substitute Option may then be exercised, and at the request of the owner
(the "Substitute Share Owner") of shares of Substitute Common Stock (the
----------------------
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
-----------------
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal to
---------------------------------
the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean the highest closing
---------------------
price for shares of Substitute Common Stock within the six-month period
immediately preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, as its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder for the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices related
thereto, the Substitute Option Issuer shall deliver or cause to be delivered to
the Substitute Option Holder the Substitute Option Repurchase Price and/or to
the Substitute Share Owner the Substitute Share Repurchase Price therefor or, in
either case, the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or in full, the Substitute Option Issuer
following a request to repurchase pursuant to this Section 9 shall immediately
so notify the Substitute Option Holder and/or the Substitute Share Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, with five business days after the date on
which the Substitute Option Issuer is no
11
<PAGE>
longer so prohibited; provided, however, that if the Substitute Option Issuer is
at any time after delivery of a notice of repurchase pursuant to subsection (b)
of this Section 9 prohibited under applicable law or regulation from delivering
to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, in full (and the Substitute Option Issuer shall
use its reasonable best efforts to obtain all required regulatory and legal
approvals, in each case as promptly as practicable, in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Common Shares it is then so prohibited from repurchasing.
10. The 90-day period for exercise of certain rights Sections 2, 6, 7 and
13 shall be extended: (i) to the extent necessary to obtain all legal and
regulatory approvals for the exercise of such rights (for so long as the Holder,
Owner, Substitute Option Holder or Substitute Share Owner, as the case may be,
is using its reasonable best efforts to obtain such regulatory approvals) and
for the expiration of all statutory waiting periods; (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise, and (iii) during any period in which Grantee is precluded from
exercising such rights due to an injunction or other legal restriction, plus in
each case such additional period as is reasonably necessary for the exercise of
such rights promptly following the obtaining of such approvals or the expiration
of such periods.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
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 Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
12
<PAGE>
(b) Issuer has taken all necessary corporate and other action to
authorize and reserve and to 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, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
charges, encumbrance and security interests of any kind or nature whatsoever and
not subject to any preemptive rights.
(c) The execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby and compliance by Issuer with any of the
provisions hereof will not (i) conflict with or result in a breach of any
provision of its charter or bylaws or a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, debenture, mortgage, indenture, license, material
agreement or other material instrument or obligation to which Issuer is a party,
or by which it or any of its properties or assets may be bound, or (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Issuer or any of its properties or assets.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations under this Agreement or the
Option created hereunder within 90 days following such Subsequent Triggering
Event (or such later period as provided in Section 10); provided, however, that
until the date 15 days following the date on which the Federal Reserve Board
approves an application by Grantee under the BHCA to acquire the shares of
Common Stock subject to the Option, Grantee may not assign its rights under the
Option except in (i) a widely dispersed
13
<PAGE>
public distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the voting shares of Issuer, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's behalf
or (iv) any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its reasonable 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
contemplate by this Agreement, including without limitation making application
to list or quote the shares of Common Stock issuable hereunder on any stock
exchange or quotation system on which the Common Stock is then listed or quoted
and applying to the Federal Reserve Board under the BHCA for approval to acquire
the shares issuable hereunder.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto, that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or was otherwise breached, and
that the parties will be entitled to equitable relief hereunder, including,
without limitation, an injunction or injunctions to prevent and enjoin breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof, in addition to any other remedy at law or in equity to which
they may be entitled at law or in equity. Any requirements for the securing or
posting of any bond with respect to any such remedy are hereby waived.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or other governmental authority of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions and covenants and restrictions contained in this Agreement shall
remain in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or governmental authority determines
that Holder is not permitted to acquire, or Issuer or Substitute Option Issuer,
as the case may be, is not permitted to repurchase pursuant to Section 7 or
Section 9, as the case may be, the full number of shares of Common Stock
provided in Section 1(a) (as adjusted pursuant to Section 1(b) or 5), it is the
express intention of Issuer (which shall be binding on the Substitute Option
Issuer) to allow Holder to acquire or to require Issuer or Substitute Option
Issuer, as the case my be, to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
overnight courier, by cable, telegram, telecopy or telex, or by registered or
certified mail (postage prepaid, return receipt requested) at the respective
addresses of the parties set forth in the Merger Agreement.
14
<PAGE>
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
19. 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.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the respective meanings assigned thereto in the Merger Agreement.
[Remainder of page left blank intentionally.]
15
<PAGE>
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 date first above written.
CHITTENDEN CORPORATION
By: /s/ Paul A. Perrault
---------------------------------
Name: Paul A. Perrault
Title: Chief Executive Officer
VERMONT FINANCIAL SERVICES CORP.
By: /s/ John D. Hashagen, Jr.
--------------------------------
Name: John D. Hashagen, Jr.
Title: President
16
<PAGE>
Exhibit 99.1
December 16, 1998
FOR IMMEDIATE RELEASE 87/98
CHITTENDEN CORPORATION TO ACQUIRE VERMONT FINANCIAL SERVICES CORP. IN A COMMON
- ------------------------------------------------------------------------------
STOCK TRANSACTION VALUED AT $454 MILLION
- ----------------------------------------
Burlington, VT - Chittenden Corporation (NYSE: CHZ) and Vermont Financial
Services Corp. (NASDAQ: VFSC) jointly announced today that they have signed a
definitive merger agreement whereby Chittenden would acquire Vermont Financial
in a stock-for-stock merger valued at approximately $454 million. Vermont
Financial is the parent company of Vermont National Bank, headquartered in
Brattleboro, Vermont and United Bank, headquartered in Greenfield,
Massachusetts.
Under the terms of the agreement, each share of Vermont Financial common stock
will be converted into Chittenden common stock at a fixed exchange ratio of 1.07
shares of Chittenden common stock for each share of Vermont Financial common
stock. Approximately 14 million shares of Chittenden common stock will be issued
in the transaction, which will be a tax-free reorganization and accounted for as
a pooling-of-interests. Chittenden and Vermont Financial have rescinded their
respective share repurchase plans. The transaction is expected to close in the
second quarter of 1999, following the receipt of all regulatory approvals, as
well as approval of shareholders of each company. In connection with regulatory
approvals, it is anticipated that Chittenden will be required to divest certain
branches. In accordance with the merger agreement, Vermont Financial granted
Chittenden an option to acquire under certain terms and conditions up to 19.9%
of Vermont Financial's outstanding shares at $22.00 per share. The option was
granted as an inducement to Chittenden's willingness to enter into the merger
agreement.
Vermont Financial had total assets of $2.1 billion, deposits of $1.8 billion,
and stockholders' equity of $215 million at September 30, 1998. It presently
operates 64 banking offices in Vermont, southern New Hampshire, and western
Massachusetts. It earned $13.9 million or $1.05 per share in the nine-month
period ended September 30, 1998. Following completion of the transaction,
Chittenden would have on a pro forma basis approximately $4.2 billion in assets
(including $2.8 billion in loans), $3.6 billion in deposits, and stockholders'
equity of $388 million.
In announcing the agreement, Paul A. Perrault, Chittenden's Chairman, President,
and Chief Executive Officer said, "This transaction provides an excellent
opportunity for Chittenden to greatly enhance shareholder returns in a classic
in-market combination. We expect the transaction to provide significant cost
savings resulting from
more-
<PAGE>
CHITTENDEN CORPORATION TO ACQUIRE VERMONT FINANCIAL SERVICES CORP.
- --------------------------------------------------------------------------------
Page Two
economies of scale in the common product lines of Chittenden and Vermont
Financial. Customers of the combined organizations will benefit from the
expanded and proven product lines and its greater capacity. The transaction
provides for the retention of a strong Vermont-based banking company well
positioned for further initiatives throughout the Northeast. It also provides
more and better employment opportunities in Vermont as we continue adding
customers outside Vermont. In the short-run, the transition will significantly
enhance Chittenden's Vermont and western Massachusetts franchises while
providing an entree into the southern New Hampshire market."
John D. Hashagen, Jr, President and Chief Executive Officer of Vermont Financial
stated, "The combination of our two organizations will produce one of the
strongest and most diversified New England-based commercial banking companies
with the managerial and financial expertise to compete in our markets with much
larger companies. The transaction provides Vermont Financial's shareholders with
an excellent value for their holdings and allows them to continue their interest
in a premier regional banking company. Customers can expect to continue
receiving exemplary banking services and an expanded product offering."
Chittenden plans an analyst conference call for Thursday, December 17, 1998 at
11:00 A.M. EDT, to elaborate on the strategic rationale and financial
implications of the transaction. The telephone number to call in the United
States is (800) 865-4460, while the international number is (973) 633-1010. The
access code is "Chittenden Bank." For a taped rebroadcast of the call that will
be played continuously for 24 hours, the number in the United States is (888)
298-2145, or Internationally (402) 220-9158.
This press release contains certain forward looking statements with respect to
the financial condition, results of operation and business of Chittenden
Corporation following the consummation of the merger that are subject to various
factors which could cause actual results to differ materially from such
projections or estimates. Such factors include, but are not limited to, the
following possibilities: 1) expected cost savings from the merger cannot be
fully realized or realized within the expected timeframes; 2) revenues following
the merger are lower than expected or deposit attrition, required divestitures,
operating costs or customer loss and business interruption following the merger
may be greater than expected; 3) competitive pressures among financial services
companies increase significantly; 4) costs of difficulties related to the
integration of the businesses of Chittenden Corporation or Vermont Financial
Services Corp. are greater than expected; 5) changes in the interest rate
environment reduces interest margins; 6) general economic conditions, either
internationally, nationally, or in the states in which the combined company will
be doing business, are less favorable than expected; 7) changes may occur in the
securities market; 8) technological changes (including "Year 2000" data systems
compliance issues); and 9) legislation or regulatory changes adversely affect
the business in which the combined company would be engaged.
Chittenden is a bank holding company headquartered in Burlington, Vermont, with
total assets of $2.1 billion at September 30, 1998. Its subsidiary banks are
Chittenden Bank, The Bank of Western Massachusetts, and Flagship Bank and Trust
Company. The Company offers a broad range of financial products and services,
including deposit accounts and services; consumer, commercial, and public sector
loans; insurance; and investment and trust services to individuals, businesses,
and the public sector. To find out more about Chittenden and its products, visit
our web site at www.chittenden.com.
<PAGE>
Exhibit 99.2
[LOGO OF CHITTENDEN CORPORATION APPEARS HERE]
Announces Strategic Acquisition of
--------------
VFSC
- --------------------------------------------------------------------------------
Vermont Financial Services Corp
December 16, 1998
- --------------------------------------------------------------------------------
Conference Call Logistics
Chittenden Corporation will host a conference call at 11:00 a.m. EDT, December
17, 1998. The number to call in the United States is (800) 865-4460, or
International Access (973) 633-1010 Code: "Chittenden Bank".
For a taped rebroadcast that will be continuously played for 24 hours the number
to be called in the United States is (888)298-2145, or International (402) 220-
9158.
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE]
1
<PAGE>
Forward Looking Statements
This presentation contains certain forward looking statements with respect to
the financial conditions, results of operations and businesses of Chittenden
Corporation following the consummation of the merger, that are subject to
various factors which could cause actual results to differ materially from such
projections or estimates. Such factors include but, are not limited to, the
following possibilities: 1) expected cost savings from the merger cannot be
fully realized or realized within the expected timeframe; 2) revenues following
the merger are lower than expected or deposit attrition, required divestitures,
operating costs or customer loss and business interruption following the merger
maybe greater than expected; 3) competitive pressures among financial services
companies increase significantly; 4) costs of difficulties related to the
integration of the businesses of Chittenden Corporation or Vermont Financial are
greater than expected; 5) changes in the interest rate environment reduce
interest margins; 6) general economic conditions, either internationally,
nationally or in the states in which the combined company will be doing
business, are less favorable than expected; 7) changes may occur in the
securities market; 8) technological changes (including "Year 2000" data systems
compliance issues); and 9) legislation or regulatory changes (including the
impact of any divestitures) adversely affect the business in which the combined
company would be engaged.
[LOGO APPEARS HERE]
2
<PAGE>
A Compelling Combination
. Double digit accretion to EPS for year 2000
. Creates a strong and diversified New England commercial banking company
. Provides retention of a strong Vermont based banking company positioned for
strategic opportunities throughout the Northeast
. Complementary business lines in commercial and community banking, trust and
asset management services, automobile lending, mortgage banking and merchant
processing
. Significantly enhances the Vermont and Western Massachusetts franchises and
provides an entree into Southern New Hampshire
. Leverages CHZ's platform to accelerate proven organic growth
. Consolidation of scalable businesses offers opportunities to improve margins
. Market capitalization of CHZ increases from $467.5 million to $921.2
million*; VFSC stockholders become stockholders in a NYSE-listed company
* Based on CHZ closing price of $33.00 on December 14, 1998
[LOGO APPEARS HERE]
3
<PAGE>
Deal Economics and Structure
. Deal price of $35.31 per share*
. Accretive in Year 2000 on cost-savings alone
. Total transaction value of $453.7 million
. Fixed exchange ratio of 1.07 CHZ common shares for each VFSC common share
. Pooling of interests accounting
. Tax free exchange
. No caps or collars
. Two trigger walkaway: 20% decline in CHZ stock price and 12% decline in CHZ
stock price relative to an index of northeast bank holding companies, with
an ability to cure
. Six VFSC directors to join CHZ board
. Stock option on 19.9% of VFSC shares at $22.00/share
. One time charges of $25 million to $32 million, on an after-tax basis
* Based on CHZ closing price of $33.00 on December 14, 1998
[LOGO APPEARS HERE]
4
<PAGE>
Deal Pricing
CHZ/VFSC Merger (a)
-------------------
Price to 1998 IBES (b) 23.5x
Price to 1999 IBES 19.6x
Price to book value 212.2%
Price to tangible book value 291.1%
Price to deposits 25.9%
(a) Based on CHZ closing price of $33.00 on December 14, 1998
(b) Based on the median IBES estimate on December 14, 1998
Deal Status
. Due diligence completed, including year 2000 review
. Definitive agreement signed
. Pending regulatory and shareholder approvals
. Targeting completion in the 2nd Quarter of 1999
[LOGO APPEARS HERE]
5
<PAGE>
Snapshot of CHZ/VFSC combination
. $4.2 billion in assets
. $2.8 billion in loans with $1.2 billion in commercial and commercial real
estate loans
. $3.6 billion in deposits with $2.5 billion in core/non CD deposits
. 7.6% tangible equity/assets ratio
. $9.5 million in trust and investment management revenue through September 30,
1998 from $4.7 billion in assets administered
. $3.0 million through September 30, 1998 in merchant processing income from
12,108 accounts
. $264 million in automobile loans and leases - all within the franchise
. $675 million in residential loan originations through September 30, 1998
. 111 retail banking offices - 84 in Vermont, 12 in Western Massachusetts, 5 in
Central Massachusetts, and 10 in New Hampshire
All amounts are on a pro forma basis
[LOGO APPEARS HERE]
6
<PAGE>
Expanded Branch Network (Pro Forma)
================================================================================
[MAP APPEARS HERE]
- -------------------------------------------
LEGEND
- -------------------------------------------
[_] Chittenden Corporation
[_] Vermont Financial Services Corp
- -------------------------------------------
[LOGO APPEARS HERE]
7
<PAGE>
Pro Forma Highlights
September 30, 1998
================================================================================
($ in millions, Chittenden Vermont Financial Pro Forma
except per share amounts) Corporation Services Corp. Combined
-----------------------------------------------------
Assets $2,049 $2,110 $4,159
Investments 402 517 919
Loans 1,418 1,343 2,761
Deposits 1,803 1,754 3,557
Equity 173 215 388
Goodwill 10 58 68
Leverage Ratio 7.53% 7.44% 7.49%
Book Value per share 12.18 16.64 13.84
Tangible Book Value per share 11.28 12.12 11.30
[LOGO APPEARS HERE]
8
<PAGE>
Balanced Loan Portfolio
(at September 30, 1998)
- --------------------------------------------------------------------------------
Vermont Pro Forma % of
($ in millions) Chittenden Financial Combined Total
---------- --------- -------- -----
Commercial $406 $203 $609 22.1%
Commercial RE 342 270 612 22.2
Residential RE 393 754 1,147 41.5
Consumer* 277 116 393 14.2
--- --- --- ----
Total Loans $1,418 $1,343 $2,761 100%
* Net of unearned discount
[LOGO APPEARS HERE]
9
<PAGE>
A Diversified Loan Portfolio of Excellent Quality
- -------------------------------------------------
[PIE CHART APPEARS HERE]
Consumer 14.2%
Commercial 22.1%
Commercial Real Estate 22.2%
Residential Real Estate 41.5%
Total Loans at September 30, 1998 were $2,761 million
[LOGO APPEARS HERE]
10
<PAGE>
Diversified Sources of Funding
(at September 30, 1998)
- --------------------------------------------------------------------------------
Vermont Pro Forma % of
($ in millions) Chittenden Financial Combined Total
---------- --------- -------- -----
Demand & NOW $485 $322 $807 21.8%
Savings & Money Market 794 923 1,717 46.2
CDs under $100,000 399 423 822 22.1
CDs over $100,000 125 86 211 5.7
Borrowings 41 116 157 4.2
-- --- --- ---
Total Funding $1,844 $1,870 $3,714 100%
[LOGO APPEARS HERE]
11
<PAGE>
Strong Core Funding
- -------------------
[PIE CHART APPEARS HERE]
Borrowings 4.2%
Demand Deposits & NOW 21.8%
Savings, MM 46.2%
CDs less than $100,000 22.1%
CDs greater than $100,000 5.7%
Total Funding at September 30, 1998 was $3,714 million
[LOGO APPEARS HERE]
12
<PAGE>
Diversified Stream of NonInterest Income
Nine months ended September 30, 1998
- --------------------------------------------------------------------------------
Vermont Pro Forma % of
($ in thousands) Chittenden Financial Combined Total
---------- --------- -------- -----
Trust & Investment Mgmt $4,826 $4,678 $9,504 18.8%
Service charges on deposits 5,264 10,475 15,739 31.1
Insurance Commission 2,362 0 2,362 4.7
Merchant/Credit Cards 2,766 1,016 3,782 7.5
Other Income 9,272 9,916 19,188 37.9
----- ----- ------ ----
Total NonInterest Income $24,490 $26,085 $50,575 100%
Percent of Total Revenue 26.4% 29.8% 28.1%
[LOGO APPEARS HERE]
13
<PAGE>
A Strong Diversified Stream of NonInterest Income
- -------------------------------------------------
[PIE CHART APPEARS HERE]
Other Income 37.9%
Merchant/Credit Cards, net 7.5%
Service Charges on Deposits 31.1%
Insurance Commissions 4.7%
Trust & Investment Management 18.8%
Fee Income For the Nine Months Ended September 30, 1998 was $50,575 thousand
[LOGO APPEARS HERE]
14
<PAGE>
Strategic Benefits
CHZ/VFSC MERGER PROVIDES SUBSTANTIAL BENEFITS BY GAINING
ADDITIONAL CRITICAL MASS IN KEY BUSINESS LINES
Pro Forma
($ in millions) CHZ VFSC Combined
--- ---- --------
Commercial loans $ 406 $ 203 $ 609
Automobile loans 224 40 264
Retail deposits 1,803 1,754 3,557
Assets under administration 3,200 1,500 4,700
Residential loan originations* 350 325 675
Residential loan servicing for investors 1,096 1,042 2,138
Merchant processing revenue* 1,988 1,016 3,004
* Year to date as of 9/30/98
[LOGO APPEARS HERE]
15
<PAGE>
Strategic Benefits
ENHANCED BRANCH DISTRIBUTION CHANNELS
Pro Forma
CHZ VFSC Combined
--- ---- --------
Vermont 37 47 84
Western Massachusetts 5 7 12
Central Massachusetts 5 0 5
Southern New Hampshire 0 10 10
- -- --
47 64 111
[LOGO APPEARS HERE]
16
<PAGE>
Strategic Benefits
LOW INTEGRATION RISK
. Data processing systems compatible
. Common IBM architecture and Alltel software minimizes Y2K exposure
. Comparable product and business lines
. Existing presence in Vermont and Massachusetts and the adjacency of New
Hampshire facilitates conversion and limits supply lines exposure
[LOGO APPEARS HERE]
17
<PAGE>
Strategic Plan
. Realize 35% to 40% annual cost savings
. Export CHZ products and culture into VFSC branches
. Expand CHZ asset management services, automobile financing, business
services and asset-based lending into VFSC franchise
. Improve VFSC operational efficiency and product margins by implementing
proven CHZ management techniques throughout the operation and consolidating
all of VFSC operations onto CHZ platforms
[LOGO APPEARS HERE]
18
<PAGE>
Project Cost Savings/Synergies
Target Range
35% - 40%
-----------
. Salaries and benefits $11.5M - $12.5M
. Professional services and other advisory
and professional fees 5.0M - 6.0M
. Facilities, occupancy and equipment contracts 13.5M - 15.5M
-------------
. Benefits before tax 30.0M - 34.0M
. Benefits after tax $19.5M - $22.1M
[LOGO APPEARS HERE]
19
<PAGE>
Estimated One-Time Merger Costs
Severance and management payments $11.0M to $13.0M
Duplicative systems and facilities 16.0M to 20.0M
Advisory and professional fees 6.0M to 7.0M
Conversion and other 2.0M to 5.0M
------------
Costs before tax 35.0M to 45.0M
Costs after tax $24.5M to $31.7M
[LOGO APPEARS HERE]
20
<PAGE>
Deal Accretive on Cost Saves Alone
- --------------------------------------------------------------------------------
10/31/98
1999 Diluted
IBES Shares
---- ------
(in thousands)
CHZ $2.24 * 14,860 * $33,350
VFSC $1.68 ** 14,046 ** 23,647
------ -------
28,906 56,997
Cost savings after tax 19,500
Pro Forma earnings 76,497
=======
Earnings per share $2.65
Based on the IBES median estimate on December 14, 1998
* Difference due to the reissuance of 360,000 shares
** Amounts reflect exchange ratio of 1.07x
[LOGO APPEARS HERE]
21
<PAGE>
Appendix
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE]
22
<PAGE>
Chittenden Corporation
================================================================================
Selected Consolidated Financials
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
YTD
9/30/98 1997 1996 1995 1994
------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Interest income $ 113,670 $ 150,189 $ 142,592 $ 135,103 $ 101,383
Interest expense 45,469 59,545 58,599 56,772 36,088
------------------------------------------------------------------------
Net interest income 68,201 90,644 83,993 78,331 65,295
Provision for loan losses 3,825 4,050 4,183 5,000 5,500
------------------------------------------------------------------------
Net interest income after provision for loan
losses 64,376 86,594 79,810 73,331 59,795
Noninterest income 24,490 28,210 24,920 22,040 19,352
Noninterest expense 54,090 70,072 64,557 61,584 51,393
------------------------------------------------------------------------
Income before income taxes 34,776 44,732 40,173 33,787 27,754
Provision for income tax 11,906 15,326 13,452 11,656 9,717
------------------------------------------------------------------------
Income before cumulative effect of change in
accounting principle 22,870 29,406 26,721 22,131 18,037
------------------------------------------------------------------------
Net Income $ 22,870 $ 29,406 $ 26,721 $ 22,131 $ 18,037
========================================================================
Balance Sheet Data at Period End:
Total assets $ 2,048,781 $ 1,977,150 $ 1,988,746 $ 1,794,704 $ 1,461,419
Long-term debt 986 2,239 2,540 2,484 1,528
Common shares outstanding 14,199,375 14,421,585 15,345,265 14,972,359 13,581,631
Balance Sheet - Average Daily Balances:
Total assets 1,983,071 1,934,333 1,841,944 1,687,803 1,436,462
Loans, net of unearned income 1,414,308 1,391,234 1,336,185 1,228,948 1,023,399
Investment securities and interest bearing
cash equivalents 449,445 471,767 385,111 348,028 328,296
Total deposits 1,748,932 1,695,953 1,627,834 1,486,500 1,268,338
Total stockholders' equity 165,973 167,568 162,823 138,641 115,442
Per Common Share:
earnings $1.59 $1.99 $1.75 $1.50 $1.28
Diluted earnings 1.55 1.94 1.72 1.47 1.26
Total cash dividends declared 0.58 1.29 0.57 0.32 0.22
Book value 12.18 11.25 11.37 10.28 8.34
Weighted average common shares outstanding 14,346,070 14,812,208 15,228,820 14,763,133 14,087,763
Weighted average common and common
equivalent shares outstanding 14,733,100 15,166,557 15,543,741 15,105,914 14,341,166
</TABLE>
23
<PAGE>
Chittenden Corporation
================================================================================
Selected Financial Percentages:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
YTD
9/30/98 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average total assets 1.54 % 1.52 % 1.45 % 1.31 % 1.25 %
Return on average stockholders' equity 18.40 17.55 16.41 15.96 15.62
Interest rate spread 4.19 4.31 4.23 4.34 4.37
Net yield on earning assets 5.01 5.11 4.99 5.08 4.95
Net charge offs as a percent of average loans 0.42 0.39 0.29 0.28 0.49
Nonperforming assets ratio (1) 0.80 0.56 0.99 1.19 1.03
Period end leverage capital ratio 7.53 7.43 8.58 8.05 8.10
Risked based capital ratios:
Tier 1 9.75 9.86 11.71 11.16 11.40
Total 11.04 11.17 13.06 12.53 12.76
Average stockholders' equity to average assets 8.44 8.66 8.84 8.21 8.03
Common stock dividend payout ratio (2) 36.42 64.25 32.73 21.71 17.38
</TABLE>
(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; dividends
declared during 1997 include a special cash dividend of $0.60 per share.
24
<PAGE>
Vermont Financial Services Corp.
================================================================================
Selected Consolidated Financials
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
YTD
9/30/98 1997 1996 1995 1994
---------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations :
Interest income $ 111,074 $ 127,878 $ 98,105 $ 96,457 $ 84,391
Interest expense 49,600 55,962 41,351 41,969 33,293
---------------------------------------------------------------------
Net interest income 61,474 71,916 56,754 54,488 51,098
Provision for loan losses 3,135 3,250 3,350 3,900 4,000
---------------------------------------------------------------------
Net interest income after provision for loan
losses 58,339 68,666 53,404 50,588 47,098
Other operating income 28,080 28,552 19,161 17,549 16,692
Other operating expense 63,315 70,049 47,411 45,999 46,763
---------------------------------------------------------------------
Income before income taxes 23,104 27,139 25,514 22,138 17,027
Applicable income tax expense 9,200 10,013 8,539 7,241 5,159
---------------------------------------------------------------------
Net Income $ 13,904 $ 17,216 $ 16,615 $ 14,897 $ 11,868
=====================================================================
Balance Sheet Data At Period End :
Total assets $ 2,110,300 $ 2,097,452 $ 1,312,981 $ 1,246,669 $ 1,205,421
Loans, net of unearned income 1,343,472 1,314,501 910,436 893,470 911,503
Securities available for sale 517,213 527,649 291,120 249,682 173,865
Total deposits 1,754,145 1,686,172 1,083,258 1,033,957 1,012,869
Stockholders' equity 214,517 213,596 119,717 111,833 90,457
Per Share Data :
Basic earnings $ 1.05 $ 1.52 $ 1.79 $ 1.60 $ 1.30
Diluted earnings 1.05 1.51 1.77 1.59 1.29
Total cash dividends declared 0.17 0.60 0.53 0.43 0.27
Tangible book value at period end, diluted (1) 12.12 11.48 11.87 11.24 9.18
Average basic shares outstanding 13,187,133 11,257,292 9,284,890 9,295,341 9,142,060
Average diluted shares outstanding 13,289,381 11,364,920 9,364,601 9,354,772 9,232,973
</TABLE>
25
<PAGE>
Vermont Financial Services Corp.
================================================================================
Selected Financial Ratios
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
YTD
9/30/98 1997 1996 1995 1994
----------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Return on average total assets (2) 0.66 % 1.00 % 1.31 % 1.23 % 1.00 %
Return on average stockholders' equity (3) 6.56 10.22 14.51 14.69 13.23
Net interest margin (4) 4.49 4.70 4.93 4.92 4.74
Cash dividends per share as a percentage of
basic earnings per share 16 38 29 28 21
Average stockholders' equity to average assets 8.07 9.80 9.19 8.69 7.97
Core (leverage) capital ratio at period end (5) 7.62 7.46 8.68 8.77 7.26
Total risk-based capital ratio at period end (6) 13.14 13.24 15.09 14.67 13.03
Allowance for loan losses to period end loans,
net of unearned income -- 1.44 1.50 1.65 1.78
Nonperforming assets to period end
loans plus other real estate owned (7) 1.03 1.50 1.01 1.67 2.32
Net charge-offs to average loans, net of
unearned income -- 0.49 0.50 0.59 0.62
</TABLE>
(1) Equal to stockholders equity less intangibles divided by end of period
shares outstanding.
(2) Based on average total assets after adjustment for unrealized gain (loss) on
securities available for sale.
(3) Based on average total equity after adjustment for unrealized gain (loss) on
securities available for sale.
(4) Net interest income stated on a fully taxable equivalent basis divided by
average earning assets.
(5) Equal to stockholders' equity less intangibles divided by total assets less
intangibles.
(6) Equal to stockholders' equity less intangibles plus the allowable portion of
the allowance for loan losses divided by total risk weighed assets.
(7) Nonperforming assets include nonaccrual loans, restructured loans and other
real estate owned.
1997 data is reflective of the acquisition of Eastern Bancorp.
26
